Performance Of Individual Investors Research Articles

Impact of Environmental, Social, and Governance (ESG) Factors on Individual Investor Performance

The integration of Environmental, Social, and Governance (ESG) factors into investment decision-making has gained significant traction in recent years, reflecting a growing recognition of the importance of sustainability and responsible investing. This detailed abstract provides an overview of the impact of ESG factors on individual investor performance, highlighting key findings, methodologies, and implications from empirical research in the field. The global financial crisis of 2008, coupled with increasing awareness of environmental degradation, social inequality, and corporate governance failures, has underscored the limitations of traditional financial analysis in capturing the full spectrum of risks and opportunities facing investors. In response, there has been a paradigm shift towards incorporating ESG factors into investment analysis, driven by rising demand for sustainable investing, regulatory and policy trends, recognition of materiality, and stakeholder expectations. The purpose of this research is to examine the impact of ESG factors on individual investor performance, addressing key research questions such as: How do ESG factors influence individual investor decision-making and portfolio performance? What is the relationship between ESG ratings, financial performance, and risk-adjusted returns? What are the implications of ESG integration for long-term investment strategies and value creation? The research employs a mixed-methods approach, combining quantitative analysis of financial data with qualitative insights from investor surveys and literature review. ESG factors are evaluated using established frameworks and rating methodologies, including environmental criteria (e.g., carbon emissions, renewable energy), social criteria (e.g., labour practices, diversity), and governance criteria (e.g., board structure, executive compensation). Empirical findings suggest a positive correlation between strong ESG performance and individual investor performance. Companies with high ESG ratings tend to exhibit superior financial performance, lower cost of capital, and improved risk-adjusted returns compared to those with poor ESG performance. Furthermore, there is evidence of sectoral differences in the materiality of ESG factors, with certain industries prioritizing environmental, social, or governance considerations based on industry dynamics and stakeholder expectations. The implications of ESG integration for individual investors are significant. By incorporating ESG considerations into investment strategies, investors can align their portfolios with their values and sustainability objectives, potentially enhancing risk-adjusted returns and contributing to positive societal and environmental impact. However, challenges such as data availability, methodological limitations, and market dynamics need to be addressed to realize the full potential of ESG integration in investor decision-making. In conclusion, the integration of ESG factors represents a fundamental shift in investment practices, reflecting a broader understanding of risk, opportunity, and value creation. By examining the impact of ESG factors on individual investor performance, this research contributes to the advancement of sustainable finance and responsible investment practices, ultimately benefiting investors, companies, and society as a whole.

Effect of Investment Strategies on Portfolio Performance of Individual Investors in the Nairobi Securities Exchange

This study sought to determine the effect of investment strategies on the portfolio performance of individual investors in the Nairobi securities exchange. A descriptive cross-sectional survey approach was adopted. The population for this study were individual investors in the Nairobi Securities Exchange. A sample of 384 respondents was used. Both primary and secondary data were collected in this study using a questionnaire and data collection tool. Data were analyzed using descriptive and inferential statistics. The strongest correlation was observed between the active investment strategy and portfolio performance, followed by growth, passive and value strategies. From regression analysis, there was a strong positive correlation between investment strategies and performance. The relationship between investment strategies and performance was also found to be significant. It was revealed that growth and active investment strategies were statistically significant predictors of portfolio performance, with positive relationships. Active investment strategy had the largest beta coefficient, indicating that it is the most important of the four strategies in affecting portfolio performance, followed by value investment strategy and growth investment strategy, while passive investment strategy had the least influence on portfolio performance. The study concludes that investment strategies have a strong, positive and significant effect on the portfolio performance of individual investors in the Nairobi Securities Exchange. The study recommends that Nairobi Securities Exchange ought to encourage individual investors to educate themselves about various investment strategies and their potential impact on portfolio performance. It is also recommended that Nairobi Securities Exchange emphasize the importance of diversification to reduce risk.

The Mediating Role of Risk Tolerance in Realtionship Between Heusrtic and Prospect Theory and Investment Performance

The current study aims at investigating the factors affecting investment Performance. Moreover, the mediating effect of risk tolerance was also tested. The study utilized a quantitative research design for that the data was collected using a structured questionnaire. The questionnaire was sent to 200 individuals out of those 189 complete questionnaires were received. The study framework had constructs namely heuristics, Prospect theory, were independent variables while investment performance making was dependent variable and risk tolerance was the mediating variable. All the latent construct were measured using multi-items based on 5-point Likert scales from 5 strongly disagree to 1 strongly disagree. This study set out to find the relationship behavioural factors and investment performance of individual investors with the mediating effects of risk tolerance. The Structural Equation Model has revealed that there is a significant and positive relationship between behavioural factors and investment performance of individual investors and this relationship is partially mediated by risk tolerance.

코로나 19 이후 개인투자자의 투자패턴에 대한 연구

Purpose – This research investigates the trading patterns of individual investors participating in the KOSPI stock market during and after the COVID-19 Pandemic, thereby explaining the indisputably low performance compared with institutional and foreign investors. Design/Methodology/Approach – Daily KOSPI stock market data was used, and the data period ranges from 2018 to 2023. The total period is divided into 12 sub-periods. For each sub-period, 25 stock-groups were generated by the magnitude of net purchases of individual investors at 4% intervals. Periodic information on returns, volatilities, and the net purchases of institutional and foreign investors were also utilized in the analysis. Findings – The sub-period analysis shows that the ratio of individual investors’ net purchases was negatively correlated with periodic cumulated returns, and the ratio of institutional and foreign investors’ net purchases with a strong statistical significance. The total period analysis also confirms the negative relationship between the ratio of individual investors’ net purchases and periodic cumulative returns, and shows a positive relationship between the ratio of individual investors’ net purchases and the change in volatilities. It was also revealed that the low performance of individual investors results from the choice of transaction timing, not from the choice of stocks. Research Implications – Empirical results imply that individual investors need to be cautious in determining the timing of transactions, thus utilizing the negative relation between the ratio of individual investors’ net purchases and the ratio of institutional and foreign investors’ net purchases merits consideration to enhance the profitability of individual investor portfolios.

Heuristic-driven biases as mental shortcuts in investment management activities: a qualitative study

PurposeThis study aims to use a qualitative approach to explore and clarify the mechanism by which heuristic-driven biases influence the decisions and performance of individual investors actively trading on the Pakistan Stock Exchange (PSX). It also aims to identify how to overcome the negative effect of heuristic-driven biases, so that finance practitioners can avoid the expensive errors which they cause.Design/methodology/approachThis study adopts an interpretative approach. Qualitative data was collected in semistructured interviews, in which the target population was asked open-ended questions. The sample consists of five brokers and/or investment strategists/advisors who maintain investors’ accounts or provide investment advice to investors on the PSX, who were selected on a convenient basis. The researchers analyzed the interview data thematically.FindingsThe results confirm that investors often use heuristics, causing several heuristic-driven biases when trading on the stock market, specifically, reliance on recognition-based heuristics, namely, alphabetical ordering of firm names, name memorability and name fluency, as well as cognitive heuristics, such as herding behavior, disposition effect, anchoring and adjustment, repetitiveness, overconfidence and availability biases. These lead investors to make suboptimal decisions relating to their investment management activities. Due to these heuristic-driven biases, investors trade excessively in the stock market, and their investment performance is adversely affected.Originality/valueThis study provides a practical framework to explore and clarify the mechanism by which heuristic-driven biases influence investment management activities. To the best of authors’ knowledge, the current study is the first to focus on links between heuristic-driven biases, investment decisions and performance using a qualitative approach. Furthermore, with the help of a qualitative approach, the investigators also highlight some factors causing an increased use of heuristic variables by investors and discuss practical approaches to overcoming the negative effects of heuristics factors, so that finance practitioners can avoid repeating the expensive errors which they cause, which also differentiates this study from others.

A note on financial literacy among literate people and their participation in different securities market segments

PurposeThis paper aims to investigate the relationship between perceived and actual financial literacy, among generally literate people, pertaining to market participation and market participation intensity. It examines such market participation in both the traditional segments of the financial markets and the new segments [cryptocurrencies, structured retail products (SRPs) and crowdfunding].Design/methodology/approachThe data are from a survey conducted in 2020 by the Portuguese Securities Commission in cooperation with 12 Portuguese universities. The final sample comprises 2,054 respondents. The basic and advanced financial literacy indexes were calculated following van Rooij et al. (2011). This paper uses probit regressions and ordinary least squares regressions with robust errors.FindingsThis study shows that even highly literate people are influenced by their perceived financial knowledge and its bias toward their actual skills. However, overconfidence has no significant association with securities market participation but rather is marginally correlated with the intensity of such participation. Underconfidence is negatively related to both. Moreover, the relationship between advanced financial literacy and overconfidence pertaining to participation in more complex market segments depends on the product type. Specifically, overconfidence has a positive relationship with participation in cryptocurrencies and SRPs but not with crowdfunding.Research limitations/implicationsThe securities market regulators should take note that participation in some complex market segments, even among literate people, is associated with investor overconfidence. Given that effective financial literacy correlates with participation in some more complex financial market segments and not others, the implication for future research is that the performance of individual investors may differ across these different segments. Additionally, this paper argues that the metrics used to assess financial literacy must take cognizance of the topics required to participate in the new market segments of financial markets.Originality/valueThis paper augments this stream of literature in several respects. First, it focuses on highly educated and trained people rather than the general population. Second, while the previous literature measures market participation using a simple dummy to identify respondents who invest in stocks, this paper also measures the intensity of participation. In addition, this study investigates the financial literacy effect from participation in the more complex segments of the securities markets, as in the case of cryptocurrencies and SRPs.

Mislearning and (poor) performance of individual investors

AbstractWe study individuals' incentives to make investment decisions. Using data from a large pension system in Chile we find that individuals who are active in managing their investments have, on average, poor performance. We provide robust evidence suggesting that learning plays an important part in this phenomenon. Indeed, individuals who have made successful investment decisions in the past go on to trade more frequently. However, this result holds when using a naive definition for successful decisions. Also, average performance is negatively related to the number of investment decisions, casting doubt on the existence of market timing skills.

Probing the impact of recognition-based heuristic biases on investment decision-making and performance

PurposeThis study aims to explore and clarify the mechanism by which recognition-based heuristic biases influence the investment decision-making and performance of individual investors, with the mediating role of fundamental and technical anomalies.Design/methodology/approachThe deductive approach was used, as the research is based on behavioral finance's theoretical framework. A questionnaire and cross-sectional design were employed for data collection from the sample of 323 individual investors trading on the Pakistan Stock Exchange (PSX). Hypotheses were tested through the structural equation modeling (SEM) technique.FindingsThe article provides further insights into the relationship between recognition-based heuristic-driven biases and investment management activities. The results suggest that recognition-based heuristic-driven biases have a markedly positive influence on investment decision-making and negatively influence the investment performance of individual investors. The results also suggest that fundamental and technical anomalies mediate the relationships between the recognition-based heuristic-driven biases on the one hand and investment management activities on the other.Practical implicationsThe results of the study suggested that investment management activities that rely on recognition-based heuristics would not result in better returns to investors. The article encourages investors to base decisions on investors' financial capability and experience levels and to avoid relying on recognition-based heuristics when making decisions related to investment management activities. The results provides awareness and understanding of recognition-based heuristic-driven biases in investment management activities, which could be very useful for decision-makers and professionals in financial institutions, such as portfolio managers and traders in commercial banks, investment banks and mutual funds. This paper helps investors to select better investment tools and avoid repeating the expensive errors that occur due to recognition-based heuristic-driven biases.Originality/valueThe current study is the first to focus on links recognition-based heuristic-driven biases, fundamental and technical anomalies, investment decision-making and performance of individual investors. This article enhanced the understanding of the role that recognition-based heuristic-driven biases plays in investment management. More importantly, the study went some way toward enhancing understanding of behavioral aspects and the aspects' influence on investment decision-making and performance in an emerging market.

Does herding behavior matter in investment management and perceived market efficiency? Evidence from an emerging market

PurposeThis article aims to clarify the mechanism by which herding behavior influences perceived market efficiency, investment decisions and the performance of individual investors actively trading on the Pakistan Stock Exchange (PSX).Design/methodology/approachThe deductive approach was used in this study, as the research is based on the theoretical framework of behavioral finance. A questionnaire and cross-sectional design were employed to collect data from the sample of 309 investors trading on the PSX. The collected data were analyzed using SPSS and AMOS graphics software. Hypotheses were tested using structural equation modeling (SEM).FindingsThe article provides further empirical insights into the relationship between herding behavior and investment management and perceived market efficiency. The results suggest that herding behavior has a markedly negative influence on perceived market efficiency and investment performance, while positively influencing the decision-making of individual investors.Originality/valueThe current study is the first to focus on links between herding behavior and investment management activities and perceived market efficiency. This article enhances the understanding of the role that herding behavior plays in investment management and, more importantly, it improves understanding of behavioral aspects and their influence on investment decision-making in an emerging market. It also adds to the literature in the area of behavioral finance, specifically the role of herding behavior in investment management; this field is in its initial stage, even in developed countries, while little work has been done in developing countries.

Assessment of Market Factors Influencing Investment Performance of Individual Investors in Nairobi Security Exchange

Assessment of Market Factors Influencing Investment Performance of Individual Investors in Nairobi Security Exchange

Impact of Behavioral Biases and Decision Analysis Methods on Investment Performance of Individual Investors at PSX

Purpose: Market bubbles and crashes remain unexplainable by classical finance theories. Because the history of the Pakistan Stock Exchange has been marked by occasional market bubbles and crashes, a behavioral study is conducted to investigate the impact of investor’s behavioral biases on investment performance. Design/Methodology/Approach: Our research investigates behavioral biases and examines the role of such biases in the selection of investment decision methods. We then investigate the direct impact of behavioral biases on investors' investment performance, as well as how investment analysis methods play a role in mediating the impact of behavioral biases on investment performance. We identified 11 irrational behavior biases based on existing literature and in-depth interviews with brokers, and two decision analysis methods are used: fundamental and technical.
 Findings: Our findings show that PSX investors exhibit moderately high levels of irrational behavior. Despite their moderately high level of irrationality, investors can use fundamental analysis to make better decisions and achieve better results. Since they use fundamental analysis method, they are boundedly rational rather than completely irrational.
 Implications/Originality/Value: The fundamental analysis does not fully mediate three determinants of irrationality, namely anchoring, control, and overconfidence. Individual investors and brokers are concerned about reducing the impact of these three biases in order to achieve optimal performance. Brokerage firms and fund managers are recommended to consider the behavioral aspects of investors to predict the future because behavioral factors of investors can not only shape the investment trend of individuals but also the market at large.

Analysis of Behavioral Factors Influencing Investment Performance of Individual Investors in Nairobi Securities Exchange

Analysis of Behavioral Factors Influencing Investment Performance of Individual Investors in Nairobi Securities Exchange

How Behavioral Factors Influence Investment Performance of Individual Investors in Pakistan Stock Market: A Moderated Mediation Approach

The primary objective of study is to know the influence of behavioral factors on investor’s investment decision and investment performance. Four behavioral factors as herding, prospect factors and market factors are used in this study and financial literacy as a moderating variable among the behavioral factors and investment decision. We use the questionnaire to collect primary data from individual investors actually trading in Pakistan Stock Exchange. For data analysis, we utilize AMOS software and Hayes Process tool in two stages. The findings reveal that behavioral factors positively influence investment decision and investment performance. But there is no moderating role of financial literacy. In addition to these, individual investors and security organizations can ultimately take advantage from the results of this research as a guide for their analysis and forecasting of security market trends in order to maximize the outcome and to improve their investment efficiency. Further, study recommended investigation of all investor types and in all financial markets including the behaviors of institutional investors along with behavioral financial factors; we should consider some economic factors that could have an impact on investors' decisions.

The Relationship of Behavioral Factors with Investment Performance of Individual Investors in the Nepali Stock Market

In recent years, the market anomalies and irrational behavior of investors have influenced the stock market worldwide. The impact of investor behavior on the stock market is more prominent in small and less efficient capital markets. The study is based on the questionnaire survey of 203 investors from Kathmandu and Pokhara. The study uses Exploratory Factor Analysis (EFA) to explore the underlying dimensions of investor behavior employing Principal Component Analysis and Varimax rotation. The suitability of the data for the factor analysis has been examined using KMO and Barlett’s Test of Sphericity. The EFA extracted four factors of investor behavioral dimensions categorized as: heuristics, prospects, market factors and herding effect. The factor scores obtained from the EFA was used to examine the correlation of these behavioral factors with investment performance. The results reveal that behavioral biases like heuristics, prospects, market factor and herding effect are present among individual investors in Nepal. Among the factors, the investment performance of investors is found to be influenced by heuristics and market factors. The heuristic behaviors are found to have the highest and positive influence on the investment performance. Finally, the results depict that following the herd behavior in the market and prospects does not result in the improved investor performance. The findings are helpful to understand the role of investor behavior in the stock market and formulation of appropriate policies that limit the possibility of behavioral biases affecting the stock market adversely.

Overconfidence heuristic-driven bias in investment decision-making and performance: mediating effects of risk perception and moderating effects of financial literacy

PurposeThis paper aims to show how overconfidence influences the decisions and performance of individual investors trading on the Pakistan Stock Exchange (PSX), with the mediating role of risk perception and moderating role of financial literacy.Design/methodology/approachThe deductive approach was used, as the research is based on the theoretical framework of behavioural finance. A questionnaire and cross-sectional design were employed for data collection from the sample of 183 individual investors trading on the PSX. Hypotheses were tested through correlation and regression analysis. The Baron and Kenny method was used to test the mediation effect of risk perception and the moderation effect of financial literacy. The results of mediation and moderation were also authenticated through the PROCESS and structural equation modelling (SEM) technique.FindingsThe results suggest that risk perception fully mediates the relationships between the overconfidence heuristic on the one hand, and investment decisions and performance on the other. At the same time, financial literacy appears to moderate these relationships. The results suggest that overconfidence can impair the quality of investment decisions and performance, while financial literacy and risk perception can improve their quality.Practical implicationsThe paper encourages investors to base decisions on their financial capability and experience levels and to avoid relying on heuristics or their sentiments when making investments. It provides awareness and understanding of heuristic biases in investment management, which could be very useful for decision makers and professionals in financial institutions, such as portfolio managers and traders in commercial banks, investment banks and mutual funds. This paper helps investors to select better investment tools and avoid repeating the expensive errors that occur due to heuristic biases. They can improve their performance by recognizing their biases and errors of judgment, to which we are all prone, resulting in better investment decisions and a more efficient market. The paper also highlights the importance on relying on professional knowledge, giving it greater weight than feelings and biases.Originality/valueThe current study is the first to focus on links between overconfidence, financial literacy, risk perception and individual investors' decisions and performance. This article enhanced the understanding of the role that heuristic-driven bias plays in the investment management, and more importantly, it went some way towards enhancing understanding of behavioural aspects and their influence on the investment decision-making and performance in an emerging market. It also adds to the literature in the area of behavioural finance specifically the role of heuristics in investment strategies; this field is in its initial stage, even in developed countries, while, in developing countries, little work has been done.

ACTIVITIES OF INDIVIDUAL INVESTORS AND INSTITUTIONS OF JOINT INVESTMENT IN THE SECURITIES MARKET OF UKRAINE: MACROECONOMIC ASPECT

The subject of the study is the macroeconomic indicators of individual investors and collective investment institutions in the securities market of Ukraine. The purpose of the article is to summarize and analyze the performance of individual investors and collective investment institutions in the securities market of Ukraine. Methodology. The set of methods of scientific cognition is applied in the work, which gave the opportunity to realize the conceptual unity of scientific research. Economic-statistical, calculation-analytical, system-functional and graphic methods, methods of factor, structural and formal-logical analysis made it possible to study and analyze the performance of individual investors and collective investment institutions. Research findings. The activities of individual investors and collective investment institutions are characterized by low development rates, primarily due to Ukraine's internal problems, which have existed in the country for a long time and are usually reflected in the development of SM s and investors' fear of investing in securities. All these reasons cause distrust of both Ukrainian and foreign investors in the SM, reduce the investment attractiveness of the SM instruments. In our opinion, the low results of investment processes carried out with the participation of MII are caused by the predominance of receivables, cash, other investments, etc. in the assets of MII. After all, this situation is not typical for developed SMs. Therefore, in parallel, there is a reduction in the market value, narrowing the number of available financial instruments on the SM. Value/originality. These studies will provide a better understanding of the financial situation in the securities market, the current situation regarding the functioning of market participants and can be useful in making strategic decisions and actions for further development of the securities market in Ukraine.

Academic abilities, education and performance in the stock market

Abstract The paper assesses how cognitive abilities and education affect the performance of individual investors in the stock market. We use an exhaustive NASDAQ Tallinn dataset covering two bull markets and one bear market. We show that stronger mathematical and overall academic abilities are associated with more profitable investments and relative outperformance, after trading style, income, experience and a variety of educational characteristics are controlled for. However, the effects are not always linear or monotonic. A similar positive effect on performance is produced by higher education or specialisation in certain subjects. None of these factors is able to explain the performance of investors during bear markets, and none is a substitute for experience. Investors with strong academic abilities tend to have moderate trading frequency and performance seems to be affected more by the ability to find good trades than by the use of any particular trading strategies.

Mislearning and (Poor) Performance of Individual Investors

We contribute to the literature by developing a model that studies the incentives of individuals to engage in market timing when their ability to trade is unknown. We characterize the optimal investment decision process and provide empirical predictions. Using administrative data from the Chilean Defined Contribution pension system, we test our predictions and provide evidence regarding the performance achieved by members that make voluntary fund changes. Regarding individuals' performance, our main finding is that performance is generally poor, although this depends on the exact time period under analysis. However, performance is negatively related to the number of fund changes, regardless of the period considered. These results cast doubt on the presence of market timing skills among affiliates. Simulation exercises further provide support to the claim that luck has played a major role in explaining members' performance. We find evidence of the existence of learning. Indeed, individuals tend to make more (less) fund changes when they have made more (less) successful fund changes in the past. However, this result holds when using a naive definition for a successful change. If members of the pension system are overestimating the performance of their investment decisions and engaging in further active behavior (i.e. pension fund changes) as a result, our findings suggest that this is detrimental for the expected return of their pension savings. These results stress the need for serious considerations regarding the trade-offs between having a large degree of freedom in the ways in which pension savings can be invested against the actual outcomes obtained by affiliates who are making frequent use of these possibilities. Also, further research about the way in which individuals evaluate their performance and understand the consequences of their investment decisions seems necessary.

Stock Loan Lotteries and Individual Investor Performance

Stock Loan Lotteries and Individual Investor Performance

The impact of social influence on the relationship between personality traits and perceived investment performance of individual investors

PurposeThe purpose of this paper is to clarify the relationship between an individual investor’s personality trait and his perceived investment performance. It proposes a novel conceptual framework that integrates social influence (as a moderating construct) and outlines the role of personality in determining the perceived investment performance during the investment decision-making process.Design/methodology/approachA questionnaire-based survey was conducted to collect responses from 396 individual investors through stratified and quota sampling approach. The collected data were then analysed using both hierarchical regression analysis and structural equation modelling to evaluate the strength of the relationship between the constructs, namely, personality trait, perceived investment performance and social influence.FindingsThis study suggests that social influence positively moderates the relationship between extraversion-perceived investment performance, whereas it negatively moderates the relationship between agreeability-perceived investment performance.Research limitations/implicationsThis study has certain limitations. First, this work follows a modelling approach which is more centred towards the prediction of relationships. Second, because of choosing a research approach (since the study has been conducted in one country, i.e. India), the results of the study may lack generalisability. Therefore, further studies could be encouraged to test the proposed hypotheses.Practical implicationsInsights from this study suggest that investors should look in for their personality traits while making an investment decision. In fact, psychologically modified portfolios should be developed as per the personality traits of the investors.Originality/valueThe study, perhaps, is the only study to apply social influence in a framework using Big Five personality traits as a possible factor to understand the individual differences in terms of perceived investment performance.