The Role of Fundamental, Technical, and Behavioral Factors in Investors’ Trading Decisions: Key Drivers Analysis

In the capital market, investment decisions are influenced by various factors, each contributing distinctly to investors' decision-making processes. The primary objective of this research is to identify the impact of fundamental (at both macro and market levels), technical, and behavioral factors on trading decisions made by investors in the Tehran Stock Exchange based on monthly data from 2019 to 2023. For this purpose, a Vector Error Correction Model (VECM) methodology has been employed. The results of the cointegration test indicated that in the long term, the effects of behavioral factor (fear and greed index) and market fundamental factor (P/E ratio) on investor decisions were negative, while the impact of macroeconomic fundamental factor (exchange rate) was positive, and technical factor (RSI index) had no significant effect. Moreover, impulse response analysis demonstrated that shocks in behavioral, fundamental, and technical variables had a strong influence on investor decisions in the short term. Among these variables, the effect of market fundamentals was significantly greater than that of others. Variance decomposition tests also revealed that during initial periods (short term), behavioral factors have a more pronounced impact on fluctuations in investment decisions compared to other factors; however, as time progresses (long term), the influence of market fundamentals becomes more prominent. Additionally, both in short-term and long-term analyses, technical factors played a minimal role in explaining fluctuations in investors' decision-making processes.