How Investors Attitudes Shape Stock Market Participation in the Presence of Financial Self-Efficacy.

Muhammad Asif Nadeem,Mian Sajid Nazir,Khurram Shehzad,Muhammad Ali Jibran Qamar,Israr Ahmad,Anton Timoshin

doi:10.3389/fpsyg.2020.553351

Abstract

The purpose of this study is to investigate how investor’s money attitudes shape their stock market participation (SMP) decisions. This study followed the theory of planned behavior (TPB), and a survey was conducted to collect the responses from active investors. Structural equation modeling (SEM) was used for the analysis of proposed relationships among the constructs, and a confirmatory factor analysis (CFA) was conducted to check the interrelation of the variables and validity of the constructs. This research has concluded that investor’s money attitudes are significant to affect their stock market participation decisions. Further, it was found that risk attitudes partially mediate the relationship between money attitudes and stock market participation. Moreover, financial knowledge and financial self-efficacy positively moderated the relationship between money attitudes and stock market participation. This research is one of the early attempts at studying the money attitudes of investors and introduces financial self-efficacy as a moderating construct between money attitudes and stock market participation. The sample size for this study was 250 respondents which can be increased in future research, and the same relationships can be tested by using a larger sample. Moreover, this study has used money attitudes as predictors of stock market participation. Still, many other variables, like personal value, can also be taken to investigate their influence on stock market participation.

Highlights

Behavioral finance is knowing investor’s psychology related to financial decisions and is a combination of two disciplines, i.e., psychology and economics
This research is an attempt to better understand why and when investors decide to participate in the stock market and whether their participation decisions are differentiated by their risk attitudes, financial knowledge, and financial self-efficacy
This study has provided evidence that investor’s stock market participation decisions are influenced by distinct psychological factors like money attitudes, risk attitudes, and financial selfefficacy

Summary

Introduction

Behavioral finance is knowing investor’s psychology related to financial decisions and is a combination of two disciplines, i.e., psychology and economics. This combination clarifies why and how people make irrational financial decisions when they save, invest, spent, and borrow money (Belsky and Gilovich, 1999). It is a blend of personal and social psychology principles with traditional finance theory to investigate and emphasize the stock market performance. Behavioral finance theory relies on how the thinking process and cognitive errors impact investor choice and prices of the stock exchange (Dam, 2017). Previous studies have identified several factors that shape participation in the stock market, including demographics, education, social capital, income level, IQ level, investment knowledge, optimistic beliefs, financial literacy, peer effects, financial self-efficacy, stock market experiences, herding, heuristics, and cultural factors (Hong et al, 2004; Campbell, 2006; Brown et al, 2008; Georgarakos and Pasini, 2011; Grinblatt et al, 2011; Hurd et al, 2011; Malmendier and Nagel, 2011; Van Rooij et al, 2011; Bonaparte and Kumar, 2013; Calvet and Sodini, 2014; Kengatharan and Kengatharan, 2014; Li, 2014; Arrondel et al, 2015; Balloch et al, 2015; Gao, 2015; Gao et al, 2019; Liivamägi et al, 2019; Zou and Deng, 2019)

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