Behavior Of Individual Investors Research Articles

Demographic Factors and Herding Behaviour of Investors: Moderating Role of Islamic Religiosity

Investors indulge in biases while making investment decision because investment decision making in stock market is a difficult process. One of the factors that affect risk taking behaviour of individual investors is Demographic factor. However, little work has been done to investigate the effect of demographic factors on herding behaviour of individual investors of Pakistan stock exchange. Therefore, the ultimate aim of this study is to highlight the role of the effect of demographic factors on herding behavior of investors with moderating role of Islamic religiosity. Quantitative research method was employed and data collected was collected from 166 individual investors by using survey questionnaires. Convenience sampling method was used to collect the data. Partial Least Squares analysis was conducted to test the hypotheses. The findings of this study directed that Islamic religiosity moderate the relationship of demographic factors with herding behaviour. This study is contributed a new empirical insights on behaviour of Pakistan stock market’s investors, therefore the results of this study have implications for policy makers of Pakistan stock exchange (PSX) while they making the strategies related to investment.

Terror attacks and individual investor behavior: Evidence from the 2015–2017 European terror attacks

We study how terrorism impacts individual investor behavior. We utilize international brokerage data to study how individual investors react in the immediate aftermath of a terror attack. We focus on seven major terror attacks that occurred during the European terror attacks of 2015–2017. We find that investors lower their trading activity, use less leverage, and engage in less short selling. This effect is observed on a worldwide basis, with the effects being stronger in the country of attack. The changes in investor behavior can be explained by increased risk aversion and personal loss experiences. The decrease in trading activity leads to an increase in investors’ return on investments.

The Variation in Variance Risk Premium and its Predictive Power: Evidence from Option Market Sentiments

We show that the highly volatile variance risk premium (VRP) can be theoretically and empirically reconciled with investor sentiment captured by temporary variation in risk aversion. In an effort to understand the poor predictive power of the VRP in non-U.S. markets, we propose a new investor sentiment index, the Variance Sentiment Index(VSI), obtained from the trading behavior of individual investors. We show that the VSI predicts local return dynamics, in a similar way to what the VRP does in the U.S. market. Moreover, the VSI does not lose its predictive power even in the presence of the global VRP.

DETERMINATION OF FACTORS EXERTING INFLUENCE ON INVESTMENT BEHAVIOR WITH SPECIAL FOCUS ON WORKING WOMEN

Investors are most important segment of financial markets. In fact, the vast majority of the money that is at work in the financial markets belongs to investors. Hence the stability of financial system and markets of any country depends on the decisions and behaviors of Investors at financial markets. The influence of retail increasing day by day as they have started to taking care of their portfolio’s on their own. Hence it is imperative to have in-depth knowledge of factors exerting influence on investment behavior. According to previous research studies, investment behavior of individual investors is often influenced by set of factors. These factors may be internal or/and external environmental factors. The objective of this research paper was to identify the key factors influencing investment behavior investors with special focus on working women. The objective has been achieved with the help of previous empirical researches on women investment behavior and also confirmed through the survey results of the study conducted on 480 working women of Hyderabad Karnataka Region, Karnataka KEY WORDS: Investment, Individual Investors, Investment Behavior, Factors influencing Investment Behvior etc.

Mutual relevance of investor sentiment and finance by modeling coupled stochastic systems with MARS

Stochastic differential equations (SDEs) rapidly become one of the most well-known formats in which to express such diverse mathematical models under uncertainty such as financial models, neural systems, behavioral and neural responses, human reactions and behaviors. They belong to the main methods to describe randomness of a dynamical model today. In a financial system, different kinds of SDEs have been elaborated to model various financial assets. On the other hand, economists have conducted research on several empirical phenomena regarding the behaviour of individual investors, such as how their emotions and opinions influence their decisions. All those emotions and opinions are described by the word Sentiment. In finance, stochastic changes might occur according to investors’ sentiment levels. In our study, we aim to represent the mutual effects between some financial process and investors’ sentiment with constructing a coupled system of non-autonomous SDEs, evolving in time. These equations are hard to assess and solve. Therefore, we express them in a simplified manner by discretization and Multivariate Adaptive Regression Splines (MARS) model. MARS is a strong method for flexible regression and classification with interactive variables. Hereby, we treat time as another spatial variable. Eventually, we present a modern application with real-world data. This study finishes with a conclusion and an outlook towards future studies.

Digital Technology: An Influential Factor in Investment Decision Making

The purpose of this study is to present a conceptual framework for thinking about the role of digital technology and highlights the factors which influence the investors to make the investment decision. Researchers examined the change found in the behavior of individual investors before and after digitalization. Researchers have also identified the various benefits which an investor derives from the use of digital technology as it’s an open platform to compare available investment solutions, possibility of easy comparison of return, internet posting to choose investment related options, self decision to make investment without human involvement which showcase the influence of the information (available through internet via websites application) on the behavior of an individual investor i.e. how does he react to particular information received (e.g. what impact internet posting have on the decision of an investor). In addition to this, the use of digital technology has also changed the way of presenting a piece of information to the investors to reach at investment conclusion.

Attention-grabbing stocks and the behavior of individual investors in Brazil

This study complements the existing literature on investor attention with three empirical findings. First, we show that low-activity individual investors are net buyers of stocks appearing on the headlines of news stories that convey no meaningful information about future returns. Second, we document that this buying pressure of some individuals following purely attention-grabbing articles leads to higher short-term returns. Finally, we provide evidence that investors who are more prone to purchase stocks after irrelevant news have poorer stock-picking performance. We hypothesize that individuals tend to narrow their choice set to alternatives that attract attention. Taken together, our findings suggest that the media, just by making some firms more salient, plays an important role in the allocation of individual investors' attention in investment activities.

Financial literacy and behavioural biases of individual investors: empirical evidence of Pakistan stock exchange

Purpose Financial literacy is a crucial element of financial decision-making, exerting significant influence on the behaviour of individual investors, while making budgetary, house financing, stock investing and retirement planning decisions. So, the purpose of this research is to determine the relationship between financial literacy and behavioural biases of individual investors in Pakistan. Design/methodology/approach In this research paper, a sample of 300 observations was obtained through questionnaires from individual investors residing in Lahore and invested in Pakistan Stock Exchange. The data obtained, was passed through Cronbach’s Alpha and Exploratory Factor Analysis (EFA). The hypothesis developed for the research was tested by Pearson’s Chi-square and Ordinal Regression Analysis. Findings The hypothesis testing of the research concluded that there is a negative association between financial literacy and behavioural biases of individual investors. So, it means; with an increase in level of financial literacy, the likelihood of investor facing behavioural biases reduces. It also appeared that male respondents have more financial literacy than female respondents Originality/value Previous studies in the field of finance, identified different factors causing the financial behaviour of individual investor of Pakistan, and also focused on level of financial literacy in Pakistan, but these studies have not emphasized the crucial relationship between financial literacy and behavioural biases of individual investors. Thus, the unique empirical analysis developed in this paper has accentuated the financial literacy as a factor that mitigates behavioural biases of individual investor.

THE IMPACT OF PSYCHOLOGICAL BIASES ON THE DECISION-MAKING OF THE INDIVIDUAL ALBANIAN INVESTOR

The study aims to measure the impact of psychological biases on financial decisions of the albanian individual investor. The paper uses primary data provided through structured interviews with 180 individual investors and one semi-structured interview with an expert of the financial market in Albania. Exploratory Financial Analysis, Cronbach alpha test and descriptive analysis are used through R- software. The analysis and its results conclude a significant presence of psychological biases on the albanian individual investor behaviour. As there is too little research done on this field in Albania, the study informs of the presence of these biases and tries to explain their impact not only on the previous crisis the country has experienced, but also on the current situation of the financial market in the country. Keywords: psychological bias, individual investitor, financial decision-making, financial market.JEL Classifications: G, G4, G41DOI: https://doi.org/10.32479/ijefi.9488

Past behaviour, financial literacy and investment decision-making process of individual investors

PurposeThis study aims to explore the importance of past behaviour and financial literacy in the investment decision-making of individual investors and examines the validity of the theory of planned behaviour in this context.Design/methodology/approachThe study used a self-administered questionnaire and adopted the convenience sampling technique followed by a snowball sampling method for the survey to collect data from the individual investors covering the four distinct states of India. Collected data were analysed on AMOS 20.0 using two-step structural equation modelling (SEM).FindingsResults indicated a significant effect of all the predictive variables. Past behaviour showed no significant direct impact on investor's intention; however, it had an indirect significant relationship while mediated by the attitude of investors. The multiple squared correlation (R2) showed that the final model could explain 36% of the variance in investors' intention towards stock investment which signified a successful implementation of the TPB model along with external variables added to it. Moreover, Indian investors were found to be highly influenced, primarily, by social pressure which could be curbed through financial literacy.Practical implicationsA significant importance of subjective norms was found on stock market participation which could be a strategic theme for the government and the policymakers to educate investors through their opinion leaders for increasing their participation. Moreover, by doing so investors could control their behaviour and take rational decisions.Originality/valueThis study extended the understandings of investor's decision-making behaviour using TPB by incorporating the two external variables viz., Financial literacy and past behaviour. The addition of past behaviour is perhaps the novelty of this article since such examination has not been conducted empirically especially in the case of developing countries like India.

Factors influencing investment decisions of individual investors at Nepal stock exchange

The behavior of individual investors is concerned with choices regarding purchasing small quantities of securities for their own account. Investment options are also supported by decision-making instruments. It Is assumed that information structure and the market related factors systematically affect the investment decisions of individuals as well as market outcomes. The main purpose of the analysis was to identify the factors affecting individual investors’ investment decisions on the Nepal Stock Exchange. The study was conducted on the 214 responses received from the individual investors based on the random sampling method Data for the research were collected using a structured questionnaire distributed to the respondents. The questionnaire constituted 35 items. The respondents were individual investors. In this study, data were analyzed using frequencies, mean scores, standard deviations, percentages, and factor analysis techniques. The study confirmed that there appears to be a certain degree of correlation between the factors defined for the average equity investor by behavioral finance theory and prior empirical evidence. The researcher explored that the most significant factors shaping individual investment decisions were: statement of the government officials, expected capital increase, firm’s status in industry, diversification purpose, the attractiveness of non-stock investment, ease of obtaining borrowed funds, opinions of the firm’s majority stockholders, family member opinions, recent price movement in a firm’s stock, fluctuations in the stock index, rumors, expected corporate eating, stock marketability, the results of technical analysis, the dividend paid, perceived ethics of firm, the reputation of the firm’s shareholders, and feeling for a firm’s product and services. The results of this research will provide an understanding of the different decisions to be taken by investors on the basis of the prevailing factors and the possible consequences of each decision. The analysis would also help to recognize the most significant factors in the behavior of the company’s investors as their potential policies and plans will be impacted as the investment decisions of investors will determine the strategy to be used by the company.

Financial Literacy and Portfolio Diversification: An Empirical Study in Ahmedabad

This research has been undertaken with the purpose of understanding the role of financial literacy in determining the investment behavior of individuals. The study also attempts to draw relationships between demographic factors and financial literacy, as well as investment patterns. Based on empirical evidence, it could be inferred that factors like gender, employment conditions, and household income had a bearing on levels of financial literacy in individuals; additionally, education, age, household income, and marital status had a bearing on decisions related to portfolio design and diversification. At the same time, no significant relationship was found between financial literacy and portfolio diversification. This could be attributed to the fact that many people rely on financial experts for investments and portfolio management. So, although the financial literacy statistic may be alarming, it could also point at a potential growth in services of investment advisers and financial planners. TOPICS:Wealth management, behavioral finance, in portfolio management Key Findings • Gender, Employment and Household Income are related to Financial literacy in individuals. • Past personal experiences, opinions of one’s inner circle, followed by advice from financial advisors/brokers influence decisions pertaining to investments. • Investors with comparatively higher levels of diversification were found to make investment choices based on their own past experiences.

The Impact of the COVID-19 Confinement on the Financial Behavior of Individual Investors

This article explores the impact of the COVID-19 lockdown in Belgium on the financial behavior of individual investors. Specifically, the article is the first to examine whether exceptional market circumstances have induced individual investors to increase their equity positions. Using a proprietary database of almost 6,5 million individual investor transactions, this article shows that most individuals used a contrarian strategy thereby buying shares when stock prices are falling. Especially investors between 18 and 35 years old and those being less experienced are found to increase their equity positions compared to other age and experience categories. Male investors seem to dominate equity markets in Belgium, even during the COVID-19 confinement period, and they increased their equity positions more in comparison to women. The patterns documented in this article are robust for the shares being constituents of the main Belgian equity index (i.e. Bel 20), for all listed shares on Euronext Brussels, and for small caps.

The Influence of Demographic Factors on Investment Behaviour of Individual Investors: A Case Study of Edo State, Nigeria

This study empirically examines the influence of demographic factors on investment behaviour of individual investors using Edo state, Nigeria as its case study. Using the maximum likelihood method of estimation to estimate four multinomial logit equations, the results showed that educational level, occupation and marital status are the main demographic determinants of individual investors’ behaviour. Also, age and gender have strong influences on individual investor’s risk preference. Therefore, we recommend that it is pertinent that macroeconomic policies aimed at boosting investment should consider the expansionary effect of targeting civil servants and those in professional practice by providing them with investment incentives as these categories of persons have a much higher affinity for risk for investment purposes.

Role of Behavioral Factors in Share Market Investment Decision Making

Investment behavior of individual investors in the share market highly influenced to variety of psychological factors. All the psychological factors highly contribute for investors’ decision of allocating the surplus financial resources for different instruments and stocks in the stock market. Major psychological bias broadly classified as Heuristic Bias, Prospect Bias, Market Bias and Hardening Bias. But, in this study authors concentrated in detail to investigate the impact of Heuristic bias on the investment decision making of Indian share market investors with special focus on the representativeness, over confidence, anchoring, gambler’s fallacy and availability bias. 375 share market investors selected from different geographical areas and different share broking houses to answer structured questionnaire but response received for 310 questionnaires. Also, share broker, financial experts and regular investors informally interviewed to get in-depth knowledge on the issues related for influence of psychology on investment decision of individual investors of share market. Different behavioral variables in this study have been justified on the basis of respondents’ age, gender, geography, kind of investor, recourses for investment, amount for investment etc. Indian share market investment lagging behind just with the participation of not more than 6% of the total population due to several issues, one among is failure of both investor and share service providing agencies to understand the influence of behavioral issues and its impact on investment decision. Final justification in the present empirical paper draw by applying different statistical techniques like chi-square test, factor analysis, co-relation analysis and ANOVA techniques of SPPS 20. This research attempt may be highly helpful for both the investors and financial service providers to reconstruct strategies after considering behavioral issues and its impact on investment.

Who Are the Bitcoin Investors? Evidence from Indirect Cryptocurrency Investments

Cryptocurrencies have received growing attention from individuals, the media, and regulators. However, little is known about the investors whom these financial instruments attract. Using administrative data, we describe the investment behavior of individuals who invest in cryptocurrencies with structured retail products. We find that cryptocurrency investors are active traders, prone to investment biases, and hold risky portfolios. In line with attention effects and anticipatory utility, we find that the average cryptocurrency investor substantially increases log-in and trading activity after his or her first cryptocurrency purchase. Our results document which investors are more likely to adopt new financial products and help inform regulators about investors' vulnerability to cryptocurrency investments.

What causes the IPO underpricing? New evidence from China’s SME market

ABSTRACTWe study 10-year IPO initial returns in China’s small and medium-sized enterprise (SME) board between 2006 and 2016, including 755 IPO samples. At the same time, we test how policy changes of IPO pricing and trading mechanism affect first-day initial returns. Our article adopts the stochastic frontier approach to estimate the fair value of IPOs and decompose the components of deliberate underpricing and mis-valuation factors, then using linear regressions investigate correlation between first-day initial returns and deliberate underpricing or mis-valuation factors. We find it is mis-valuation factors, especially, the irrational behaviour of individual investors that mainly cause the IPO underpricing in China’s SME market rather than deliberate underpricing. Besides, influenced by IPO pricing policies, the characteristic of IPO pricing varies from period to period.

Stock hunting or blue chip investments?

PurposeThe purpose of this paper is to study the individual investors’ preferences towards stock selection in social media environments. The study is conducted to understand the implications and conceptual directions for the corporates and financial advisors to understand the choices of individual investors applied in financial markets. Further, this study aims to examine the selection of the most preferred social media platform and behavioral intentions of investors towards selection of investment portfolios in Indian stock markets.Design/methodology/approachA questionnaire was designed based on the technique of conjoint analysis and was responded by 428 respondents belonging to the Northern region of India. The estimation of preference functions in Conjoint Analysis was designed by using orthogonal arrays and was calculated using the ordinary least square regression technique.FindingsThis study reveals that while making selection of desired investment portfolios, the investors give highest preference to social media platforms in terms of highest utility value and range followed by their preference for behavioral intentions to invest. Among different social media platforms, the investors preferred Twitter the most, followed by Facebook and the primary interest of investors was observed towards Intra-day trading purposes and balanced portfolio investments in financial markets. The major reason behind opting the social media platforms was selection of speculative stocks.Research limitations/implicationsThe actual individual investment behavior cannot be observed through the survey, which limits the external validity of the study.Practical implicationsThe paper presents a very important practical tool that can help financial advisors, opinion leaders and corporates in defining their target audience more sharply for investment-related advice. The findings revealed by the study will put them in a better position to understand how investors differ behaviorally and they will get acquainted with their choices and preferences while making investment decisions in the backdrop of social media environments. The preferences of the investors based on social media usage discovered by the study will not only enable the individual investors understand their own preferences, but those of the other investors as well in terms of planned investment decisions and choices.Originality/valueThe paper is a first of its kind to empirically identify the individual investors and their preferences and choices by applying conjoint analysis in the new social media environment. The study thus integrates the gap between marketing theories and emerging theories of behavioral finance to understand the investor behavior in a better way.

New tool for stock investment risk management

PurposeThe purpose of this paper is to propose a new tool for stock investment risk management through studying stocks with what kind of characteristics can be predicted by individual investor behavior.Design/methodology/approachBased on comment data of individual stock from the Snowball, a thermal optimal path method is employed to analyze the lead–lag relationship between investor attention (IA) and the stock price. And machine learning algorithms, including SVM and BP neural network, are used to predict the prices of certain kind of stock.FindingsIt turns out that the lead–lag relationships between IA and the stock price change dynamically. Forecasting based on investor behavior is more accurate only when the IA of the stock is stably leading its price change most of the time.Research limitations/implicationsOne limitation of this paper is that it studies China’s stock market only; however, different conclusions could be drawn for other financial markets or mature stock markets.Practical implicationsAs for the implications, the new tool could improve the prediction accuracy of the model, thus have practical significance for stock selection and dynamic portfolio management.Originality/valueThis paper is one of the first few research works that introduce individual investor data into portfolio risk management. The new tool put forward in this study can capture the dynamic interplay between IA and stock price change, which help investors identify and control the risk of their portfolios.

Moderating Effect of Culture on the Relationship between Social Interaction and Stock Market Participation among Secondary School Teachers from Nakuru County, Kenya

Culture makes individuals to behave the same way in similar situations because of the values and norms grounded in a person. This means that the overall behavior of individual investors is therefore guided by their individual culture. Culture could influence the behavior of individual investors directly and this study sought to investigate how culture could interact with social interaction in influencing individual investor stock market participation. There was need therefore to investigate the moderating effects of investment culture on the relationship between social interaction and stock market participation of secondary school teachers in Nakuru County. The study employed cross sectional survey research design. Primary data was collected using structured questionnaires from a sample of 320 teachers' selected using stratified proportionate random sampling technique. The study concludes that investment culture has a positive significant moderating effect on the relationship between social interaction and stock market participation decision (R2 change was 0.04, p<0.05). This implies that investment culture interacts with social interaction thereby significantly enhancing its relationship with stock market participation of secondary school teachers in Nakuru County.