Complex interactions between market dynamics and investor psychology leads to formation of financial bubbles and crashes in the capital market. The study involved an empirical analysis of how psychological factors like risky behaviour, overconfidence bias, and herd behaviour collectively shape investment performance during periods of ups and downs in the markets. Primary data was collected from 100 respondents from Western Mumbai, through a structured questionnaire. This research is based on behavioural finance framework to examine how these cognitive and emotional biases lead to wrong risk perception, inflate asset valuations, and impact returns on investments. The study reflects that increasing risk-taking tendencies, mis calibrated confidence in personal judgment, and conformity-driven decision patterns significantly affects the investment performance. These findings stress the critical role of psychological factors in driving market inefficiencies and emphasize the urge for integrating behavioural insights into investment strategy, policy design, and risk management systems..
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