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AN ANALYSIS OF INVESTOR’S CONFIDENCE AND RISK TAKING APTITUDE
FROM THE PERSPECTIVE OF INVESTORS’ GENDER AND INCOME IN
DERIVATIVES MARKET
Mr. Agha Nuruzzaman
Research Scholar, Department Business Administration
AMU, Aligarh
Abstract
Derivatives are risk management tools that help an organization to effectively transfer risk. The
Behavioral finance experts have proved it quite well that investment decision making is not a
completely rational process. Individuals’ investment decisions are guided by not only their
intellectual aspects but also the emotions, desires, prejudices one has. These are some of the
essential factors which weave out their goals. Gender, age, income, education, wealth and
marital status of individuals also influence the investment decision. This paper investigates how
gender and income of retail investors affect their investment decisions in futures market in India.
The study employs primary data collected from a sample of 411 retail investors who trade in
futures and options with the help of a structured questionnaire. The survey was carried out in
Delhi and NCR during March- November 2010. SPSS tools were used to analyze the data. The
results indicate that gender and income were found to be significant factors impacting the trading
behavior of retail investor in Indian futures market. Money makes men more confident and a risk
taker.
Key Words: Gender, Income, Confidence, Risk attitude, Futures
INTRODUCTION
Derivatives are risk management tools that help an organization to effectively transfer risk.
Derivatives are instruments which have no independent value. Their value depends upon the
underlying asset. The underlying asset may be financial or non-financial. Investor’s behavior
comprehension happens to be a complex thing. Economists, socialists and psychologists have all
attempted to explain investor behavior in various ways.Economists’ enquiry into investor
behavior has focused largely on the ‘rationality’ or irrationality’ of investor decision- making
processes. Sociologists explain investor behavior by focusing on investors’ social environments.
They suggest investors may be trying to enhance their stature within a group or society in
general. Investors may thus, be labeled variously as over confident, sophisticated, or proud etc.
Undoubtedly, there is a lot of overlapping between the disciplines.
Indian derivative market is mainly driven by Institutional investor, Retail investor and
Proprietary. In 2009-10 their participation was 13.61%, 54.86% and 31.635 respectively in terms
of traded volume. We find retail investors playing a remarkable role in Indian derivative market.
The Futures and Options segment of NSE witnessed huge increase in volumes during 2009-10
and continued to achieve a commendable place on the international front. In the year 2009 NSE
ranked as the seventh largest derivatives exchange in the world, the second largest exchange in
single stock futures and stock index options and the third largest in the stock index futures
category. As their numbers have exploded, it has become increasingly more important to
understand the minds, motivations, and decision-making styles of individual investors.
The derivatives trading in India commenced on June - 2000 with futures trading on S&P CNX
Nifty Index, and Sensex Index. Subsequently, the product base has been increasing. The
derivatives trading system in India provides a fully automated screen-based trading for all kind
of derivative products available on stock exchange on a nationwide basis. It supports an
anonymous order driven market, which operates on a strict price/time priority. It provides
tremendous flexibility to users in terms of kinds of orders that can be placed on the system.
Figure-1: Business growth of Futures & Options
Source-NSE Fact Book- 2010
Figure-2: Participant wise Futures & Options turn over during 2009-10
Source-NSE Fact Book- 2010
LITERATURE REVIEW
Hira (1987), Xiao (1995) examined ten household assets by family demographic variables, and
the Chi-square tests indicated that income was a major factor but besides that age, education,
employment status, household size, marital status, and several other variables too influenced the
ownership of the assets.
Hong et al., (2001), Harrison et al., (2004) found in their studies that stock-market participation
is influenced by social interaction. According to them any given “social” investors finds the
market more attractive when more of his peers participate. Barber & Odean (2001) argued that
the relationship between gender and trading activity is due to the greater overconfidence of men.
Rajarajan (2003) found the level of risk bearing capacity increases with increase in income
levels. Risk bearing capacity also influenced by the investors house hold size, occupation of
investors, employment status.
Reley and Chow contended (1992) that “relative risk decreases with age- but only up to a point.
After the age of 65 (retirement), risk aversion increases with age. Greenwood & Nagel (2006)
found that younger investors were more likely than older investors to buy stocks at the peak of
the Internet bubble, the inexperienced retail or individual investor is more likely than the
professional to be subject to sentiment. Jaffar & Namasivayan (2006) argued that the investors in
the age group of below 35 years actively participate in the speculative trade whereas the age
group above 55 hesitate to take risk and males are more interested than females to invest their
money in share market or risky assets.
Shylajan & Marathe (2006) identified the factors that affect the attitudes and trading behavior of
stock market investors as obtained from factor analysis is as: Confidence level that an investor
has in himself as compared to informal sources, control over his investments, risk taking ability,
confidence of the investor as compared to formal sources such as financial analysts and advisors,
expectation to perform better than the stock market, short-term investment attitude. These are
some of the factors on the basis of which an investor goes ahead and invests in the stock market.
Mittal & Vyas (2007), through their study provides evidence that the investment choice depends
on and is affected by the demographic variables. People with low income like to invest in post
office/banks (low-risk), middle income investors like mutual funds (medium risk), while people
with high income prefer equities (high risk). Myers (1999) classified investors as either:
cautious, emotional, technical, busy, casual or informed. Mittal & Vyas (2008) reveal that the
Indian investors can be classified into four dominant investment personalities- casual, technical,
informed and cautious. Casual investors prefer high risk investment, cash equivalent and other
low risk investment are preferred by technical and cautious investors. Informed investors like
moderate risk- moderate return investments.
OBJECTIVES

To study the influence of gender on retail investors’ confidence and risk taking attitude
in Indian derivatives trading

To study the influence of income on retail investors’ confidence and risk taking
attitude in Indian derivatives market
METHODOLOGY
Primary data collected by communicating with the participants through a structured selfadministered questionnaire were used to conduct the study. The responses were measured on a
seven-point Likert scale, with one being ‘strongly disagree’, and seven being ‘strongly agree’.
Before undertaking the survey, pilot test of the questionnaire was undertaken with 65
respondents. The reliability also checked through Cronbach’s alpha, and all the values were
found more than 0.7 (shown in table-2). Finally the respondent views were incorporated in the
final questionnaire administered to 650 investors and 411 questionnaire were taken for this study
because some of the questionnaire were had one or more missing responses. The survey was
carried out in Delhi and NCR during March- November 2010. The broad structure of the
questionnaire is given below.
There are some important dimensions which are effected by retail investors’ demographics in
trading behavior. The behavioral finance area revealed five main constructs that drive investor
behavior: Investment horizon, Confidence, Control, Risk attitude, and Personalization of loss.
This paper tries to find out the influence of gender and income on retail investors’ confidence
and risk taking attitude in futures trading.
Confidence:

I expect my Futures contracts to perform better than the other Futures contracts.

I feel more confident in my own investment opinions over opinions of friends and
colleagues.

I am an experienced Stock Index Futures trader.

I feel more confident in my own investment opinions over opinion of financial analysts
and advisors.

I am likely to purchase Futures that have been recommended by friends or colleagues.

Stock market fluctuations as reported by the media do not bother me.

I am very comfortable to understand the Stock Index Futures products, services,
opportunities & challenges.

I feel competent enough to trade in the Futures markets.
Risk taking Attitude

I am prepared to take greater risk in order to earn greater return in Index Futures Trading.

I feel more comfortable taking risks when my trade contracts are performing well.
In table-1, the reliability test showed the values of Cronbach’s Alpha. Both the values are greater
than 0.06, this indicated that the questionnaire used for this study is reliable.
Table-1: Reliability
SN
Dimensions
1
Confidence
2
Risk Attitude
No. of Items
8
2
Cronbach's Alpha
0.799
0.701
Figure-3: Proposed model
Gender
Confidence
Behavior of
Retail
Investor
Income
Risk taking
attitude
Source: Prepared by the scholar
HYPOTHESIS
To study the impact of gender and income of retail investors’ in their futures trading behavior
following hypotheses were framed and tested statistically
H01: There had been no significant variation of confidence as a dimension of retail investors’
behavior with gender.
H02: There had been no significant variation of risk taking attitude as a dimension of retail
investors’ behavior with gender.
H03: There had been no significant variation of confidence as a dimension of retail investors’
behavior with income.
H04: There had been no significant variation of risk taking attitude as a dimension of retail
investors’ behavior with income.
ANALYSIS
The analysis of data was carried out using Statistical Package for the Social sciences (SPSS) 18.0
for Windows. The statistical tests employed were: T-Test, ANOVA and Post Hoc test.
To analyze the impact of retail investors’ gender on confidence we used group statistics and ttest, and the results summarized in table-3, given below:
Table-2: T-Test
Hypothesis
N
Mean Std.
tSig. Remark
Dev
values
H01: There has been no Male- 330 5.664
.4438
14.452 .00* Not
significant
variation
of
Accepted
Female81
4.885
.3948
confidence as a dimension of
retail investors’ behavior with
gender
H02. There has been no Male- 330 5.8439 .72349 8.090
.00* Not
significant variation of risk
Accepted
attitude as a dimension of retail Female- 81 5.1235 .69611
investors’
behavior
with
gender.
*Indicates significant values at 5% level
Table-2: Showed the descriptive statistics of the respondents and also the results of hypotheses
H01 and H02.
Hypothesis-1: It showed the mean value obtained by male and female on confidence as a
dimension of retail investors’ behavior. The mean value and standard deviation of male are 5.66
and .44 respectively. However mean values of female is 4.88 and standard deviation is .39. This
showed difference in the mean value between male and female. This has been observed that tvalue is =14.45 and significance (sig) value is .00 which is less than α =.05, hence there has been
a significance variation in the mean score of confidence as the dimension of retail investor
behavior with the gender of an individual respondent.
Hypothesis-2: It showed the mean value obtained by male and female on risk attitude as a
dimension of retail investors’ behavior. The mean value and standard deviation of male is 5.84
and .72 respectively. However mean values of female is 5.12 and standard deviation is .69. This
showed difference in the mean value between male and female. This has been observed that tvalue is =8.09 and significance (sig) value is .00 which is less than α =.05, hence there has been
a significance variation in the mean score of risk attitude as the dimension of retail investor
behavior with the respondents gender.
To analyze the impact of retail investors’ income on confidence and risk attitude we apply
descriptive analysis, ANOVA and Post Hoc Test and the summaries of the obtained values were
given belowTable-3: Summary of mean values with respect to Income
S.N
Income slabs
N
Confidence (Mean)
Risk Attitude (Mean)
1
2
3
4
Upto 300000
110
4.9239
5.0318
300001 to 600000
141
5.5443
5.6135
600001 to 900000
107
5.8575
6.1822
Above 900000
53
5.9434
6.3585
Total
411
5.5113
5.7019
Table-3: From the analysis, we found that as the income of the retail investor increases, the mean
values of confidence increase, which indicates that confidence level of retail investor increases as
the income of the investor increases. In the case of risk attitude also, the mean values are
increasing with the increase of income, this shows that risk attitude increases as the income of
the retail investors increases.
Table-4: Post Hoc test summary among the different level of income groups
Respondents yearly income
Confidence (Sig.)
Risk Attitude. (Sig.)
Upto 300000 and 300001 to 600000
.000*
.000*
Upto 300000 and 600001 to 900000
.000*
.000*
Upto 300000 and Above 900000
.000*
.000*
300001 to 600000 and 600001 to 900000
.000*
.000*
300001 to 600000 and Above 900000
.000*
.000*
600001 to 900000 and Above 900000
.513
.300
*Indicates significant values at 5% level
The above table-4, shows all significant values among all the income group for the dimension
confidence and risk attitude except in between the income group 600001 to 900000 and above
900000, where the values are insignificant for both confidence and risk attitude.
Table-5: Summary of ANOVA statistics
S. N Dimension
Variable
Hypothesis F- Value
Sig.
Remark
1
Confidence
Income
147.597
.000*
Not Accepted
H03
2
Risk Attitude
Income
90.653
.000*
Not Accepted
H04
*Indicates significant values at 5% level
Hypothesis
H03 (Confidence & Income), is rejected as the significance value is .000 which is less than .05,
hence there has been a significance variation in the mean score of confidence as the dimension of
retail investor behavior with income.
H04 (Risk taking attitude & Income) is rejected as the significance value is .000 which is less
than .05, hence there has been a significance variation in the mean score of risk attitude as the
dimension of retail investor behavior with income.
CONCLUSION
The present study found that gender and income of retail investor had significant influence in
their trading behavior in futures market. Male are more confident than female in their trading
behavior. Males are taking more risk than females in futures trading. Income is an important
factor, which affect the confidence and risk taking attitude of the retail investor. As the income
of the investor increase the confidence and risk taking attitude of retail investor increases in
futures trading. Money makes man more confident, it can help him evolve as a stronger risk
taker.
The above finding could help brokers and financial advisors selectively target and communicate
to their investors/traders. This may also help retail investors to understand their own trading
habits and encouraging successful investment growth.
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