Individual Investment Decisions Research Articles

A Study of the Determinance of the Type of Personality in Albanian Individual Investor Decision-Making

Traditionally, classical finance theories have argued that investors are rational and not influenced by human factors when making financial decisions. Recent developments in the field of finance, such as the anomalies that occurred and occasional financial crises took place, raised skepticism among researchers changing their approach towards traditional theories, as these theories failed to explain or predict unexpected developments in the markets, thus not supporting the unrealistic assumption of rational man (homo economicus). The research work for this new field of finance belongs to the recent decades. More specifically, there are quite a few studies in Albania due to the presence of an underdeveloped financial market. In the multitude of different factors, which influence the financial behavior of the investor, most of the research in the field of financial behavior is dedicated to the study of psychological biases. The topic of this study focuses on the impact of the personality type of individual investors on their decisions to invest in financial assets offered in Albania. The study is composed in the same logic line as that of the purpose and the research question raised. Quantitative strategy is used to answer the research question and draw conclusions. Descriptive and regression analysis was used through R-programme to identify the significance of the type of personality in Albanian individual investor behavior. We use the questionnaire as an instrument to collect data. Big Five Personality Model is chosen as the measurement scale. Only coherent data that remained after the reliability test (Cronbach Alpha), will be further used in regression statistical analysis to examine their impact on investor behavior. The analysis shows that the type of personality affects individual investment decisions in financial assets. More specifically Extraversion, Conscientiousness, and Neuroticism affect the amount of money invested in the asset. 'Openness' and 'Neuroticism' affect the level of certainty investors perceive for the investment made in financial assets.

Influence of Behavioral Biases on Investment Decision Making with Moderating Role of Financial Literacy and Risk Attitude: A Study Based on Colombo Stock Exchange

Purpose: This paper aims to analyze the influence of overconfidence bias and herding bias on investment decision making and the moderating role of financial literacy and risk attitude on overconfidence bias and herding bias on investment decision making in the Colombo Stock Market. Design/Methodology/Approach: This paper collects data from a structured questionnaire survey carried out among 110 individual investors in the Colombo stock market. This paper used a multiple regression method to analyze the influence of overconfidence bias and herding bias on investment decisions with financial literacy and risk attitude as moderating variables. Findings: Overconfidence bias has a significant influence on investment decisions. Results do not indicate that herding bias significantly influence investment decisions. Financial literacy significantly moderates the relationship between overconfidence in investment decisions. However, financial literacy does not significantly moderate the relationship between herding bias in investment decisions. Financial literacy and risk attitude do not significantly moderate the relationship between herding bias in investment decisions. Implications: The findings of this paper would help to understand the influence of behavioral bias on investment decisions of individual investors in Colombo stock market. Originality/Value: The research described in this paper study the moderating role of financial literacy and risk attitude on overconfidence bias and herding bias in making investment decisions (in Colombo Stock Exchange).

IMPACT OF THE COVID-19 ON THE SPENDING PATTERN AND INVESTMENT BEHAVIOUR OF RETAIL INVESTORS

The year 2020 has witnessed the highly infectious disease Corona Virus outbreak impacted across the globe. This unpredictable and unprecedented calamity has pushed economies to struggle and strive. Most of the sectors in the economy were severely hit, which led to financial suffering. There is a paradigm shift in the circular flow of income, which has affected the lifestyle and changed people's spending and investment habits. This study aims to understand how the Covid-19 pandemic has influenced the financial decision-making and investment preferences of retail investors. This research paper also studies the changes in the spending pattern of people during the lockdown due to Covid-19. A sample survey was conducted through a structured questionnaire to determine the impact of the pandemic on individual investment decisions in the city of Lucknow. A random sampling technique has been used to collect the data for the study. The study's findings show that people's lifestyles and spending habits have changed significantly due to the pandemic fear and lockdown. The study also indicates that there has been a shift in the spending preference of people towards healthy products and essentials.

Mediating Role of Risk Perception Between Behavioral Biases and Investor’s Investment Decisions

This study aims to examine the direct and indirect links between behavioral biases and investor’s investment decisions via the mediating role of risk perception through structural equation modeling. The study is conducted among individual investors who are engaged in investment for several years in Pakistan Stock Exchange. Purposive sampling technique was used for data collection and the sample size was consisted of 450 questionnaires. The findings contribute that risk perception mediates between blue-chip stocks and investment decisions. Furthermore, risk perception does not play the mediating role between herding bias, disposition effect, and investment decisions. However, the disposition effect has a strong direct relationship with risk perception. The study is beneficial to individual investors who can make investment decisions by self-estimation rather than to follow the others’ opinion. The proper training and education to the investors is also an appropriate path to overcome these biases. Risk is the major factor that discourages investment decisions but blue-chip stocks are a major risk eliminating factor while building investment decisions. Most of the prior studies focused on behavioral biases and investment decisions of individual investors but this study contributed to the mediating effect of risk perception. Human capital, anomalies, computer literacy, and artificial technology could also be used as a mediator and moderator for future orientation.

The Effect of Financial Literature and Behavior on Individual Investment Decision Behavior

The Effect of Financial Literature and Behavior on Individual Investment Decision Behavior

Company Value as Consideration in Making Individual Stock Investment Decisions (Hermeneutical-Critical Study)

Individual stock investor has many options in an investment and investment decision was influenced by so many factors, one of them is value of the firm. Value of the firm is often associated with stock price. The higher stock price means the better value of the firm. This mini-research used critic-hermeneutic research approach. Hermeneutic used for interpretation of text which told by individual stock investors in the interview. There were 8 informant interviewed in this mini-research, who had different backgrounds i.e employee, entrepreneurs, and college students. The result showed that value of the firm as useful value for investors, actually didn’t entirely used by individual stock investors, especially for investors who used technical analysis and another non-fundamental analysis in their stock analysis. Investor’s sophistication in value of the firm analysis also influenced by the other investor, so they didn’t analize it anymore. When value of the firm didn’t influence the investment decision of investor, no-effect hypothesis was applied. Whereas more sophisticated investor considered value of the firm in their investment decision. When value of the firm influenced to the investment decision of investor, mechanistic hypothesis was applied.
 
 Keywords: Individual stock investor, investment decision, value of the firm.

The local bias in equity crowdfunding: Behavioral anomaly or rational preference?

AbstractWe use data on individual investment decisions to analyze whether investors in equity crowdfunding direct their investments to local firms and whether specific investor types can explain this behavior. We then examine whether investments exhibiting a local bias are more or less likely to fail. We show that investors exhibit a local bias, even when we control for those with personal ties to the entrepreneur. In particular, we find that angel‐like investors and investors with personal ties to the entrepreneur exhibit a larger local bias than regular crowd investors. Well‐diversified investors are less likely to suffer from this behavioral anomaly than investors with personal ties to the entrepreneur. Overall, we show that investors who direct their investments to local firms more often pick start‐ups that run into insolvency, which indicates that some local investments in equity crowdfunding constitute a behavioral anomaly rather than a rational preference. Moreover, our results reveal that platform design is an important factor determining the scope of the behavior anomaly.

Default rules in investment decision-making: trait anxiety and decision-making styles

This study investigates the role of default options in the relationship between trait anxiety, and decision-making styles and financial decisions. One hundred and ninety-four participants were divided into three groups and subjected to three different conditions. Under each experimental condition, they had to decide whether to accept or reject investment proposals. In the first group, they had been enrolled in investment plans by default (opt-out condition), in the second group, they had not been automatically enrolled in these plans (opt-in condition), and in the third group they had to choose whether to enroll or not (control condition). The results showed that the investment decisions of anxious, avoidant, rational and dependent individuals could be facilitated by default options. In conclusion, using default options as a “nudge” can support specific groups of people to improve their financial decisions.

Investment Decisions in Emerging Market: Demographic Analysis of Individual Investor in Indonesia Stock Exchange

The number of individual investors in Indonesia has continued to grow in recent times and has reached 97.67% of the total investors in Indonesia. Due to this high number, the investment decisions of individual investors should be an important benchmark in the movement of Indonesia’s capital market. Investment behavior between individuals is very different and easy to change, but there is a pattern or model that can provide an overview of the activities carried out. Not only psychological factors, but demographic factors are also suspected to be determinants that influence investors’ decisions. The diversity of investment behaviors can be described by stock ownership. In Indonesia, blue-chip stocks are represented in the LQ45 index group. Although investors have different characteristics, their demographics are often used as second references to determine investment behavior. This study aims to determine the investment behavior using four important inherent characteristics of investors including gender, age, occupation, and income. The secondary data obtained from 3,911 investors were analyzed using analysis of variance (ANOVA). The results showed a unique pattern of investment behavior; therefore, the demographics of investors need to be analyzed regularly.

The Influence of Social and Personal Factors in Individual Investment Decision Making

The Influence of Social and Personal Factors in Individual Investment Decision Making

FINANCIAL LITERACY ON INDIVIDUAL INVESTMENT DECISIONS THROUGH INCOME PERSPECTIVES AND SOCIODEMOGRAPHIC FACTORS ON UNMARRIED EMPLOYEES IN DENPASAR CITY

The purpose of this study is to explain the effect of financial literacy level and sociodemographic factors on individual investment decision behavior. Research respondents are unmarried employees in Denpasar City with a sample of 83 people. Determination of the sample using nonprobability sampling with an accidental sampling approach. Data were analyzed using the Multiple Linear Regression Analysis technique. The results of this study indicate that the level of financial literacy has a positive effect on the behavior of individual investment decisions, there are differences in the effect between males and females on the behavior of individual investment decisions and income has a negative effect on the behavior of individual investment decisions.

Effect of Herding Behaviour Marred with Irregularities/Illegalities of Individual Investors on Individual Investment Decision at Safaricom Co. Ltd

Personal Finance is a broad aspect in the world of finance whereby individuals or groups of persons come together to invest, that is, buy/sell in funds/shares to make profits with considerations of uncertainties (risks). Behavioural Finance is a branch of personal finance whereby individuals are driven by certain behavioural biases while making individual investment decisions which can be both positively/negatively impacted. In this scenario, in the form of audit research, the author has examined a report provided by major stakeholders, the Safaricom Co. Ltd and other subsidiaries such as Cooperative Bank of Kenya and Hazina Sacco Co. Ltd in comparison on how activities were carried out during a five and half years (January 2017-June 2022). The main objective was to establish effect of herding behavior marred with irregularities/illegalities of individual investors on individual investments decision at Safaricom Co. Ltd. Specific objectives: 1. To determine the effect of exaggeration on herding behavior marred with irregularities/illegalities of individual investors on individual investments decision at Safaricom Co. Ltd. 2. To establish the effect of assumption on herding behavior marred with irregularities/illegalities of individual investors on individual investments decision at Safaricom Co. Ltd. 3. To examine the effect of disposition on herding behavior marred with irregularities/illegalities of individual investors on individual investments decision at Safaricom Co. Ltd. 4. To explain the effect of manipulation on herding behavior marred with irregularities/illegalities of individual investors on individual investments decision at Safaricom Co. Ltd. 5. To determine the effect of repetition on herding behavior marred with irregularities/illegalities of individual investors on individual investments decision at Safaricom Co. Ltd. Null Hypotheses tests were: HO1:- Exaggeration, HO2:- Assumption, HO3:- Disposition, HO4:- Manipulation, and HO5:- Repetition, all having no significant effect on herding behavior marred with irregularities/illegalities of individual investors on individual investments decision at Safaricom Co. Ltd. No much of Literature Review was carried out since research project was based on actual raw data provided by the concerned organizations. The target population sample was 337 individuals/transactions and receipts/payments marred with irregularities/illegalities of 2,936,323/1,755,044, respectively. For that fact, Cron Bach Alpha was determined by the average percentage of receipts and payments marred with irregularities/illegalities (74.04%, which is greater than 70%: the normal required %). Several tests were carried out, including central tendency (mean and standard deviation), hypothesis tests, simple regressions/multiple regressions, coefficient of correlations (between positive 1 and negative 1), variances in the determination of VIF (normal being less than 3), using tables and graphs for cross-tabulations. The results showed positive responses: that there was a significant level of herding behavior marred with irregularities/illegalities of individual investors individual investments decision at Safaricom Co. Ltd. All five factors:- exaggerations, assumptions, dispositions, manipulations, and repetitions were massively felt with marred irregularities and illegalities hence interested with the true position carried out during the period. Investigations are recommended to establish these kinds of massive transactions, which are marred with irregularities/ illegalities, and further research to be carried out on similar activities while individual investors are investing using individual investment decisions at NSE or any other Trading Bells Organizations.

The effect of gender on individual investment decisions

The effect of gender on individual investment decisions

Impact of Financial Literacy on Investment Decisions: Evidence from Individual Investors in Jaffna District

Financially literate individual investors can make smart investment decisions over complex financial scenarios to boost their financial wealth. The aim of the study is to investigate the influence of financial literacy on investment decisions of individual investors in Jaffna district. Further this study explores the impact of financial knowledge, financial behavior and financial attitude on investment decisions of individual investors. Two hundred individual investors in Jaffna district were selected as sample by using random sampling technique and primary data was collected through a structured questionnaire. Financial literacy consists of three dimensions namely financial knowledge, financial behaviour and financial attitude whereas investment decisions are measured by accounting information, self/firm-image coincidence, advocate recommendations and personal financial needs. Data was analyzed using the techniques of correlation, regression, t-test and ANOVA. The results reveal that financial literacy significantly positively impacts on investment decisions of individual investors in Jaffna district. The findings recommend the necessity for effective financial literacy programs focusing especially on enhancing financial knowledge, behaviors and attitude to facilitate informed investment decisions of individual investors.

The Influence of Perceived Return Level and Financial Literacy Level on Individual Stock Investment Decision Making

The purposes of this study are 1) To analyze the effect of perceived return on stock investment decision making. 2) To analyze the effect of financial literacy on stock investment decisions. 3) To analyze the effect of perceived returns and financial literacy on stock investment decisions. This study uses a quantitative approach, by collecting questionnaire data and using purposive sampling technique. The sample used as many as 100 investors Capital market Community Surabaya and surrounding areas. The data analysis technique used is the inner model test, outer model test and hypothesis testing using the SmartPLS version 3.0 program. The results of this study obtained based on the validity test of the questionnaire statement were declared valid. For the reliability test of the Cronbach alpha value of > 0.7, it is declared reliable. And to test the hypothesis based on the value of the inner weight on the Path Coefficients, it shows that tcount for variables X1 and X2 has a significant positive effect. The results of tcount for Perceived Return (X1) are 2,908 and financial literacy are 2.292.

Heuristic biases and investment decisions: multiple mediation mechanisms of risk tolerance and financial literacy—a survey at the Tanzania stock market

PurposeThe purpose of this research is to examine the effect of heuristic biases on investment decisions through multiple mediation mechanisms of risk tolerance and financial literacy in the Tanzanian stock market.Design/methodology/approachA sample of 316 individual investors in the Tanzanian stock market was obtained through questionnaires. The data were analyzed using structural equation modeling (SEM).FindingsThe findings show that financial literacy mediates insignificantly the effects of overconfidence, availability, anchoring and representativeness heuristics on investment decisions. Further, financial literacy does not influence the effect of risk tolerance and investment decisions. Risk tolerance is confirmed as a positive mediator of overconfidence, availability, anchoring and representativeness heuristics in investment decisions. Also, the study shows that overconfidence exerts a stronger influence on investment decisions, followed by availability, representativeness, risk tolerance, anchoring and financial literacy.Research limitations/implicationsThe study deals with real investors. Therefore, it uses fewer items to measure the constructs in order to avoid respondent bias. Further research could examine the effects of heuristic biases on investment decisions by adding or modifying the items of particular constructs and studying institutional investors.Practical implicationsThe findings can help individual investors to analyze and evaluate their behavior toward stock selection. Securities institutions can use this research to understand investors' behavior, evaluate future market trends and provide advice to the investors.Originality/valuePrevious studies have examined the impact of heuristics on the investment decisions of individual investors. The unique empirical analysis developed in this paper is that it examines the multiple mediation mechanisms of risk tolerance and financial literacy with respect to heuristic biases and investment decisions in the Tanzanian stock market.

The Ulysses option: Smoking and delegation in individual investor decisions

• Data of 19,336 brokerage clients with security transactions and account bookings. • Identification of smokers as empirical proxy of self-control failure. • Smokers are more likely to seek and follow financial advice. • Advice lowers smokers’ turnover while increasing diversification. • Advice works as an effective commitment for investors with low self-control. Are smokers more likely to seek and follow financial advice? We build on literature which shows that investors who smoke have self-control issues and trade impulsively. We empirically measure self-control failures by identifying cigarette addiction in a sample of German brokerage clients and show that smokers are more likely to delegate their decisions to financial advisors which work like a commitment device. Potential endogeneity issues and self-selection are addressed by using propensity score matching. Despite advisor incentives, such commitments work successfully in lowering overtrading, improving investment biases and increasing performance of low self-control investors.

Investigating association between factors fostering attention to a stock and rationales to buy it: an empirical analysis

PurposeCan something that drives our initial attention toward a stock have any implications on final decision to buy it? This paper empirically and statistically tests association, if any, between factors fostering attention toward a stock and rationales to buy it.Design/methodology/approachThis paper uses survey responses of individual investors involving multiple response categorical data. Association between attention fostering factors and rationales is tested using a modified first-order corrected Rao-Scott chi-square test statistic (to adjust for within-participant dependence among responses in case of multiple response categorical variables). Further, odds ratios and mosaic plots are used to determine the effect size of association.FindingsStrong association is seen between attention fostering factors and rationales to buy a stock. Further, strongest associations are seen in cases where origin is the same underlying influencing factor. Some of the most cited attention fostering factors and rationales in this research stem from familiarity bias and expert bias.Practical implicationsWhat starts as a trivial attention fostering factor, which may not even be recognized by majority investors, can go on to become one of the rationales for buying a stock. This can result in substantial financial implications for an individual investor. Investor education agencies and regulatory authorities can make investors cognizant of such association, which can help investors to improve and adjust their decision making accordingly.Originality/valueThe extant literature discusses factors/biases influencing buying decisions of individual investors. This research takes a step ahead by distinguishing these factors in terms of whether they play role of (1) fostering attention toward a stock or (2) of reasons for ultimately buying it. Such dissection of factors/biases, to the best of authors' knowledge, has not been done previously in any empirical and statistical analysis. The paper uses multiple response categorical data and applies a modified first-order corrected Rao-Scott chi-square statistic to test association. Application of the above-mentioned test statistic has not been done previously in context of individual investor decision-making.

INDIVIDUAL INVESTOR RISK TOLERANCE FROM A BEHAVIOURAL FINANCE PERSPECTIVE IN GAUTENG, SOUTH AFRICA

The investment behaviour of individuals is unconsciously influenced by their thoughts, emotions, personal beliefs or past experiences to the degree that even individual investors with considerable knowledge may diverge from logic and reason. These influences, which can be classified as behavioural finance biases, may affect the manner in which risk is perceived and understood. This study aims to establish the relationship between the behavioural finance biases and the risk tolerance of individual investors within Gauteng, South Africa. This study also aims to identify the behavioural finance biases that drive individual investment decisions. Positive, statistically significant relationships were established between the behavioural finance biases and individual investor risk tolerance. Furthermore, the investment decisions of individual investors are driven to a rather great extent by the behavioural finance biases. The significance of these findings will contribute to facilitate the more practical and accurate profiling of individual investors' risk tolerance to ensure the successful implementation of investment strategies not only within South Africa, but also internationally.Keywords: individual investors, risk tolerance, risk profiling, behavioural finance, investment decisions, Gauteng, South AfricaJEL Classifications: D81, G41DOI: https://doi.org/10.32479/ijefi.11451

Emotional Finance: The Impact of Emotions on Investment Decisions

Emotions have a decisive influence on individual investment decisions and thus on market developments. Collective behavior, which often prevails in markets, can trigger the development of speculative bubbles as, more often than not, investors rely on trust in an attempt to reduce the uncertainty and complexity prevailing in markets. Based on the developments surrounding German financial services provider Wirecard in 2020, this contribution explains why retail and institutional investors decided to trust the company's narrative in an attempt to reduce uncertainty, despite increasingly obvious large-scale accounting inconsistencies.