Search results
1 – 10 of over 47000Haruna Babatunde Jaiyeoba, Moha Asri Abdullah and Khairunisah Ibrahim
Guided by several pioneered studies, the purpose of this paper is to comprehensively investigate the investment behaviours of Malaysian retail and institutional investors in an…
Abstract
Purpose
Guided by several pioneered studies, the purpose of this paper is to comprehensively investigate the investment behaviours of Malaysian retail and institutional investors in an attempt to identify whether the influence of psychological biases is equally applicable to investor divides.
Design/methodology/approach
The researchers have adopted a quantitative research design by way of survey methodology to obtain data from institutional and retail investors in Malaysia. In addition, the authors have mainly employed second-order measurement invariance analysis to uncover the difference across investor divides.
Findings
The tests of measurement invariance at the model level indicate an insignificant difference between institutional investors and retail investors. The post hoc test (at the path level) reveals that institutional and retail investors are similar with respect to representative heuristic, overconfidence bias and anchoring bias; though the results also show that they are different with respect to religious bias and herding bias.
Research limitations/implications
Based on the findings of this study, it is generally not logical to assume that institutional investors completely behave rational during investment decisions. Besides, future researchers are called upon to directly compare the investment decisions of institutional and retail investors with respect to whether the influence of psychological biases is equally applicable to them, particularly on the investigated psychological biases and other psychological biases that are not covered in this study.
Originality/value
This study has offered insight into whether the influence of psychological biases is equally applicable to institutional and retail investors in Malaysia using second-order measurement invariance analysis. This study is unique in context and the approach it has adopted.
Details
Keywords
Niklas Kreilkamp, Maximilian Schmidt and Arnt Wöhrmann
The purpose of this paper is to investigate if and how firms approach debiasing and what determines its success. In particular, this study examines if debiasing is effective in…
Abstract
Purpose
The purpose of this paper is to investigate if and how firms approach debiasing and what determines its success. In particular, this study examines if debiasing is effective in reducing cognitive decision biases. This paper also investigates organizational characteristics that determine the effectiveness of debiasing.
Design/methodology/approach
This study uses survey data from German firms to answer the research questions. Target respondents are individuals in a senior management accounting function.
Findings
In line with the hypotheses, this paper finds that debiasing can reduce cognitive biases. Moreover, this study finds that psychological safety not only directly influences the occurrence of cognitive biases but is also an important factor that determines the effectiveness of debiasing.
Research limitations/implications
This paper provides evidence that debiasing can serve as a powerful management accounting tool and discusses debiasing in the context of recent management accounting literature. This study also adds to the stream of research that investigates the role of psychological safety in organizations by highlighting its importance for successful debiasing.
Practical implications
This paper informs firms that use or intend to use debiasing about crucial determinants to consider when debating its implementation, i.e. psychological safety. This study also identifies risk management as a potential interface for the implementation of systematic debiasing.
Originality/value
While previous research primarily addresses specific cognitive biases and debiasing mechanisms using lab experiments, this is – to the best of the knowledge – the first study investigating cognitive biases and debiasing on a broad conceptual level using survey data.
Details
Keywords
Rayenda Khresna Brahmana, Chee‐Wooi Hooy and Zamri Ahmad
This research aims to explore and explain the determinants of irrational financial decision making, especially the day‐of‐the week anomaly, by using psychological approach.
Abstract
Purpose
This research aims to explore and explain the determinants of irrational financial decision making, especially the day‐of‐the week anomaly, by using psychological approach.
Design/methodology/approach
As it is a conceptual paper, this research explores the psychological biases literature and links it to the day‐of‐the week anomaly. Using Ellis' ABC (Activating Event, Belief, and Consequences) Model, the authors survey and classify the stimulant as the occasion that stimulates the psychological biases of investors, and these psychological biases will bring a consequence in behaviour which is irrationality in weekend effect.
Findings
Adopting Ellis' ABC model, the paper constructs a theoretical framework that link the psychological biases and day‐of‐the week anomaly. The theoretical model is also given as a proposed model for future empirical research.
Research limitations/implications
This paper contributes to research by giving the theoretical model and its framework. The latter, future research can examine the proposed psychological biases as the determinant of day‐of‐the week anomaly empirically.
Originality/value
This paper conceptually builds a framework and derives a proposed equation model linking the psychological biases (weather, moon, attention bias, heuristic bias, regret, and cognitive bias) to the day‐of‐the week anomaly.
Details
Keywords
Rayenda Brahmana, Widyana Verawaty Siregar and Arnawan Hsb
Using the hyperbolic discounting approach in qualitative manner, the purpose of this paper is to explore the linkage of the time preference bias towards the too early execution of…
Abstract
Purpose
Using the hyperbolic discounting approach in qualitative manner, the purpose of this paper is to explore the linkage of the time preference bias towards the too early execution of strategic focused planning. The paper also investigates the role of psychological bias in explaining the early execution.
Design/methodology/approach
This research use qualitative methods to explore the role of hyperbolic discounting in driving the psychological bias towards too early strategic scenario planning, and its rationalization. The authors conducted a face‐to‐face survey going door‐to‐door of the small to medium‐sized enterprises (SMEs). The samples in this research are Indonesian SMEs from the northern part of Sumatra.
Findings
This research found most of the SMEs' managers are time preference biased due to hyperbolic discounting. This hyperbolic discounting awoke manager's psychological bias and resulted in too early decision making. This psychological bias might be due to prospect theory, or the representative effect, or framing bias, or the adaptive bias.
Research limitations/implications
The sample is only taken from Northern part of Indonesia. To have a robust generalization, the research should be conducted in the whole of Indonesia.
Practical implications
This paper can be used by practitioners to understand their behaviour towards strategic decision making. Further, practitioners will know if their time preference bias will not generate better result.
Details
Keywords
Manpreet K. Arora and Sukhpreet Kaur
Employee Stock Options [ESOs] have been used widely as a component of employees' compensation. To maximise the incentive effect of these options it is very important to understand…
Abstract
Purpose
Employee Stock Options [ESOs] have been used widely as a component of employees' compensation. To maximise the incentive effect of these options it is very important to understand the exercise decision of the employees. This is an important financial decision that is dependent on both rational and psychological factors. This paper aims to study the mediating role of Herding Bias on Personality Traits and the employees' decision to exercise ESOs.
Design/methodology/approach
The data were collected through a self-structured questionnaire from 210 employees of Banks and NBFCs [Non-Banking Financial Companies] who have received and exercised the ESOs. SPSS MACRO version 25 was used to understand the mediational effect of Herding Bias on Personality Traits and Employees' decision to exercise their ESOs.
Findings
The results showed that Personality Traits affect the employees' decision to exercise their ESOs. The study also shows a partial negative mediating effect of Herding Bias on Personality Traits and employees' decision to exercise ESOs.
Originality/value
Limited study has been conducted on how the employees make their decision to exercise ESOs. Although extant studies have touched upon the importance of including behavioural biases in ascertaining the exercise decision of the employees, the predictors of the behavioural biases have not been studied under this context. To the best of the author's knowledge, this study is the first in itself to study the inter-linkage between Personality Traits, Herding Bias and employees' decision to exercise ESOs.
Details
Keywords
Riidhi Jain, Dipasha Sharma, Abhishek Behl and Aviral Kumar Tiwari
The purpose of this study is to examine the role of personality traits (PTs) of individual investors on their investment intention (II). Further, to study the mediating role of…
Abstract
Purpose
The purpose of this study is to examine the role of personality traits (PTs) of individual investors on their investment intention (II). Further, to study the mediating role of overconfidence (OC) bias and financial literacy (FL) on the relationship between PTs and II.
Design/methodology/approach
The present study uses the quantitative approach for the data collection from the sample of 327 Indian investors investing in the stock market. The questionnaire was divided into segments to assess the investor’s PTs, OC, FL and II. The PT has been measured using the Big Five Personality Traits. Confirmatory factor analysis was used to test the reliability and validity of the constructs. The hypothesis was tested using structural equation modeling.
Findings
Findings of the study show that the PTs of an individual investor are associated with FL and II but insignificant with OC bias. Further, the FL and OC bias have a positive and significant influence on II. In addition, the mediation analysis showed that FL partly mediates the relationship between PTs and II.
Practical implications
The present study is helpful for financial companies, government, personal finance advisors and individual investors; they can keep in mind the behavior-related traits that can influence the investment decisions and design the portfolio accordingly. The policy-makers can implement programs on FL to enhance investment decisions in India.
Originality/value
This paper is unique that covers the mediating role of psychological bias, i.e. OC bias and FL, between the PTs and II of an Indian investor.
Details
Keywords
Haruna Babatunde Jaiyeoba, Abideen Adeyemi Adewale, Razali Haron and Che Muhamad Hafiz Che Ismail
This study aims to investigate the Malaysian retail investors and fund managers’ investment decision behaviours. The study offers an important opportunity for understanding the…
Abstract
Purpose
This study aims to investigate the Malaysian retail investors and fund managers’ investment decision behaviours. The study offers an important opportunity for understanding the investors’ experiences, how they understand the Malaysian economy and their priorities for company selection. Other main aspects of this study are how investors mitigate the influence of emotions and psychological biases and challenges faced during investment decisions.
Design/methodology/approach
The researchers have mainly adopted an interpretivist approach for the present study. Qualitative data elicited through semi-structured interviews conducted with four retail investors and four fund managers were subjected to qualitative thematic analysis.
Findings
The results reveal that the investment decision processes of fund managers are more comprehensive than those of retail investors. Although both fund managers and retail investors acknowledge the influence of psychological biases on their investment decisions, the former use different and comprehensive approaches to mitigate such influences during investment decisions compared with the latter. Other important findings are how investors understand the Malaysian economy, their priorities for company selection and challenges faced during investment decisions.
Research limitations/implications
The researchers have interviewed eight carefully selected interviewees across retail investors and fund managers divide. Adopting other grouping criteria, focus group discussion with more respondents or adopting a mixed-methods approach may increase our understanding of the investment decision behaviours of Malaysian retail investors and fund managers.
Practical implications
This study could be used as a guide by both retail investors and fund managers when making investment decisions.
Originality/value
This research has included both retail investors and fund managers; it has also increased literature on investment decision and behavioural finance, particularly in the context of Malaysian investors and managers.
Details
Keywords
Faten Tlili, Mustapha Chaffai and Imed Medhioub
The aim of this paper is double: firstly, to examine the presence of herd behavior in four MENA stock markets (the Egyptian, Jordanian, Moroccan and Tunisian markets), and…
Abstract
Purpose
The aim of this paper is double: firstly, to examine the presence of herd behavior in four MENA stock markets (the Egyptian, Jordanian, Moroccan and Tunisian markets), and secondly, to study the anchoring behavior in these markets.
Design/methodology/approach
The authors employ quantile regression analysis for testing herding bias in the MENA region, following the methodology of Chiang and Zheng (2010). Regarding the evaluation of anchoring bias, the authors follow the methodology of Lee et al. (2020). The study uses daily stock index returns ranging from April 1, 2011, to July 31, 2019, as well as CAC40 and NASDAQ returns.
Findings
The authors find evidence of herding during down-market periods in the lower tail for Egypt, Jordan and Tunisia, while this bias is detected during up-market periods in the lower tail for Morocco. In addition, based on historical returns, the authors conclude that there is a momentum effect in these markets, and they are dependent on the CAC40 and NASDAQ indices.
Practical implications
This paper confirms the findings of previous works devoted to some emerging markets such as China, Japan and Hong Kong, where anchoring and herding are considered the most important and impactful heuristic and cognitive biases in making decisions under uncertainty, particularly during down-market periods.
Originality/value
The paper contributes to the empirical literature in herding and anchoring biases for MENA countries. The absence of empirical work on the effect of these biases on stock prices in emerging markets and those of the MENA zone leads to the discussion of the impact of psychological biases on these of markets.
Details
Keywords
The aim of this paper is to systematically review the literature published in recognized journals focused on recognition-based heuristics and their effect on investment management…
Abstract
Purpose
The aim of this paper is to systematically review the literature published in recognized journals focused on recognition-based heuristics and their effect on investment management activities and to ascertain some substantial gaps related to them.
Design/methodology/approach
For doing research synthesis, systematic literature review approach was applied considering research studies published within the time period, i.e. 1980–2020. This study attempted to accomplish a critical review of 59 studies out of 118 studies identified, which were published in reputable journals to synthesize the existing literature in the behavioural finance domain-related explicitly to recognition-based heuristics and their effect on investment management activities.
Findings
The survey and analysis suggest investors consistently rely on the recognition-based heuristic-driven biases when trading stocks, resulting in irrational decisions, and an investment strategy constructed by implementing the recognition-based heuristics, would not result in better returns to investors on a consistent basis. Institutional investors are less likely to be affected by these name-based behavioural biases in comparison to individual investors. However, under the context of ecological rationality, recognition-based heuristics work better and sometimes dominate the classical methods. The research scholars from the behavioural finance community have highlighted that recognition-based heuristics and their impact on investment management activities are high profile areas, needed to be explored further in the field of behavioural finance. The study of recognition-based heuristic-driven biases has been found to be insufficient in the context of emerging economies like Pakistan.
Practical implications
The skilful understanding and knowledge of the recognition-based heuristic-driven biases will help the investors, financial institutions and policy-makers to overcome the adverse effect of these behavioural biases in the stock market. This article provides a detailed explanation of recognition-based heuristic-driven biases and their influence on investment management activities which could be very useful for finance practitioners’ such as investor who plays at the stock exchange, a portfolio manager, a financial strategist/advisor in an investment firm, a financial planner, an investment banker, a trader/ broker at the stock exchange or a financial analyst. But most importantly, the term also includes all those persons who manage corporate entities and are responsible for making its financial management strategies.
Originality/value
Currently, no recent study exists, which reviews and evaluates the empirical research on recognition-based heuristic-driven biases displayed by investors. The current study is original in discussing the role of recognition-based heuristic-driven biases in investment management activities by means of research synthesis. This paper is useful to researchers, academicians, and those working in the area of behavioural finance in understanding the role that recognition-based heuristics plays in investment management activities.
Details