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21 – 30 of over 41000Shalini Kalra Sahi and Ashok Pratap Arora
Indian investors have been exposed to a plethora of investment opportunities in the past decade and a half, after the liberalization process which commenced in 1991. Over the…
Abstract
Purpose
Indian investors have been exposed to a plethora of investment opportunities in the past decade and a half, after the liberalization process which commenced in 1991. Over the years, the increased competition has brought a wind of change, not just in the economic environment within the country, but also a radical change in the choices and preferences of the financial consumers. In the endeavor to provide more personalized advice to the financial consumers, financial service providers need more insights into the minds of the consumers. However, little work has been done to understand the Indian individual investor. The purpose of this paper is to study the Individual investor in India: to segment the investor into distinct behavioural groups based on their biases; to understand the investment preferences and profile of the identified segments; and to understand the implications for financial services providers.
Design/methodology/approach
Exploratory research, using In‐depth interviews, was undertaken to explore the manifestations of the biases among the individual investors. The initial inventory of 97 items pertaining to biases was assessed for content and face validity and subject to pilot test and subsequent rounds of modification. The final data were collected on a sample of 377 respondents, using a questionnaire that captured eight biases: Reliance on experts; Overconfidence bias; Self‐control bias; Categorisation tendency; Budgeting tendency; Adaptive tendency; Socially responsible investing bias; and Spouse effect. The segments of investor biases were identified using cluster analysis.
Findings
A cluster analysis of data, collected from individual investors was conducted in India (n=377), yielded four main segments of individual investors biases, which have been termed as the Novice Learner, the Competent Confirmer, the Cautious Anticipator and the Efficient Planner. This typology has predictive validity with regard to financial satisfaction and perceived financial market knowledge.
Practical implications
The paper presents a very important practical tool which can help financial service providers define their target audience more sharply and understand how people in these segments differ, behaviorally. Better understanding of investor's perceptions would help in designing more attractive financial products and development of marketing strategies that would impact the customer's financial satisfaction levels and create trust and customer loyalty.
Originality/value
This paper is a first of its kind to empirically identify the segments of biased behavior among investors and contributes to furthering the understanding on investor behavior.
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Masatoshi Fujii, Chie Hosomi and Yoshiaki Nose
This study aims to fill the gap in previous research that focuses on the superficial aspects of equity crowdfunding (ECF) campaigns and financial practices by examining financial…
Abstract
Purpose
This study aims to fill the gap in previous research that focuses on the superficial aspects of equity crowdfunding (ECF) campaigns and financial practices by examining financial literacy aspects, such as due diligence and valuation, in terms of factors that influence Japanese individual investors' investments in ECF.
Design/methodology/approach
The status of information disclosure in ECF campaigns is checked. In addition, the feasibility of the initial due diligence and valuation using this information is verified. Specifically, the lack of financial literacy hypothesis is developed and (1) expected market capitalization in the final fiscal year of the business plan and (2) expected returns on investment (IRR: internal rate of return) are estimated.
Findings
ECF campaigns in Japan disclose information equivalent to that obtained by professional venture capitalists. Analysis of the disclosed business plan allows for initial due diligence and valuation. By contrast, due diligence reveals that some projects are unlikely to be listed even if their business plans are met, and others have low IRRs. In addition, a stock acquisition rights project, in which even professional investors are unable to calculate IRRs, is completed at the same rate as a common stock project; this suggests that individual investors lack financial literacy.
Originality/value
Analyzing ECF from financial literacy aspects, such as due diligence and valuation, is unique. Such aspects are essential for private equity investments but have not been addressed in previous studies.
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This paper computes the pricing errors of S&P 500 index by employing the valuation model developed by Doran et al. (2009) and investigates its response to individual and…
Abstract
Purpose
This paper computes the pricing errors of S&P 500 index by employing the valuation model developed by Doran et al. (2009) and investigates its response to individual and institutional investor sentiments. This study contributes to the literature by looking at both rational and quasi-rational sentiments and how noise trading and investments based on fundamentals affect pricing errors.
Design/methodology/approach
This paper computes the pricing errors of S&P 500 index by employing the valuation model developed by Doran et al. (2009) and investigates its response to individual and institutional investor sentiments.
Findings
Results show that pricing errors are persistent and stock prices systematically deviate from their intrinsic values. The authors also find that both individuals and institutional investors form their expectations based on risk factors as well as noise; however, institutional investors seems to be more driven by rational factors. The findings also suggest that institutional investors have a significant power to cause pricing errors due to unpredictable changes in their sentiments while small investors lack such ability to move stock prices away from their intrinsic values. Additionally, this paper finds that quasi-rational (rational) investor sentiments have positive (negative) impact on pricing errors suggesting that trading based on noise is an important determinant of pricing errors while investors' expectations stemming from fundamentals play an important role in improving market efficiency.
Research limitations/implications
The impact of rational outlook due to changes in fundamentals seems to be greater than that of noise on the pricing errors, consistent with both risk-based and behavioral models of the asset pricing literature.
Originality/value
Our study contributes to the existing literature in the following ways: first, the authors employ most recent data to compute mispricing for the market index and investigate if it is persistent and systematic. Second, the authors decompose sentiment variables into rational and quasi-rational components and trace their dynamics to better understand the role of risk factors and noise in the formation of sentiments. Third, the authors investigate the relative impact of individual and institutional investor sentiments on mispricing. Lastly, the authors examine the response of pricing errors to both rational and quasi-rational sentiments of individual and institutional investors.
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This 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…
Abstract
Purpose
This 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/approach
This 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.
Findings
The 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/value
This 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.
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Fangliang Huang, Li Sun, Jing Chen and Chaopeng Wu
The purpose of this study is to examine investors’ intention and behavior concerning ex ante information acquirement and ex post claims from the micro-level perspective with the…
Abstract
Purpose
The purpose of this study is to examine investors’ intention and behavior concerning ex ante information acquirement and ex post claims from the micro-level perspective with the deepening of the initial public offering (IPO) reform of China.
Design/methodology/approach
The authors made surveys and collected 932 valid questionnaires from investors in China. The authors also conducted interviews with sophisticated investors, investment bankers and government regulators to obtain first-hand information. Based on the survey results, the authors make the empirical analysis.
Findings
Investors’ attention to the first-hand information of the IPO prospectuses is inadequate. Individuals rely more on second-hand information, while institutions conduct more surveys. The higher the institutional practitioners’ degree of education, the more surveys they make. Only 1/3 investors intend to seek judicial remedy when getting fraud information due to high litigation costs and proof collecting difficulties. The investors who read more about prospectuses in advance are more likely to seek judicial protection afterwards. Compared with investors who know less about government administrative protection measures, those who know more have a low probability to choose “not to seek judicial protection.”
Originality/value
The authors enrich the research studies of IPO information acquisition and investor protection by conducting surveys to get first-hand data. Previous literature mostly makes empirical tests by using proxy variables.
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Sharda Kumari, Bibhas Chandra and J.K. Pattanayak
The purpose of this paper is to investigate the relationships between personality, motivating factors and herding behaviour of individual investors. Investors’ personality has…
Abstract
Purpose
The purpose of this paper is to investigate the relationships between personality, motivating factors and herding behaviour of individual investors. Investors’ personality has been classified consonant to the personality traits (compliant, aggressive and detached) encapsulated in Horney’s tripartite model.
Design/methodology/approach
To carry out this study, the author surveyed 363 individual investors of the Indian stock market using a structured questionnaire. Structural equation modelling is used to empirically test the relationships between personality, three motivating factors (cognitive capability, emotional factors and social factors) and herding behaviour.
Findings
The result reveals that, expect compliant personality, none shows proclivity towards herding behaviour. Investors possessing compliant personality are more influenced by social motivating factors; however, cognitive factor motivates aggressive personality, inhibiting herding behaviour. Furthermore, investors having detached personality are not influenced by any motivating factors of herding.
Research limitations/implications
The limitation is the difficulty in generalizing the results to overall country populations as the Indian stock market has a huge turnover every day, and the author’s survey consisted of only small sample of individual investors.
Practical implications
The outcomes of this study could possibly unveil a new insight to discern the behaviour of individual investors in the Indian stock market.
Originality/value
The influences of personality on investment choices have been investigated before, but the influence of personality specifically on herding behaviour has not being adequately investigated in an emerging economy like India, as very scanty literature is available on the influence of personality on herding behaviour. The study addresses this gap and further explores the association of personality with different motivating factors that cause herding bias.
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The paper takes a behavioral approach by making use of the prospect theory to unveil the impact of salience on short-term and long-term investment decisions. This paper aims to…
Abstract
Purpose
The paper takes a behavioral approach by making use of the prospect theory to unveil the impact of salience on short-term and long-term investment decisions. This paper aims to investigate the group differences for two types of investors’ groups, i.e. individual investors and professional investors.
Design/methodology/approach
The study uses partial least square-based structural equation modeling technique, measurement invariance test and multigroup analysis test on a unique data set of 277 active equity traders which included professional money managers and individual investors.
Findings
Results showed that salience has a significant positive impact on both short-term and long-term investment decisions. The impact was almost 1.5 times higher for long-term investment decision as compared to short-term decision. Furthermore, multigroup analysis revealed that the two groups (individual investors and professional investors) were statistically significantly different from each other.
Research limitations/implications
The study has implications for financial regulators, money managers and individual investors as it was found that individual investors suffer more with salience heuristic and may end up with sub-optimal portfolios due to inefficient diversification. Thus, investors should be cautious in fully relying on salience and avoid such bias to improve investment returns.
Practical implications
The study concludes with a discussion of policy and regulatory implications on how to minimize salience bias to achieve optimum and diversified portfolios.
Originality/value
The study has significantly contributed to the growing body of applied behavioral research in the discipline of finance.
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Syed Qasim Shah, Izlin Ismail and Aidial Rizal bin Shahrin
The purpose of this study is to empirically test the role of heterogeneous investor’s, i.e. institutional investors, individuals and insiders in deteriorating market integrity.
Abstract
Purpose
The purpose of this study is to empirically test the role of heterogeneous investor’s, i.e. institutional investors, individuals and insiders in deteriorating market integrity.
Design/methodology/approach
The research is conducted by examining the participants of 244 market manipulation cases of East Asian emerging and developed financial markets for the period of 2001–2016. The empirical analysis is conducted using panel logistic regression.
Findings
The results show that firms with higher institutional ownership are most likely to be manipulated in both markets. Insiders are potential manipulators in developed markets and deteriorate market integrity. In contrast, individual investors behave differently in both markets. In developed markets, firms with high individual ownership are less likely to be manipulated while in emerging markets, firms with individual ownership are more prone to manipulation because of substantial participation by individual investors which invites manipulative practices. Additionally, the authors found that firms with a higher proportion of passive institutional investors are less likely to be manipulated in emerging markets.
Originality/value
This study contributes to the existing literature by identifying the potential manipulators in the financial markets who deteriorate market integrity with the additional focus of subdivision of institutional investors as active institutional investors and passive institutional investor. The findings are helpful for regulators in designing policies to ensure market integrity and to enforce the role of institutional investors and insiders.
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Jin Young Yang, Aristeidis Samitas and Ilias Kampouris
This study investigates the dynamic relationships among trading behaviors of different investor groups (foreigners, domestic institutions and domestic individuals), stock returns…
Abstract
Purpose
This study investigates the dynamic relationships among trading behaviors of different investor groups (foreigners, domestic institutions and domestic individuals), stock returns and sovereign CDS (Credit Default Swap) spreads in Korea.
Design/methodology/approach
We employ the VAR (Vector autoregression) model to examine the dynamic relationships between CDS spread changes, stock returns and investors' behavior in the stock market.
Findings
The CDS spread change (stock return) declines (rises) in response to shocks to net foreign flows into the stock market on the same day. Foreigners buy stocks more intensely one day after an increase in the stock return, but they do not respond to CDS spread changes. Domestic individuals trade in the opposite direction of foreigners in response to shocks to both stock returns and CDS spread changes on the same day. Positive net stock purchases of domestic institutions (individuals) predict positive (negative) stock returns and negative (positive) CDS spread changes next day.
Originality/value
This study extends prior studies by examining how different investor groups' trading behaviors in the stock market are associated with not only the stock market but also a closely related market (CDS market). Prior empirical studies on the relation between the stock and CDS markets do not pay attention to possible heterogeneity in trading behavior across different types of investors in the stock market.
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The purpose of this paper is to report the results of an investigation into individual investors' perceptions of the factors affecting buying, holding and selling of stock on the…
Abstract
Purpose
The purpose of this paper is to report the results of an investigation into individual investors' perceptions of the factors affecting buying, holding and selling of stock on the Bahrain stock exchange (BSE). Additionally, the paper investigates the perceptions of individual investors about corporate financial statements as a source of information for individual investors' investment decisions and what specific information such investors would like firms to disclose in these reports.
Design/methodology/approach
The research method involved a mail questionnaire sent to 800 individual investors. The response rate was 42.6 percent. This research method was complemented by a series of field interviews conducted with 20 investors and six stockbrokers for the purpose of gaining additional insights into the topic.
Findings
The study found that individual investors perceived corporate financial statements as the most important source of information for their investment decisions. The results also show a relatively high degree of agreement within the groups (both large and small) as to the ranking in terms of the importance of the topics. Overall, the study found relatively high levels of consensus between the two user‐groups with regards to the majority of questions investigated. The greatest difference between the user‐groups regards the perception of the relative importance of the cash‐flow statement, the income statement and which information items are needed for investors' decision making.
Originality/value
The paper offers rich data on the perceptions and uses of financial and non‐financial information by individual investors. This is the first time this type of research has been conducted in Bahrain.
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