AUTHOR: Ankhbileg Khurelbaatar, Enkhbayar Choijil, Bayansan Purev
PUBLISHED IN: Volume 6 Issue 1
KEYWORDS:Cognitive Biases; Financial Literacy; Investor Sentiment; Investment Decision-Making; Emerging Markets; Mongolia
ABSTRACT
This study explores how cognitive biases shape investment decision-making by explicitly examining the mediating roles of financial literacy and investor sentiment within an emerging market environment. Drawing on primary survey data from 529 individual investors in Mongolia collected in 2025, the analysis employs Partial Least Squares Structural Equation Modeling (PLS-SEM) to evaluate both direct and indirect behavioral relationships. The findings indicate that cognitive biases do not influence investment decisions in a uniform manner. Anchoring bias and availability bias show no significant direct or mediated effects through financial literacy or investor sentiment, suggesting that these heuristics function mainly as context-dependent judgmental shortcuts. In contrast, mental accounting and representativeness bias exert statistically significant indirect effects on investment decision-making through both cognitive and affective channels. Financial literacy and investor sentiment emerge as key determinants of decision quality, highlighting the importance of knowledge-based capacity and psychological factors in shaping investor behavior. By modeling behavioral transmission mechanisms rather than focusing solely on bias existence, the study offers a more nuanced explanation of how investor rationality is constrained and reinforced. The results provide novel empirical evidence from Mongolia and contribute to behavioral finance research by clarifying the conditions under which cognitive biases become decision-relevant in emerging financial markets.
DOI: https://doi.org/10.65194/IJBI-2026-1005
