Open Access
Article
SciPap-2242
Herding Behavior, Risk Perception, and Investment Performance: A Serial Mediation Analysis
by
Phul Prasad Subedi 1,*, Dilli Raj Sharma 2 
and Bhumiswor Sharma 3,*
1 Faculty of Management, Tribhuvan University, Kathmandu, Kathmandu, Nepal 44600, Nepal
2 Faculty of Management, Tribhuvan University, Kritipur, Kathmandu, Kathmandu, Nepal 44600, Nepal
3 Faculty of Management, Tribhuvan University, Kalanki, Kathmandu, Kathmandu, Nepal 44600, Nepal
* Authors to whom correspondence should be addressed.
Abstract: This study examines the impact of herd behavior on investment performance by investigating the serial mediating effects of perceived risk and investment decisions, drawing on the principles of behavioral finance theory. Using a cross-sectional design, data were collected through a structured questionnaire from 640 investors in the Nepal Stock Exchange (NEPSE) and analyzed with SPSS AMOS, applying SEM and Hayes' Process Macros to test the hypotheses. The results reveal that herding behavior has a non-significant direct effect on investment performance (IP) (β = 0.064, p = 0.138) but significantly affects IP indirectly through risk perception (RP) (β = 0.086, p 0.001) and investment decisions (ID) (β = 0.035, p 0.001). The serial mediation pathway via RP → ID significantly transmits the influence of herding on investors' performance (β = 0.028, p 0.001). The study contributes to behavioral finance theory by extending the basic mediation model to include risk perception and investment choices as serial mediators in the Nepalese context, which has been rarely examined before. Practically, the findings offer valuable insights for constructing robust investment models, raising awareness of behavioral biases, and informing investors, researchers, and policymakers in the development of more effective strategies and policies.
Keywords: Behavioral Finance, Risk Perception, Investment Decisions, Investment Performance, Herding Behavior, Nepal Stock Exchange
JEL classification: D22 - Firm Behavior: Empirical Analysis, G11 - Portfolio Choice • Investment Decisions, G14 - Information and Market Efficiency • Event Studies • Insider Trading, G32 - Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill, G4 - Behavioral Finance
Received: 20 March 2025 / Revised: 20 September 2025 / Accepted: 25 September 2025 / Published: 29 September 2025
