Cultural Value Orientation and Stock Trading Behavior: A Study of Individual Investors from India

Abstract

Cross-cultural studies in finance have often used country-wise data for cultural values. Our objective was to understand how individual differences in cultural values affect an investor's stock trading behavior in an emerging market. Based on the theory of planned behavior, we conceptualized a model for intention to participate in the stock market. A structured questionnaire was designed and used to collect primary data for 259 respondents from India. Partial least square structural equation modeling was used to estimate path coefficients. Perceived financial efficacy and risk tolerance are the key factors that positively affected the intention to participate. Among cultural variables, uncertainty avoidance positively affected long term orientation, which in turn positively affected financial efficacy. Thus their effect on participation was indirect but positive. Power distance and social influence had direct positive effects. Males, younger adults, high-income individuals, and those living outside India were more likely to participate in the stock market. We estimated a second model to see how cultural values affect stock market engagement. Unlike the participation model, uncertainty avoidance and long term orientation negatively affected engagement. Collectivism had a positive effect when mediated through perceived financial efficacy and a negative effect when mediated through risk tolerance. Our final research question was to understand how cultural values affect the motives for investing. Individuals with long term orientation invested for high returns, while those high on uncertainty avoidance looked for portfolio diversification. Individuals who scored high on power distance or masculinity invested for thrill-seeking and social motives. Our results provide interesting and new insights into how intra-cultural variations affect participation and engagement in the stock market of an emerging economy.