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Prelims

Arup Kumar Sarkar
Tarak Nath Sahu

Investment Behaviour

ISBN: 978-1-78756-280-6, eISBN: 978-1-78756-279-0

Publication date: 16 July 2018

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Citation

Sarkar, A.K. and Sahu, T.N. (2018), "Prelims", Investment Behaviour, Emerald Publishing Limited, Leeds, pp. i-xvii. https://doi.org/10.1108/978-1-78756-279-020181007

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Emerald Publishing Limited

Copyright © 2018 Emerald Publishing Limited

Half Title Page

INVESTMENT BEHAVIOUR: TOWARDS AN INDIVIDUAL-CENTRED FINANCIAL POLICY IN DEVELOPING ECONOMIES

Title Page

INVESTMENT BEHAVIOUR: TOWARDS AN INDIVIDUAL-CENTRED FINANCIAL POLICY IN DEVELOPING ECONOMIES

BY

ARUP KUMAR SARKAR

TARAK NATH SAHU

United Kingdom – North America – Japan – India – Malaysia – China

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Emerald Publishing Limited

Howard House, Wagon Lane, Bingley BD16 1WA, UK

First edition 2018

Copyright © 2018 Emerald Publishing Limited

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British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

ISBN: 978-1-78756-280-6 (Print)

ISBN: 978-1-78756-279-0 (Online)

ISBN: 978-1-78756-281-3 (EPub)

List of Figures

Chapter 5
Figure 5.1 Distribution of Age of Sample Respondents. 83
Figure 5.2 Distribution of Level of Education of Sample Respondents. 84
Figure 5.3 Distribution of Occupation of Sample Respondents. 84
Figure 5.4 Distribution of Annual Income of Sample Respondents. 85
Figure 5.5 Distribution of Experience of Sample Respondents. 85
Figure 5.6 Distribution of Objective of Sample Respondents. 85
Figure 5.7 Distribution of Sample Respondents on the Basis of Somewhat Knowledge. 86
Figure 5.8 Distribution of Sample Respondents on the Basis of Following Financial News on TV 87
Figure 5.9 Distribution of Sample Respondents on the Basis of Following News paper. 88
Figure 5.10 Distribution of Sample Respondents Who Know the Role of Brokerage Firms in Listing. 88
Figure 5.11 Distribution of Sample Respondents on the Basis of Ease of Access of Latest Reports. 88
Figure 5.12 Distribution of Sample Respondents on the Basis of Always Having Trust on Stock Market. 89
Figure 5.13 Distribution of Sample Respondents on the Basis of Attending Seminars, Conferences and so on. 89
Figure 5.14 Distribution of Sample Respondents on the Basis of Following Websites of Stock Exchanges. 90
Figure 5.15 Distribution of Sample Respondents on the Basis of Awareness of the Public Awareness Programme Organised by Stock Exchanges. 90
Figure 5.16 Distribution of Sample Respondents on the Basis of Peer Influence for Investing in Stock Market. 91
Figure 5.17 Distribution of Sample Respondents on the Basis of Awareness of the Listed Companies’ Financial Report. 91
Figure 5.18 Distribution of Sample Respondents on the Basis of Consulting Share Brokers and Other Experts for Making Investment Decision If Needed. 92
Figure 5.19 Distribution of Sample Respondents on the Basis of Awareness of the Corporate Development Report Given by Stock Exchanges. 92
Figure 5.20 Distribution of Sample Respondents on the Basis of Trouble of Getting Latest Information of Stock Market. 92
Figure 5.21 Distribution of Sample Respondents on the Basis of Having a Fear to Invest in Stocks That Have Exhibited a Sure Gain. 96
Figure 5.22 Distribution of Sample Respondents on the Basis of Having Hope When Undertaking Investment in Stock That Has Exhibited a Sure Loss. 96
Figure 5.23 Distribution of Sample Respondents on the Basis of Cautiousness about Stocks Which Show Sudden Changes in Price or Trading Activity. 96
Figure 5.24 Distribution of Sample Respondents on the Basis of Usual Worry in Investing in Stocks That Have Exhibited a Past Negative Performance in Trading. 97
Figure 5.25 Distribution of Sample Respondents on the Basis of Trading Based on Own Knowledge and Experience. 97
Figure 5.26 Distribution of Sample Respondents on the Basis of Attraction to Invest in Stocks Always. 98
Figure 5.27 Distribution of Sample Respondents on the Basis of Considering the Credibility of the Brokerage Firm. 98
Figure 5.28 Distribution of Sample Respondents on the Basis of Easiness of Ascertaining the Expertise of Services Provided by Brokerage Firm. 99
Figure 5.29 Distribution of Sample Respondents on the Basis of Easiness to Determine the Credibility of the Stock Market Always. 99
Figure 5.30 Distribution of Sample Respondents on the Basis of Easiness of Telling the Reputation of Brokerage Firms’ Staffing Service. 100
Figure 5.31 Distribution of Sample Respondents on the Basis of Opinion that the Idea of Participating in Buying/Selling on the Stock Market Is Appealing. 100
Figure 5.32 Distribution of Sample Respondents on the Basis of Opinion about the Easiness of the Stock Trading System on Stock Exchange. 101
Figure 5.33 Distribution of Sample Respondents on the Basis of Fear to Invest in Stocks That Have Shown a Past Positive Performance in Trading. 101
Figure 5.34 Distribution of Sample Respondents on the Basis of Regret Feeling of a Drop in the Price of a Stock That They Have Purchased. 102
Figure 5.35 Distribution of Sample Respondents on the Basis of Representativeness. 104
Figure 5.36 Distribution of Sample Respondents on the Basis of Overconfidence (Belief that Their Skills and Knowledge of Stock Market Can Help Them Outperform the Market). 105
Figure 5.37 Distribution of Sample Respondents on the Basis of Overconfidence (If They Have Incurred Losses, Responsible Factor Is Sheer Bad Luck or Other Market Factors). 106
Figure 5.38 Distribution of Sample Respondents on the Basis of Overconfidence (If They Have Earned Profits, They Want to Attribute It to Their Own Knowledge). 106
Figure 5.39 Distribution of Sample Respondents on the Basis of Anchoring (They Forecast the Changes in Stock Prices in the Future Based on the Recent Stock Prices). 107
Figure 5.40 Distribution of Sample Respondents on the Basis of Anchoring (They Usually Base on the Purchase Price of Stocks as a Reference Point in Trading). 107
Figure 5.41 Distribution of Sample Respondents on the Basis of Availability Bias (They Usually Consider Easily Available Information When Trading Stocks). 108
Figure 5.42 Distribution of Sample Respondents on the Basis of Availability Bias (They Are More Comfortable Investing in the Shares of Local Companies than Foreign Companies). 108
Figure 5.43 Distribution of Sample Respondents on the Basis of Gambler’s Fallacy. 109
Figure 5.44 Distribution of Sample Respondents on the Basis of Loss Aversion. 109
Figure 5.45 Distribution of Sample Respondents on the Basis of Regret Aversion. 110
Figure 5.46 Distribution of Sample Respondents on the Basis of Mental Accounting. 111
Figure 5.47 Distribution of Sample Respondents on the Basis of Price Change. 111
Figure 5.48 Distribution of Sample Respondents on the Basis of Over-reaction. 112
Figure 5.49 Distribution of Sample Respondents on the Basis of Whether Market Information Is Important. 112
Figure 5.50 Distribution of Sample Respondents on the Basis of Consideration of Past Trend of Stocks for Making Investment in Stock. 113
Figure 5.51 Distribution of Sample Respondents on the Basis of Analysis of the Companies’ Customer Preference before Investing in Stock. 113
Figure 5.52 Distribution of Sample Respondents on the Basis of Giving Attention to the Fundamentals of Underlying Stock. 114
Figure 5.53 Distribution of Sample Respondents on the Basis of Often Blindly Imitating Buying and Selling Decisions of Others When Making Investment Decision of Stock. 114
Figure 5.54 Distribution of Sample Respondents on the Basis of the Impact of Other Investors’ Decisions of Choosing Stock Types on Their Investment Decision. 115
Figure 5.55 Distribution of Sample Respondents on the Basis of the Impact of Other Investors’ Decisions of the Stock Volume on Their Investment Decision. 116
Figure 5.56 Distribution of Sample Respondents on the Basis of Usual Speed of Reaction to the Changes of Other Investors’ Decisions and Following Their Reactions to the Stock Market. 116

List of Tables

Chapter 5
Table 5.1 Cronbach’s α Value. 86
Table 5.2 Factor Analysis of Awareness. 94
Table 5.3 Factor Analysis of Perceived Risk Attitude. 103
Table 5.4 Association between Demographic Factors and Investment Behaviour. 117
Table 5.5 Association between Awareness and Investment Behaviour. 118
Table 5.6 Association between Perceived Risk Attitude and Investment Behaviour. 118
Table 5.7 Association between Demographic Factors and Investment Behaviour: Component Wise (Heuristics). 119
Table 5.8 Association between Demographic Factors and Investment Behaviour: Component Wise (Prospects). 120
Table 5.9 Association between Demographic Factors and Investment Behaviour: Component Wise (Markets). 121
Table 5.10 Association between Demographic Factors and Investment Behaviour: Component Wise (Herding). 122
Table 5.11 Association between Awareness and Investment Behaviour: Component Wise (Heuristics). 124
Table 5.12 Association between Awareness and Investment Behaviour: Component Wise (Prospects). 124
Table 5.13 Association between Awareness and Investment Behaviour: Component Wise (Markets). 125
Table 5.14 Association between Awareness and Investment Behaviour: Component Wise (Herding). 125
Table 5.15 Association between Perceived Risk Attitude and Investment Behaviour: Component Wise (Heuristics). 126
Table 5.16 Association Between Perceived Risk Attitude and Investment Behaviour: Component Wise (Prospects). 126
Table 5.17 Association between Perceived Risk Attitude and Investment Behaviour: Component Wise (Markets). 127
Table 5.18 Association between Perceived Risk Attitude and Investment Behaviour: Component Wise (Herding). 127
Table 5.19 Effects of Demographic Factors, Awareness and Perceived Risk Attitude on Heuristics Bias of Investment Behaviour. 129
Table 5.20 Effects of Demographic Factors, Awareness and Perceived Risk Attitude on Prospects Bias of Investment Behaviour. 130
Table 5.21 Effects of Demographic Factors, Awareness and Perceived Risk Attitude on Markets Bias of Investment Behaviour. 131
Table 5.22 Effects of Demographic Factors, Awareness and Perceived Risk Attitude on Herding Bias of Investment Behaviour. 132

Preface

Behavioural finance has emerged as a new concept in the research arena in recent times. Within this framework, many countries in the world take effective steps to develop the capital market to achieve good economic growth. Under this concept, it is presumed that information structure and characteristics of capital market participants (individual/retail investors) systematically influence their own decisions as well as the market outcomes. The information content of the market and the changes of economic climate of a country systematically influence individuals’ investment decisions as well as market outcomes. The output of a research work depends on various important factors such as choice of countries, variable selection, the time period studied, methodology used, etc. It is difficult to generalise the results because each market is unique in terms of its own rules, regulations and type of investors. Moreover, the results of those researches relating to the developed countries are debatable in the context of an emerging economy like India due to differences in socioeconomic conditions and prevailing regulatory environment of the country and many other things. This type of studies is on a sensitive area from the perspective of both the individual investor and also from the brokerage firms. They may not give the vital information for the lack of trust and familiarity with the researcher. There may have a scope to doubt the quality of the responses from the side of the respondents as responses depend upon their level of conceptualisation. There is a scope of collecting response from more diversified and more number of respondents. Always there is a scope to use more variables and better methodology to ensure the robustness of the result. In the previous studies mentioned above, sometimes the sample size is not enough to represent the entire stock market of the country. The contradictory findings and gaps of the research works are the motivation for conducting this study on the effect of demographic factors, awareness and perceived risk attitude on investment behaviour in stock market in the context of individual investors of stock market. The findings of this study provide a comprehensive understanding of the relationship between demographic factors, awareness and perceived risk attitude of the individual investors of stock market with their investment behaviour in stock market. At the same time, a better understanding of behavioural processes and outcomes is important for financial planners because an understanding of how investors generally respond to market movements would help investment advisors to recommend appropriate asset allocation strategies for their clients. For companies, identifying the most influencing factors on their investors’ behaviour would affect their future policies and strategies and it would also affect their future financial plans. For government, identifying the most influencing factors on investors’ behaviour would affect the required legislations and the additional procedures needed in order to satisfy investors’ desires. The book is a good reference of stock-investment behaviour for the investors to consider and analyse necessary information regarding stock market before making suitable decisions of investment. The research provides a good understanding to the brokers and sub-brokers about the effect of different components of demographic factors, awareness and perceived risk attitude on different components of investment behaviour of the individual investors and it will help them to give more reliable consultant information to their clients. In developed countries, behavioural finance is applied widely in comparison to less develop or developing countries to explore the behaviours that impact the investment decisions. This study is also done with hope to confirm the suitability of using behavioural finance in developed, developing and under developed countries and in all types of stock markets. Thus, such a study is worth doing to provide a good chance to understand more about the individual investor behaviour in stock market as well as the theories of behavioural finance. The book can help to guide portfolio allocation decisions, both by helping us to understand the kinds of errors that investors tend to make in managing their portfolios, and also by allowing us to understand better how to locate profit opportunities for investment management. Moreover, understanding the psychological foundation of human behaviour in financial markets facilitates the formulation of financial policy.

List of Abbreviations

BSE Bombay Stock Exchange
CFA Confirmatory Factor Analysis
EFA Exploratory Factor Analysis
KMO Kaiser-Meyer Olkin
NSE National Stock Exchange
SEBI Securities and Exchange Board of India
SEM Structural Equation Modelling
SPSS Statistical Package for Social Sciences
Edu Education
Occ Occupation
Ay Annual Income
Exp Experience
Obj Objective
Sol Social Learning
Fia Financial Awareness
Aff Affect
Cog Cognition
Heu Heuristics Bias
Pros Prospect Bias
Mkt Market Bias
Hrd Herding Bias
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