Investment Behavior Research Articles

Role transition, investment practice and risk Management of Peer-to-peer Lending Investors: Based on the perspective of investor learning

Online peer-to-peer (P2P) lending has emerged as a result of the integration of finance and technology. Within the P2P lending market, individual investors have the opportunity to make repeated investments and engage in two-way transactions involving loans and investments. This setting provides an ideal scenario for studying the impact of different learning types on investors' risk management. Drawing on transaction data from the online lending platform Renrendai.com, we empirically examine the influence of role transition and investment practice on investors' risk identification, risk preference, and investment performance. We introduce variables related to loans and investment portfolios to analyze the effects. Our findings reveal that investment practice has a greater effect than role transition in reducing the investment default of online lending investors. Additionally, role transition is associated with a decrease in the investment amount set by investors and a reduced reliance on borrowers' credit ratings. Historical investment experience also leads to a decrease in the investment amount, while experiences of past investment failures improve investors' reference to borrowers' credit ratings. Furthermore, we observe that borrowing experience and previous investment failures contribute to a lower probability and proportion of high-risk loans in the portfolio. We shed light on the “black box” of investor learning and expand the research methodology for understanding investor behavior characteristics in the Fintech era.

Does Innovation Sustainability Attract Retail Investors? The Clientele Effect in China

Innovation sustainability is essential for businesses to maintain their competitive edge and ensure long-term growth. This not only benefits individual companies but also entire industries. Despite its importance, research on retail investors’ preferences for innovation sustainability remains limited. To address this gap, we analyzed unique data on shareholder numbers in listed Chinese companies from 2007 to 2020. We differentiate between institutional and retail investors to analyze the latter’s preferences. This finding indicates that retail investors prefer to invest in companies with higher innovation sustainability. This preference stems from their limitations in capabilities of information collection, analytical skills, and risk diversification. The clientele effect is more pronounced when companies face a poor innovation environment, an opaque information environment, and a weak political connection. This study contributes to the existing literature by providing empirical support for the clientele effect and shedding light on retail investors’ preferences and investment behavior. By focusing on company fundamentals, our study extends the examination of the clientele effect to the corporate governance level. These insights have significant implications for promoting sustainable development, impacting both companies and the capital market.

The Mediating Role of Financial Self-Efficacy in the Relationship between Financial Inclusion, Literacy, and Investment Behavior among Banking Employees in Jakarta

The aim of this study is to identify and analyse the impact of Financial Inclusion, Financial Literacy on investment decisions through Financial Self-Efficacy on employees working in the banking sector of Jakarta region. This research uses a quantitative approach, the type of data in this study uses primary data obtained from the spread of the questionnaire. The population in this study is employees who work in the banking sector in the area of Jakarta, this study uses the Probability Sampling Technique that is Simple Random sampling so that the sample used is equal to 100 respondents. Data processing in this study uses SmartPLS. The results of this research show that the Financial Inclusion has an effect on Financial Self-Efficacy, Financial Literacy has no effect on Financial Self-Efficacy, Financial Self-Efficacy has no effect on Investment Decisions, Financial Inclusion has no effect on Investment Decisions, Financial Literacy has no effect on Investment Decisions, Financial Inclusion has no effect on Investment Decisions through Financial Self-Efficacy and Financial Literacy has no effect on Investment Decisions through Financial Self-Efficacy.

Harnessing Multi-Armed Bandits for Smarter Digital Marketing Decisions

In the current digital age, software programs and applications provide convenience and added value in a number of ways. Multi-armed Bandit algorithms (MAB) are a prime example of this; In capital markets, they assist in the adaptive design of trading strategies that adjust to market shifts and investor behavior. In e-commerce, MAB helps optimize product recommendations by learning customer preferences in real-time. In SaaS, MAB can optimize user experience by personalizing services or pricing models based on user behavior, continuously adjusting to maximize engagement or revenue. In cloud engineering MAB are indispensable for optimizing resource allocation based on user demand. The objective of this paper is to demonstrate the adaptability of MAB algorithms through an examination of their applications, specifically focusing on the Digital Marketing domain and the insight they offer for optimal decision-making. The article highlights the usefulness of major MAB algorithms in digital advertising, e-commerce content suggestion, SaaS and strategic pricing by carefully examining Thompson Sampling, UCB, Restless Bandit, and Structured Bandit as key types of MAB algorithms. The study emphasizes how these algorithms adjust to fluctuating conditions, balance a trade-off between exploration and exploitation, and eventually improve marketing strategies. This article aims to improve knowledge of MAB algorithms and encourage more research in this promising area by providing a detailed analysis of their applications.

A Study on Perception of Mutual Fund Investment

This study explores the performance, risks, and opportunities associated with mutual fund investments, particularly in the Indian market. It evaluates different mutual fund types, analyzing their historical returns and risk metrics to provide investors with data-driven insights. The research examines the factors influencing mutual fund performance, including market volatility, asset management strategies, and economic conditions. Additionally, the study assesses investor behaviour in response to mutual fund performance, emphasizing the role of financial literacy and risk tolerance. The findings suggest that mutual funds offer a viable investment option for wealth creation, with equity-based funds outperforming others over a long-term horizon. However, market risks remain significant, requiring careful management and strategic investment planning

Uncovering the Bitcoin investment behavior: An emerging market study

Bitcoin remains a popular investment choice despite the regulatory obstacles and failures of many crypto firms. This intriguing behavior of investors necessitates calls for more in-depth research. This study explores the underlying motivations behind the intention to invest in Bitcoin by considering inaction regret aversion, overconfidence bias, herding, risk affinity, profit expectancy, perceived ease of investing, and social media influence in shaping the investors’ attitude towards investing in Bitcoin and consequently on behavioral intention to invest in Bitcoin. The study employs PLS-SEM and mediation analysis on a sample of 439 individuals from India with no history of cryptocurrency trading or investment. Path analysis demonstrates that inaction regret aversion, risk affinity, profit expectancy of Bitcoin, perceived ease of investing in Bitcoin, and social media influence are significant positive predictors of attitude toward investing in Bitcoin. Notably, profit expectancy remains the most relevant variable in the stated context. Attitude toward investing in Bitcoin positively and significantly influences the behavioral intention to invest in Bitcoin. The current study also indicates the significance of attitude as a mediator in the mentioned context.

Are investors attentive before a one-off holiday?

PurposeThis study investigates investor trading behaviour around regular and one-off public holidays on the Sydney Stock Exchange (SSX) from 1901 to 1950. The purpose is to examine whether trading patterns differ between regular holidays, which are known in advance, and one-off holidays, which are unexpected. The study provides insights into the predictability of holidays and its influence on market activity, contributing to the broader literature on investor inattention and market anomalies.Design/methodology/approachUsing a novel dataset constructed from handwritten share price lists covering 14,224 trading days, we perform quantitative analysis to assess trading volume before and after regular and one-off public holidays. Ordinary least squares regression models are employed to identify the presence of a holiday effect, accounting for various fixed effects and time-varying factors such as geopolitical events.FindingsWe find that trading volume is significantly lower on the day before regular holidays and higher on the day after, consistent with the investor inattention hypothesis. In contrast, no significant holiday effect is observed for one-off holidays. This suggests that predictability plays a crucial role in influencing investor behaviour, with irregular, less predictable holidays having less impact on trading patterns.Research limitations/implicationsThe study is limited by the historical nature of the data, which may not fully capture the diversity of modern trading environments. Additionally, the analysis is restricted to the SSX and may not be generalisable to other markets or time periods. Future research could explore similar effects in different contexts or with more recent data.Practical implicationsThis research provides valuable insights for market participants and regulators by demonstrating how the predictability of holidays influences market activity. Understanding these patterns could help in making more informed decisions during periods of expected low trading volumes.Social implicationsThe study underscores the role of public holidays in shaping investor behaviour, with broader implications for understanding how societal events influence financial markets. This is particularly relevant in discussions about the impact of unexpected events on market stability.Originality/valueThis is the first study to compare the effects of regular and one-off public holidays on trading volumes in a historical stock market context. Our findings highlight the importance of event predictability in financial markets, offering a new perspective on how historical market behaviours can inform current financial theories.

Behavioral and Psychological Determinants of Cryptocurrency Investment: Expanding UTAUT with Perceived Enjoyment and Risk Factors

With their potential for high returns and expanding role in the financial landscape, cryptocurrency investments have garnered the attention of the financial press and investors. Applying an integrated research model based on the Unified Theory of Acceptance and Use of Technology (UTAUT), this study investigates the factors influencing individual investors’ attitudes toward cryptocurrency investments and their intention to continue investing. The model incorporates constructs such as performance expectancy, effort expectancy, social influence, perceived risk, perceived privacy, technology competency, perceived enjoyment, and prior experience. Data from 506 cryptocurrency investors located in the United States were collected through a 50-item questionnaire. The findings indicate that performance expectancy and perceived enjoyment positively impact attitudes toward cryptocurrency investments, which, in turn, influence the intention to continue investing. Perceived privacy positively affects performance expectancy, while technology competency enhances effort expectancy. These results offer valuable insights for policymakers and cryptocurrency exchanges to foster sustainable growth in the cryptocurrency market. Despite its contributions, the study acknowledges limitations, including a focus on current investors in the US and the exclusion of factors such as optimism and innovativeness. Future research should explore these aspects across different populations and regions to gain a more comprehensive understanding of cryptocurrency investment behavior.

Exploring Investment Practices in Initial Public Offerings (IPOs) among Undergraduate Students

This study aimed to explore the investment behavior of undergraduate students focusing on their participation in initial public offerings (IPOs). Data was collected through structured questionnaires from a sample of 321 students out of a total population of 1476 covering management, humanities, and education faculties. The data were collected during two-months period from April 1 to June 1, 2024. The study used exploratory research design with a quantitative approach to analyze data. The study explored that management faculty students are more likely to invest in IOPs compared to humanities faculty and education faculty students. It is also revealed that third and fourth year students were more involved in IPOs than first and second year students. Gender differences in investment behavior were also noted. Male students participate more actively in IPOs than female students. Parental education and profession did not significantly influence the investment behavior. The study pointed-out the need for targeted educational programs to improve financial literacy and informed investment decisions among students.

Retire or get retired: Stocks, memes, and desperation capitalism on r/WallStreetBets

There is growing discontent with the financial services industry. The roots of these feelings are old but have expanded during the 2008 financial crisis and were enhanced by the COVID-19 pandemic and its associated cost of living crisis. This has given rise to the concept of “desperation capitalism”, where individuals are resorting to high-risk measures to try to achieve economic security. This research paper presents new insights into desperation capitalism and its participants through an exploratory case study of the r/WallStreetBets community on Reddit. The case study asks: how does social media impact the behaviour of retail investors? Drawing on multiple sources of primary and secondary empirical evidence, the paper makes two core contributions. First, the paper offers an initial conceptualization and model for understanding the phenomenon of “desperation capitalism”. Second, the paper demonstrates how the decision-making processes of retail investors can be influenced by social media.

Economic Indicators And Stock Market Performance: An Analysis Of GDP, Unemployment Rates, And Inflation

This research paper delves into the intricate relationship between three fundamental economic indicators—Gross Domestic Product (GDP), unemployment rates, and inflation—and their consequential effects on stock market performance. The primary objective of this study is to elucidate how variations in these indicators influence investor behavior and, subsequently, stock market trends. The research employs a dual methodological approach: quantitative analysis of historical economic and stock market data, and qualitative examination through case studies of notable economic events. This research looks back in history for a pattern and correlation of the stock market's moves in relation to changes in various economic indicators. For instance, it probes how changes in the GDP growth rate have their effect on investor confidence and, in turn, stock market valuation. It also looks at how fluctuations in the rate of unemployment lead to variations in market performance, as this generally indicates economic health and spending on the part of consumers. It also tends to focus on the relationship between inflation and return in the stock market, given influences on interest rates and corporate profits as a result of inflationary pressures. Besides data analysis, the study also makes use of case studies of vital periods in economies, such as the financial crisis of 2008 and the COVID-19 pandemic, to develop context and enrich the understanding of how these indicators interact within an extreme economic scenario. Such case studies bring understanding into the way investor sentiment and stock market performance respond to changes in GDP, unemployment, and inflation in real-world scenarios. These findings from this research indicate complex interdependencies between the series of economic indicators and stock market performance. For example, strong GDP growth is perceived in general to be associated with favorable stock market performance, whereas high inflation and increasing unemployment may soften or even exert negative effects. The study also emphasizes the role of investor sentiment and market psychology in amplifying or dampening the impacts of these economic indicators. In sum, this paper contributes to an integrated understanding of how GDP, unemployment rate, and inflation interact in shaping dynamics in the performance of the stock market. It thus provides an avenue through which both investors and policymakers, and economists who want to navigate or predict market movements in light of economic trends, draw useful guidance. The underlined idea herein is that instead of looking at separate economic parameters, it will be more relevant for any research work if several factors are considered together for better analytical reasoning on stock market performance.

The impact of risk factor disclosure on the initial return of IPO companies amidst a pandemic

The capital market has increasingly become a pivotal avenue for enterprises seeking additional capital for expansion or operational enhancements. In raising funds through an Initial Public Offering (IPO), the company must publish its risk disclosure in the prospectus. Therefore, this study aims to investigate the impact of risk disclosure on the initial return of Indonesian companies undergoing IPOs during the pandemic. Using data from 136 out of 164 companies that went public between 2020 and 2022, sourced from the Indonesian Stock Exchange and company websites, the study employs the ordinary least squares method to estimate the impact of risk disclosures on initial returns during the pandemic. The findings reveal that external and overall risk disclosures significantly influence IPO initial returns. Specifically, Indonesian investors were particularly attentive to external and overall risks when evaluating IPOs during the pandemic. This heightened concern suggests that comprehensive risk disclosure can affect investor behavior and financial outcomes for companies going public in uncertain times, highlighting the importance of transparency in risk communication to support investor decision-making and market stability.

Larger supply, shorter life? Exploring evidence from alternative cryptocurrencies on decentralized exchanges

Since the advent of Bitcoin, numerous alternative cryptocurrencies have surfaced. Despite their proliferation and increasing popularity, these alternatives often experience brief lifespans, contrasting with Bitcoin's enduring presence. Our analysis of more than 800 alternative cryptocurrencies traded on decentralized exchanges (Dex) has shown that cryptocurrencies with larger supplies generally demonstrate shorter lifespans. The findings remain robust across different definitions of the term “lifespan”. We attribute this trend primarily to short-term speculation, stemming from the absence of intrinsic asset value. These findings hold significant implications for comprehending the risk and investor behavior associated with cryptocurrencies on decentralized exchanges.

Analysis of Investment Behavior Among Filipinos: Integration of Social Exchange Theory (SET) and the Theory of Planned Behavior (TPB)

Despite the emergence of more accessible and modern forms of investment, the ever competitive and volatile market remains subject to anomalous irrationalities caused by investors. To this day, predicting their behavior remains difficult with lacking information, and poses a problem for investment platforms to effectively adjust to their predispositions. Therefore, this study aimed to comprehensively analyze the factors that have influenced investors’ behaviors using the integrated construct of the Social Exchange Theory and the Theory of Planned Behavior. With consideration of convenience sampling, a total number of 10,725 data points were collected and analyzed through machine learning algorithms of decision tree and neural network. Specifically, the comparison between long short-term memory (LSTM) and neural network, and random forest classifier and LightGBM were considered. It was found that the investor’s attitude, accessibility to financial services, and perceived economic benefits were the most influential predictors to their behavior, while six other factors also showed varying levels of significance. This study aimed to provide a unique framework which could be utilized by investment platforms to cater to the different behavioral factors expressed by investors. In line with these findings, it is recommended that platforms create flexible solutions that are based on their intentions and preferences, and more user-friendly through the implementation of new technologies. In addition, they are suggested to appeal to novice investors by reducing the burden of costs, promising future benefits, and promoting financial education. The results of this study proved the reliability of the integrated model as a social and behavioral framework, and consequently, LSTM overpowering other tools on accurate forecast made, followed by neural network, and random forest.

The Lack of Lewis Turning Point in India: Conceptualizing the Roles of Capital Intensity, Employment Opportunities, and Keynesian Investments

This research study aims to explain why the higher-growth phase in India, witnessed in the post-reform period of 1991–2011, failed to have the impact of significant increases in formal, modern sector employment or a transition toward the Lewis turning point. The article illustrates that it is more realistic to view a transition toward the Lewis turning point as involving increases in capital intensity. A desired increase in demand for labor will follow if the increases in capital intensity are associated with productivity growth in terms of increases in the share of intermediate goods specializations as output is increased. Autoregressive distributed lagged regression has been used to analyze whether investment behavior captures Young–Kaldor investments that can indicate growth in intermediate goods specialization. This is key to a higher pace of investment and specialized employment outcomes. The findings support existing literature, highlighting that increases in capital intensity constitute a significant factor explaining the lack of proper employment growth and the Lewis turning point. However, they also show that the problem is not with increases in capital intensity per se. Rather, the increases do not indicate dynamism regarding investments associated with intermediate goods specializations. JEL Classification O11, O14, O31

Horizontal and vertical foreign direct investment linkages, absorptive capacity and domestic investment: evidence from Indonesian plant-level data

PurposeThis study examines the effect of horizontal and vertical foreign direct investment (FDI) linkages on the investment decisions of domestic plants. It explores this link for plants in a developing country, where the dynamics of FDI spillovers on domestic investment choices are distinct from those in developed countries. It also adds to the literature by examining the role the absorptive capacity of plants plays in this nexus, enriching our understanding of the interaction between FDI and the investment choices of domestic plants and providing insights for policymakers and managers seeking to maximize the positive effects of FDI spillovers.Design/methodology/approachThis study specifies the dynamic investment equation using the Euler and Q models. This equation is estimated using the first-difference and system generalized method of moments GMM estimators, which allow us to address persistency, endogeneity and unobserved plant-specific effects. FDI exposure proxy, calculated by weighing the FDI engagement variable by firm size, captures the strength of foreign equity participation in an industry and time. Input–output (IO) tables are used to calculate the proxies for horizontal and vertical (backward and forward) FDI. Total factor productivity is calculated using a method advocated by Olley and Pakes (1996) that allows us to control for selection and simultaneity.FindingsWe find that FDI inflows into both the domestic plants’ own industry and the input-supplying industry significantly boost the capital accumulation of the average domestic plants. Differentiating plants based on their absorptive capacities reveals that the presence of foreign firms significantly increases capital deepening for domestic plants with high absorptive capacity within their own industry (horizontal linkage) and in industries that supply inputs to the FDI-exposed industry (backward linkage). However, it leads to a decrease in capital deepening for high absorptive capacity domestic plants in industries using inputs produced by the industry exposed to FDI (forward linkage).Research limitations/implicationsThese findings have implications for policymakers and managers who aim to design incentives to maximize the positive spillover effect of horizontal and vertical FDI linkages on the capital deepening of domestic plants. Exploring additional mechanisms that could play a role in this nexus, separately for plants in different industries (such as the industries in which the country has a comparative advantage), may be fruitful.Originality/valueTo our knowledge, the relationship between the investment behavior of the domestic plants and FDI linkages has not been examined for a developing country. It is useful to explore this link in developing countries, as the investment choices of plants in these nations may be impacted differently by FDI spillovers than those in advanced nations. This study further contributes to the literature by investigating whether the plants’ absorptive capacity affects the nexus between FDI linkages and investment decisions of the domestic plants. The findings are valuable for policymakers and managers who aim to increase plants’ capital accumulation in developing countries.

AN ANALYSIS OF BEHAVIOURAL FINANCE AND ITS INFLUENCE ON INVESTMENT DECISION

This research delves into the fascinating realm of Behavioural Finance, exploring its significant influence on investment decision-making among residents in India's National Capital Region (NCR). By drawing on insights from relevant studies, this work seeks to uncover the intricate link between human behaviour and financial decision-making within this demographic. The study begins by examining the unique financial behaviours of investors in the region, aiming to identify the key investor profiles that shape the investment environment. As a multidisciplinary field combining elements of psychology, sociology, and finance, Behavioural Finance provides the primary framework for this exploration. The research distinguishes between its micro and macro perspectives: the detailed analysis of individual behavioural traits of investors and the broader identification of inefficiencies in the market. Recognizing the pervasive impact of behavioural biases on investment behaviours and decisions, this study offers an in-depth review of diverse research within the Behavioural Finance domain. It sheds light on how human psychology and social dynamics interact with financial decision-making, highlighting the crucial role of Behavioural Finance in contemporary financial practices. In an era where financial markets are not merely governed by rationality but are also shaped by complex human behaviours, this research offers valuable insights into the dynamics of Behavioural Finance. By illuminating the distinct investment choices, the study aims to deepen our understanding of the factors influencing these decisions, ultimately equipping investors and financial professionals with more informed decision-making strategies.

The Causality Relationship between Credit Default Swaps (CDS) and Portfolio Investments: The Case of Türkiye

This study examines the causality relationship between portfolio investments and credit default swaps (CDS) in Türkiye. Analysing the dynamics between portfolio investments and CDS premiums, two important variables for financial markets is critical to understanding how risk perception and investment decisions are affected. While portfolio investments are generally considered an indicator of the confidence of foreign investors in the country's economy, CDS premiums are an important risk measure that reflects the country's debt risk and the risk perception of market participants. In this context, examining the relationships between the two variables contributes to the understanding of the effects of investor behavior and risk perception on macroeconomic indicators in financial markets. In the study, the Granger causality test was applied using data from the period 2014Q1-2024Q1. The results obtained show that CDS premiums have a significant and unidirectional causal effect on portfolio investments. Increases in CDS premiums increase investors' risk perception and lead to a decrease in portfolio investments. On the other hand, no causal effect of portfolio investments on CDS premiums was found. These findings emphasize the importance of risk management in terms of portfolio investments in Türkiye and reveal that CDS premiums play a role in investor decisions.

Economic Development and the Development of the Securities Market: A Study of China's CSI 300 Index

The Chinese securities market has experienced over two decades of development and has emerged as a significant global investment market. However, compared to other developed securities markets, it still faces issues such as an inadequate institutional framework, irrational investor behavior, and imperfect mechanisms. To explore the relationship between China's economic development and its securities market, this paper employs Eviews time series analysis and VAR modeling for empirical research, aiming to uncover the relationship and operational mechanisms between the two. The findings indicate a certain correlation between economic development and securities market development in China. The variance decomposition reveals that the contribution of economic development to the securities market is relatively low, highlighting a major issue within the Chinese securities market. Consequently, this paper proposes reform suggestions from various perspectives, including institutional, investor, and listed company aspects, to guide the healthy growth of the Chinese securities market and create a favorable environment for economic development.

EFFICIENT MARKET HYPOTHESIS DURING COVID-19 PANDEMIC: BRICS-T COUNTRIES

The impact of COVID-19 on financial markets has become a significant topic of research in the literature. Particularly, the declaration of the outbreak as a global pandemic by the World Health Organization on March 11, 2020, altered investors' risk perceptions and led to major fluctuations in stock markets. In this study, the response of stock indices in BRICS-T countries (Brazil, Russia, India, China, South Africa, and Türkiye) to the pandemic declaration was analyzed using the Event Study method. The event window was set as -5 to +5 days, and the estimation window was selected as the 90 days preceding the event. As a result of the analysis based on the comparison of normal and abnormal returns, it was found that all BRICS-T stock markets, except China, were not semi-strong form efficient. In addition, the results of the paired sample t-test applied to all stock markets demonstrated that the difference between abnormal returns calculated before and after COVID-19 was statistically significant. In this context, it was concluded that, unlike previous outbreaks, the COVID-19 pandemic led to significant fluctuations in financial markets. This study provides an important contribution to understanding the effects of the pandemic on emerging markets and examining investor behavior.