Personal Investment Decisions Research Articles

Financial literacy, Cognitive bias, And personal investment decisions: A new perspective in behavioral finance

Financial literacy, Cognitive bias, And personal investment decisions: A new perspective in behavioral finance

Who’s afraid of cryptoization? Evidence from a survey experiment in Finland

This study examines attitudes toward the economic and political outcomes of widespread cryptocurrency adoption in a survey experiment conducted in Finland. Its goal is to assess how information on the political implications of cryptocurrencies influences individuals’ investment tendencies and their views on regulation and technology abolishment. Utilizing a survey experiment design for causal inference, it explores reactions to the perceived economic, monetary, fiscal, and geopolitical impacts of wider cryptocurrency adoption. Although priming messages had no significant effect on opinions about government intervention in crypto markets, a slight influence on personal investment decisions was noted, with some participants showing increased reluctance to invest due to potential economic and political repercussions. While our findings are not claimed to be universal, we aim to inspire further scholarly engagement with the topic of crypto adoption, a process currently influenced by negotiations between powerful interest groups and regulators. We argue for the importance of considering public attitudes and interests in these discussions.

Financial Behavior in Personal Investment: Influence of Psychological Factors on Investment Decision

In the ever-evolving realm of financial markets, understanding the underlying psychological dynamics shaping investor behavior is paramount. Financial behavior refers to the choices and actions people make when managing their own cash across a range of investment vehicles, including stocks, bonds, mutual funds, and real estate. It includes components that are vital in determining the results of investments, including risk tolerance, investment objectives, decision biases, emotions, and financial literacy. Achieving long-term investment success and financial security requires an understanding of and ability to control one's own financial behavior. An extensive research model has been painstakingly built to clarify the complex connections between these psychological variables and the process of making investing decisions. This study examines the impact of three psychological aspects on investment decisions made by 220 investors who trade on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE): information asymmetry, problem framing, and risk propensity. Effective investing strategies necessitate an awareness of the interplay between psychological biases and cognitive processes, as these aspects influence personal investment decisions. By using a quantitative research methodology, information was gathered by sending surveys to investors who were actively trading stocks on the BSE and NSE platforms. Regression analysis and correlation studies are two statistical analytic approaches that were used to investigate the connections between investing decisions and psychological aspects. The study's conclusions add to the corpus of knowledge by illuminating the complex dynamics of financial decision-making and the part played by psychological variables. Furthermore, the knowledge gained from this study has important ramifications for financial advisors, investors, and legislators that aim to improve investor welfare and encourage well-informed stock market decision-making.

How Demographics and General Economic Mood Affect Investor Risk Tolerance?

Investment decisions made ​​by investors are strongly influenced by their risk tolerance. Individual risk tolerance will influence their asset allocation decision. This paper used primary data to examine the factors influencing investor risk tolerance. Two factors considered in this study are demographics and general economic mood. Demographic characteristics include gender, occupation, age, marital status, income, and education. General economic mood is people's perceptions about the prospects for a country's economy at present and in the future. Using convenience sampling, we distributed questionnaires to investors in the Indonesia Stock Exchange and senior students. The total number of data used in this research is 200 respondents. This research found that the general economic mood, gender, and occupation positively impact investor risk tolerance. In contrast, our research found the negative impact of education and average monthly income on investors' risk tolerance. Further, age and marital status do not affect the investor's risk tolerance. This finding is important for financial planners to advise on personal investment decisions.

Impact of Financial Literacy on Personal Investment Decisions in Kathmandu Valley

In the realm of finance, financial literacy and personal investment decision-making are two important constructs that have been extensively studied. The purpose of this research is to measure the impact of financial literacy on personal investment decisions in Kathmandu valley. A descriptive and causal study was constructed for this study. For the collection of information, structured questionnaires were developed and used in a questionnaire survey. Participants in the stock market made up the study's subjects. According to the convenience sampling approach, 200 samples were collected. Reliability analysis, descriptive statistics, correlation analysis, and regression analysis were all used to comprehensively assess the data. The study found that financial behavior, financial attitude, financial awareness, and financial skill have a significant impact on investment decisions. Policymakers should promote financial literacy and protecting investors can lead to better financial outcomes for individuals and society as a whole.

Influence Of Financial Literacy on Personal Investment Decisions Among Kenya Football Premier League Players in Kenya

Financial literacy plays an essential role in the process of making financial decisions, as it represents a systematic effort aimed at the development of positive knowledge, and attitude. Extant literature indicates that the financial literacy among football players is low which ultimately affects their investment decisions. Therefore, the purpose of this study was to determine the influence of financial literacy on personal investment decisions among KPL players in Nairobi. The study was guided by the following specific objectives; to determine the influence of savings decisions, financial knowledge and skills, financial awareness and financial attitude on personal investment decisions among KPL players in Nairobi. The study adopted dual process theory, the exchange theory and the goal setting theory. The study employed a descriptive research design. The target population was 396 football players from the 18 teams playing the KPL for the season 2020/2021. The study covered a period of one year from November 2020 to August 2021. This study used a sample of 30% from each of the 18 KPL teams. Therefore, from each of the 18 teams, 7 football players were randomly selected making up a sample size of 126 football players. A self-administered structured questionnaire was given to the respondents for data collection. Quantitative data collected was analyzed using descriptive and inferential statistics. Statistical Package for Social Sciences (SPSS V. 23.0) was used for data analysis. Regression model was used to establish the relationship between the study variables. Before conducting the regression analysis, diagnostic tests was conducted. These tests included the multicollinearity and normality tests. The findings were presented in form of tables and figures. The findings were of importance to the football teams in Kenya as it emphasized on the need for financial literacy training. The study established that savings decisions, financial knowledge and skills, financial awareness and financial attitudes had a positive and significant influence on personal investment decisions among Kenya football premier league players in Kenya. The study concluded that the most important reason why one should start planning at an early stage of making saving decision is the power of compounding, which allows you to earn extra money on the interest received from investments. Being financially knowledgeable and skilled allows an individual to be better prepared for specific financial roadblocks, which, in turn, decreases the chances of personal economic distress. Financial awareness enables players to gain the ability to use knowledge and skills to effectively manage financial resources efficiently at a personal-level and through the lifecycle. In this era of dynamic financial markets and turbulent economic environment it is very important for every individual to keep a positive mindset towards his/her finances. A positive financial attitude helps an individual strike a right balance between the utilization of money and other aspects of life, not become overly conservative and achieve long-term financial goals. The study recommended that an individual should make a financial plan by making his or her own list and then think about which goals are the most important to him or her. The players should be encouraged to subscribe to financial newsletters. The players needs a basic understanding of financial concepts to make good financial decisions. every individual needs to keep a positive outlook about personal finances and the key to this is to develop financial skills in consultation with an expert like a certified financial planner (CFP) professional, who is equipped to take one on the path to attain freedom from financial worries.

Transferring cognitive talent across domains to reduce the disposition effect in investment

We consider Theory of Mind (ToM), the ability to correctly predict the intentions of others. To an important degree, good ToM function requires abstraction from one’s own particular circumstances. Here, we posit that such abstraction can be transferred successfully to other, non-social contexts. We consider the disposition effect, which is a pervasive cognitive bias whereby investors, including professionals, improperly take their personal trading history into account when deciding on investments. We design an intervention policy whereby we attempt to transfer good ToM function, subconsciously, to personal investment decisions. In a within-subject repeated-intervention laboratory experiment, we record how the disposition effect is reduced by a very significant 85%, but only for those with high scores on the social-cognitive dimension of ToM function. No such transfer is observed in subjects who score well only on the social-perceptual dimension of ToM function. Our findings open up a promising way to exploit cognitive talent in one domain in order to alleviate cognitive deficiencies elsewhere.

Financial markets and institutions

The main purpose of the company is to increase the price of its shares. Share prices are determined in the financial markets; so if financial managers have to make good decisions, they need to understand how these markets work. In addition, individuals make personal investment decisions, so they also need to know how to deal with the financial markets and institutions that operate in these markets. That is why in this article we describe the markets in which capital, securities are traded and stock prices and the institutions that trade in those markets are established.

Millionaires speak: What drives their personal investment decisions?

We survey 2484 U.S. individuals with at least $1 million of investable assets about how well leading academic theories describe their financial beliefs and personal investment decisions. The wealthy's beliefs about financial markets and the economy are surprisingly similar to those of the average U.S. household, but the wealthy are less driven by discomfort with the market, financial constraints, and labor income considerations. Portfolio equity share is most affected by professional advice, time until retirement, personal experiences, rare disaster risk, and health risk. Concentrated equity holding is most often motivated by belief that the stock has superior risk-adjusted returns. Beliefs about how expected returns vary with stock characteristics frequently differ from historical relationships, and more risk is not always associated with higher expected returns. Active equity fund investment is most motivated by professional advice and the expectation of higher average returns. Berk and Green (2004) rationalize return chasing in the absence of fund performance persistence by positing that past returns reveal managerial skill but there are diminishing returns to scale in active management. Forty-two percent of respondents agree with the first assumption, 33% with the second, and 19% with both.

Cancer and Portfolio Choice: Evidence from Norwegian Register Data

Abstract We examine the personal investment decisions of 60,000 households following a cancer diagnosis. To create a control group that minimizes the likelihood that the results are confounded by lifestyle factors, we rely on households diagnosed with the same diagnosis but a few years later. Our estimates show that a cancer diagnosis reduces households’ willingness to take risks with their financial wealth. We use the vast heterogeneity among cancers regarding its impact on life expectancy (LE) and income to analyze through which channels cancer impact risk-taking. We find that cancers that have a greater impact on LE and income cause a larger reduction in risk-taking. These two channels account for about 40–90% of the estimated effects of cancer on personal investment decisions. We do not find any association between having dealt with cancer many years ago and current portfolio choices.

The Effect of Financial Literacy on Personal Investment Decisions amongst Medical Practitioners in Sri Lanka

Financial literacy is very essential for any individual in order to efficient and effective decisions regarding their personal investments. Based on that scenario, this study examines the impact of financial literacy on personal investment decisions amongst medical practitioners in Sri Lanka. Personal investment decision has been considered as the dependent variable while financial knowledge, financial skills and financial attitude has been considered as the proxies for the independent variable. Deductive approach has been employed using primary data which is obtained from 205 respondents throughout the country. Descriptive and inferential statistics such as multiple linear regression have been used for the analysis purpose. The results suggested that there is a significant impact between the financial knowledge and financial skills on investment decision while the financial attitude does not have a significant impact on the investment decision. The empirical findings of this study are helpful for any individual who is willing to take effective investment decisions, academics, policy makers and all other related interested parties.

Gender Impact on Personal Investment Strategies

Abstract Research purpose. This study is dedicated to investigating the peculiarities of personal investment decisions among female and male investors to analyse the gender differences that occur during personal investment strategy establishment processes. This study is based on the literature research and aims at exploring the existing knowledge on financial behaviour and gender influence on personal investment selection. The importance and originality of this study are that it assesses the collective evidence in the personal investment field and explores its processes through the prism of gender impact. The understanding of the gender bias impact on the personal investment strategy development process can play an important role in addressing the issue of gender inequality in finance and investment areas. This paper is dedicated to answering the question of how gender impacts personal investment strategies. Design/ Methodology/ Approach. The major task was to conduct the research on the male and female personal investment decision peculiarities presented in literature sources and to prepare the survey to conduct practical research while applying theoretical knowledge and presenting the findings along with the suggestions on how to improve the female situation in investment field. Findings. The most prominent finding to emerge from this study is that females lack knowledge and understanding in finance and especially investment areas; therefore, this leads to inadequacy in self-confidence in finance and investment matters and, as a result, neglect of successful personal finance management and, more significantly, poor investment strategy decisions. Originality/ Value/ Practical implications. The main goal of the current study was to determine whether the gender difference exists in personal finance and especially investment area, to refine the reasons behind this phenomenon, to analyse what could be done to improve the situation and introduce suggestions for further research. The research was done based on relevant literature, reports, surveys, statistical data used for literature analysis, and Lithuania’s case study for the practical part of the research. The primary objectives were to find out what are the main peculiarities between males and females when it comes to personal investment strategy choices and to analyse financial literacy and investment fields through the female perspective. The main points revealed during this study were that men tend to invest more often than women, as females, in general, prefer to save rather than invest; women tend to choose less risky investment strategies compared to men or save rather than invest. The main factors of this phenomena are the influence of cultural, social, or psychological factors, low financial literacy level, differences in economic status, longer life expectancy, the lack of confidence when it comes to knowledge applied to the financial decisions; males are more likely to choose a higher-risk investment strategy and to be more confident in their investment ability even if they have less knowledge on the matter. The analysis of Lithuania’s case has also confirmed the main literature review findings and reported females to lack financial and investment knowledge, spare funds and prefer to save rather than invest or invest into the low-risk tools.

Investment behaviour of women entrepreneurs

PurposeThe purpose of this paper is to understand the new kind of investors – women entrepreneurs – and to find out the factors that drive their investment behaviour and investment decisions.Design/methodology/approachThe approach of qualitative enquiry was used for the research in which 18 in-depth exploratory interviews were conducted to identify the determinants of the investment behaviour shown by women entrepreneurs, a growing segment in investment. The accumulated data was analysed using open coding.FindingsThe research show that women entrepreneurs consider investment as a long-term instrument are risk averse and quite conservative. They are willing to take risks in business but not for making investment decisions. The reasons for this low-risk behaviour include lack of time to understand investments and lack of knowledge about various products. The research asserts that if they spend time to be informed about the nuances of investment instruments, they are likely to take risks for their investments as well. The interviews also reflect that women entrepreneurs often mimic the investment behaviour of their parents.Research limitations/implicationsThe sample for this research was taken from only two cities in India and a broader research in other cities as well will expand the understanding of investment behaviours demonstrated by women entrepreneurs. The differences in women entrepreneurs’ investment behaviour due to culture and ethnicity of the respondent are also not considered.Practical implicationsThe outcomes of the research will help the investment manager to get a better insight into the psychology of women entrepreneurs as investors. This will help them develop personalized and relevant portfolio recommendations. Second, the findings will help service providers to develop training modules for their investment advisors by sensitizing them to needs and wants of women entrepreneurs as potential investors. Third, the research will be of interest for policymakers and researchers to understand the determinants of personal investment decision-making amongst women entrepreneurs. Finally, it will help women entrepreneurs understand and mitigate their biases while taking investment decisions. It will lead them to take wiser investment decisions, thereby reducing the risk and maximizing opportunities of returns.Social implicationsThe research will provide opportunities for enhancing gender equality amongst investors. This can be achieved by educating the investment advisors on the traits and preferences of women entrepreneurs as investors. Designing and delivering specific workshops on investment awareness for women entrepreneurs can also be accomplished based on the findings of this research.Originality/valueTo the researcher’s best knowledge, the investment behaviour of women entrepreneurs in India has been little investigated. This study appears to be the first qualitative research attempt in that direction. This paper will be useful in understanding the behavioural biases by women entrepreneurs in considering their personal investment decisions.

Millionaires Speak: What Drives Their Personal Investment Decisions?

Millionaires Speak: What Drives Their Personal Investment Decisions?

Investment Professionalss Use of Corporate Social Responsibility Disclosures

We conduct an experiment to examine investment professionals’ use of corporate social responsibility (CSR) disclosures when making personal investment decisions or Investment recommendations to clients. We predict and find that investment professionals are more willing to personally invest and recommend investment to a client when a firm discloses positive CSR performance than when it makes no CSR disclosures. Investment professionals’ decisions and recommendations are influenced by CSR disclosures both because, on average, they believe that better CSR performance results in better current and longer-term financial performance and because they value the societal benefits of CSR activities. We also find that Investment professionals’ general beliefs regarding whether CSR activities benefit society affect how they assess firms’ CSR performance and their view of the relation between CSR performance and financial performance. Finally, investment professionals’ experience appears to protect them from the potential biasing effect of appealing pictures that accompany many CSR disclosures.

Conviction Function? A New Decision Paradigm for Personal Financial Risk Management in the Face of Large Exogenous Shocks

This paper contributes to the limited-information literature on savings in a stochastic environment. In particular, it contributes techniques and concepts to the question of state verification (or filtering), by including learning about aggregate income shocks, based on signals. As a seminal contribution to the extant literature, a “conviction function” is introduced, which takes into account histories of past prediction errors in determining how rational agents internalize such information in taking personal investment decisions. For purpose of a more transparent illustration, a numerical rendition of the posited model is provided for five consecutive time periods. We also perform a series of Monte Carlo simulations to demonstrate how the posited approach could potentially outperform traditional forward-looking models in the presence of sudden large extraneous shocks reminiscent of the recent Global Financial Crisis.

CEO personal investment decisions and firm risk

AbstractWe develop a novel method of measuring CEO risk preference based on their personal allocation of deferred compensation funds, and find CEOs holding more volatile deferred compensation portfolios lead riskier firms. We also use the 2008 financial crisis as a natural experiment to check the robustness of this new method and find consistent evidence in support of a positive association between CEO risk‐taking and firm risk. Moreover, the evidence shows that risk‐taking CEOs pursue risky financial and investment policies. Our results, in accord with the behavioural consistency theory, demonstrate that CEOs act consistently across personal and professional choices.

Looking for Someone to Blame: Delegation, Cognitive Dissonance, and the Disposition Effect

ABSTRACTWe analyze brokerage data and an experiment to test a cognitive dissonance based theory of trading: investors avoid realizing losses because they dislike admitting that past purchases were mistakes, but delegation reverses this effect by allowing the investor to blame the manager instead. Using individual trading data, we show that the disposition effect—the propensity to realize past gains more than past losses—applies only to nondelegated assets like individual stocks; delegated assets, like mutual funds, exhibit a robust reverse‐disposition effect. In an experiment, we show that increasing investors' cognitive dissonance results in both a larger disposition effect in stocks and a larger reverse‐disposition effect in funds. Additionally, increasing the salience of delegation increases the reverse‐disposition effect in funds. Cognitive dissonance provides a unified explanation for apparently contradictory investor behavior across asset classes and has implications for personal investment decisions, mutual fund management, and intermediation.

Impact of Personal Epistemology, Heuristics and Personal Attributes on Investment Decisions

Investors who choose to invest or divest their funds abruptly contribute to the instability of the stock market. In such a volatile market when one investor chooses to invest in companies in spite of unstable prices, others decide not to invest. What individual indifference factors might predict opposing investment decisions such as these? Finance Literature proves that heuristics are significantly related to risky decision making and but there have been no studies to explore whether locus of control plays a role in behavioral finance. The present study has been undertaken to investigate whether locus of control predicts hot-come effect and its converse gambler’s fallacy, when making personal investment decisions. The study has also analyzed investment experience as a possible determinant of hot-outcome or gambler’s fallacy heuristics. The collective effect of an individual’s locus of control and investment experience on investment decisions has been predicted using structural equation modeling. The present study has been done in the Kingdom of Saudi Arabia where 144 investors with prior investment experience and 124 new investors completed the Rotter’s (1954) LOC and the adopted version of an Investment Survey Questionnaire. Results suggest that hot-outcome heuristic, trend length, trend valence and prior investment experience are factors that influence personal financial decision making. Results affirm that novice investors tend to utilize the hot-outcome heuristic regardless of the reference groups, while experienced investors from both reference groups apply gambler’s fallacy heuristics to decide on investments.

Looking for Someone to Blame: Delegation, Cognitive Dissonance, and the Disposition Effect

We analyze brokerage data and an experiment to test a cognitive-dissonance based theory of trading: investors avoid realizing losses because they dislike admitting that past purchases were mistakes, but delegation reverses this effect by allowing the investor to blame the manager instead. Using individual trading data, we show that the disposition effect -- the propensity to realize past gains more than past losses -- applies only to non-delegated assets like individual stocks; delegated assets, like mutual funds, exhibit a robust reverse-disposition effect. In an experiment, we show increasing investors' cognitive dissonance results in both a larger disposition effect in stocks and also a larger reverse-disposition effect in funds. Additionally, increasing the salience of delegation increases the reverse-disposition effect in funds. Cognitive dissonance provides a unified explanation for apparently contradictory investor behavior across asset classes and has implications for personal investment decisions, mutual-fund management, and intermediation.