* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Final-Paper
Survey
Document related concepts
Syndicated loan wikipedia , lookup
Securitization wikipedia , lookup
Business valuation wikipedia , lookup
Behavioral economics wikipedia , lookup
International investment agreement wikipedia , lookup
Investor-state dispute settlement wikipedia , lookup
Land banking wikipedia , lookup
Beta (finance) wikipedia , lookup
Stock trader wikipedia , lookup
Financial economics wikipedia , lookup
Moral hazard wikipedia , lookup
Investment management wikipedia , lookup
Modern portfolio theory wikipedia , lookup
Investment banking wikipedia , lookup
Transcript
Subjective Preferences over the Objective Analysis Model of Investor’s investment behavior Sajid Mohy Ul Din MS Student 14297 Iqra University Islamabad Campus Abstract This paper explains the important determinants of the investment decision-making behavior and constructs a conceptual model for the re-investment intention. Based on theoretical framework I concluded that past investment experience is positively correlated with return expectations and re-investment intention. Information type (Recession, Boom & asymmetry) determines the risk & reward of the investment. I found that investors with low risk perception (risk lover) are willing to accept more risk and vice verse. Risk perception and risk propensity is negatively correlated. The more investor is willing to take risk the more they wants in return, risk and return expectations are positively correlated. Introduction Due to high level of variation in stock prices and returns, investors are unable to priced a stock or calculate expected return specially in developing counties where markets are not completely efficient and investors can earn abnormal profit by analyzing the information available to them. Due to Economic, Political instability and law of order situation investors are hesitant to invest in stock market thus investors finds it more risky to invest in stock markets and prefer to deposit money in banks; considering them a safe investment option. Another factor that can be influenced on risk perception, The investment period developing countries investors focus more on short term investments rather than long term. After 9/11, New York stock Exchange (NYSE) and others faced a serious down-turn and investor lost huge amount of money. This made investors more cautious toward riskiness of stock market. (Kahneman & Tversky, 1991) found that investors weight losses as much as twice as gains. Previous researchers found that Analyst advice, Information about company and economy, investor’s status (Risk Lover/Averse) and the experience plays vital role to reform return expectation, and in selection of stock. People in developing countries prefer to invest in stocks that have previously performed well. Different theories proved that human’s data processing capabilities are limited so they relay initiative judgments to make investment decisions. The most important theory of traditional finance is Efficient Market Theory (EMT) developed by Eugine Fama in 1970 “According to this theory stock prices reflect all the information available in the market and investors adjust their preferences accordingly.” Classical information processing theory terms this “available information to investors” as external stimuli. Traditional theories gain sudden attention from the market as introduced but during the time of market crashes all theories of traditional finance failed to answer the phenomenon prevailing in the market and there are market anomalies “January Effect, Mental Accounting, & winner curse are some of them. Traditional finance researchers neglect the psychological aspects of investor’s investment behavior. Traditional finance tries to explain the economic behavior of decision making while behavior finance explain the human behavior of decision-making. In 1979 kahneman and Tversky proposed the Prospect Theory according to which” investors are indifferently behave when confronted with risk”. With sure future profit investors will be risk averse and will be risk lover when facing a loss in future” Kahneman is considered to be The father of behavioral finance and won noble prize in 2002 for his work. (Tversky, & Kahneman, 1974) reported that mostly outcomes of our decisions are not certain and vary in numbers as well, so we attach probabilities to outcomes. All human beings don’t have the same level of mental ability that’s why people use heuristics, (availability, Representativeness etc) Biases (Anchoring, conformation, loss aversion) and framing effect to make complex decision simple. According to EMT, investors always behave in risk averse manner but psychologically they change their risk preferences with respect to situation (kahneman and Tversky, 1979). By implying the Sociology, financial theories and psychology in decision making process investors can better understand the market to make well inform, prudent and intelligent investment decisions. (Thaler, 1980) suggested that due to inconsistent customer’s behavior With EMT, Tversky and Kahneman’s prospect theory provide the basis for decision making. This paper presents the conceptual model of investor’s investment behavior and will evaluate the Risk perception, Risk propensity, past experience and Reinvestment/Reinforcement intention of investors in the market. How investors makes investment decision in real world rather than optimized/rational decisions proposed by EMT. The purpose of study is to construct a conceptual model which may be used as the theoretical foundation for investigating the psychological mechanisms of investment behaviors in developing countries. Theory and Model Risk is a Situation in which outcomes of the actions are uncertain but we can assign probabilities to possible outcomes, variance in return. (Dean & Thompson, 1996) stated two concept of risk for experienced and naïve investors. Experienced investors assign probabilities with more objectivity and confidence based on their past experience termed as positivist while naïve investors on the other hand assign probabilities in context in which risk is represented with little objectivity and confidence. (Ganzach, 2000; Finucane , 2000; Slovic, 2002) found that in different situations investors gives different meaning to risk and the context play vital role in risk perception. The willingness of the investors to take risk (Risk Propensity) depends upon the investor’s status and previous successful risk taking outcome. (Shyan, Gow, & Hui, 2010) found that naïve investors feel more risk hence is reluctant to take risk and vice versa. They found marital status don’t have any impact on risk propensity/perception. (Statman, 2008) reported that cultural differences do influences over propensity to risky investments. He found that in collectivist and low-income cultures people are more inclined to take risk being protected in case of downturn in contrast to individualist culture. Perception is a process that describes ways to interact with the investment environment in which investor makes decision. Interaction usually consists of information regarding financial market or analyst opinions. Simon (1986) found that not all the investors have the same mental level to process the information available to them. Kahneman and Tversky (1979, 1982) found that due to limited processing ability investors use heuristics (availability, representativeness, anchoring, reinforcement-learning etc) to simplify the complex investment decisions, Furthermore risk perception is also influenced by how the information is presented. (Kathleen, 2005) found that investors with more experience accurately perceive risk and make logical relationship of risk and expected return. Investors with successful risk taking history will be more willing to take risk and vice versa. There is positive correlation between the risk and past investment experience. (Sitkin and Wiengert: 1992, 1995) found that investors previous Risk taking experience influence the risk perception of investment and in negative correlation. The more they perceive risk less they invest. (Shyan, Gow, & Hui, 2010) found that Past investment experience and risk propensity are positively correlated and experienced investors are more willing to take risk than naïve but risk perception and return expectation is negatively correlated (against traditional finance) (Xiao, Kan, & Hong, 2006) found that timely and accurate information discloser can lessen the risk perception. (Lee, Kun Chang, Chung, Namho, Kang & Inwon, 2008) found that decision quality is influenced by quality of information available and how easily investors can use this information. (Anna, 2008) found that different investors (current or Prospective) differently evaluate the positive, negative, sequential and combined information. Current investor gives more weight to negative information when presented simultaneously rather than sequentially. (Diacon & Hasseldine, 2005.II) found that presenting past information (Framing Effect) can significantly influence the investment decision and risk perception of the investment. They overweight information that support their beliefs and neglect information against views (conformation bias). James, David, & Colby, (2010) found that investment behavior (active vs. passive trade) largely depend on market efficiency still knowing that market is not efficient investors trade passively (market is efficient) due to time, skill and resources constrains. (Thaler & DeBondt, 1985) found that investors place more weight to their current experience over the other available information. (Reed & Barnes, 2010) state that previous successive risk taking experience lead to low risk perception for the future investment. (James, David, Brigitte & Andrew, 2010) suggested that while making investment decisions investors heavily relay on past investment experience. When investors have successful investment experience (high return and low variance in return) then they prefer to reinvest or increase their investment in that particular stock and future rewards are positively correlated with the recent received. (Terrance, Michal & Brad, 2004) found that (1) investors repurchase the stocks that have sold for a gain in past rather than loss.(2) investor feels pleasure to repurchase stocks that have lost value after they sold them. They reported two behaviors, Regret: if investors come to know that after selling stock price has risen so they feel regret being less well off by selling stocks. Pleasure: if the stock lost value after selling investors fells they are better off selling them rather to keep it. (Terrance, O., Michal, S. & Brad, M.B., 2010) Due to limited cognitive ability of investors to process information investors prefer to repurchase/reinvest the stock they previously sold for profit rather than loss. Expected return is return on investment calculated as taking the average of the probability distribution of all the possible outcomes. (Ganzach, 2000) proposed two models for judging risk and return. For unfamiliar assets people follow the crowd for judging the risk if asset is ranked as “Good” resultantly carry low risk and high return and vice versa. For familiar assets risk perception and return itself act as determinant rather than global preferences/following the crowd. If the returns are high investor will perceive less risk. Previous performance do help in stock selection but doesn’t grantee future success. (Updated Model of Determinants of Decision making) Methodology Subject: This study investigates the investment decision-making process of stock exchange investors so my targeted population is individual investor at Islamabad Stock exchange. Questionnaires were distributed by random sampling technique and total 100 questionnaires were distributed out of which 60 were returned having a response rate of 60%. Based on the theoretical evidences following hypotheses can be developed H1: Past Investment Experience is positively related with Risk Propensity. Adjusted Std. Error Mod R R of the el R Square Square Estimate 1 .783(a) .613 .600 .21434 a Predictors: (Constant), EI, IP Unstandardized Coefficients Std. B Error Mod el 1 (Consta 3.557 nt) IP -.646 EI .229 a Dependent Variable: R Standardiz ed Coefficients Beta .207 .072 .069 -.737 .273 t Sig. 17.196 .000 -8.949 3.316 .000 .002 If the investors have more experience of investment then they are more willing to accept risk and their propensity of risk taking will be high as compare to naïve. Our research indicates that there exist strong correlation (R=.783) and experience significantly (IP, p=0.000 & IE, p=0.002) influence the risk taking behavior of investor and coefficient is negative (IP, b=-0.646) which indicate that previous successful/un-successful experience lesser/enhance his/her risk propensity. While (IE, b=.229) indicate that more number of years experience you have greater their willingness to take risk. H2: Risk Propensity and Risk Perception are negatively correlated Mod el 1 R .946(a) Adjusted Std. Error R R of the Square Square Estimate .895 .893 .23393 a Predictors: (Constant), R Mod el 1 Unstandardized Coefficients Std. B Error (Consta 9.815 nt) R -1.996 a Dependent Variable: WIC Standardiz ed Coefficients Beta .243 .090 -.946 T Sig. 40.451 .000 -22.201 .000 Adjusted Std. Error Mod R R of the el R Square Square Estimate 1 .277(a) .077 .061 .37223 a Predictors: (Constant), R Mod el 1 Unstandardized Coefficients Std. B Error (Consta 2.081 .386 nt) R -.314 .143 a Dependent Variable: WINF Standardiz ed Coefficients Beta -.277 T Sig. 5.391 .000 -2.196 .032 Investors are willing to accept more risk they will perceive less risk. We divide the risk into two main constructs Controllability of Risk source and Familiarity of different risk source. Our results indicate that there exist very strong correlation (R=.945) between Controllability over different risk source and risk Propensity. While familiarity of risk source have little correlation(R=.277) with risk propensity. Controllability of different risk sources significantly (R, p=.000) influence risk perception of investors and coefficient (R, b=-1.996) show negative relation higher the level of controllability lesser the risk perception. Familiarity with different risk sources still significantly (R, p=.032) influence risk perception of investors and coefficient (R, b=-0.314) show negative relation higher the level of Familiarity lesser the risk perception. . Low risk perception leads to high risk taking behavior. H3: Risk Perception influenced by the way information is framed. Adjusted Std. Error Mod R R of the el R Square Square Estimate 1 .845(a) .714 .698 .39263 a Predictors: (Constant), WIAS, WII, WIS Mod el 1 Unstandardized Coefficients Std. B Error (Consta 11.282 nt) WII .104 WIS -2.374 WIAS .752 a Dependent Variable: WIC Standardiz ed Coefficients Beta 1.348 .227 .343 .070 .034 -.532 .797 T Sig. 8.372 .000 .457 -6.920 10.670 .649 .000 .000 Adjusted Std. Error Mod R R of the el R Square Square Estimate 1 .900(a) .811 .801 .17146 a Predictors: (Constant), WIAS, WII, WIS Mod el Unstandardized Coefficients Standardiz ed T Sig. Coefficients B 1 Std. Error (Consta 5.067 nt) WII 1.351 WIS -1.185 WIAS -.073 a Dependent Variable: WINF Beta .589 .099 .150 .031 .837 -.494 -.144 8.610 .000 13.651 -7.907 -2.366 .000 .000 .021 When the investor believes that all the relevant information he/she possesses, they will perceive less risk. Our results indicate that there exist very strong correlation (R=.845) between Controllability over different risk source and different information type (WII, WIS & WIAS). Familiarity of risk source too have strong correlation (R=0.900) with Information type. Results indicate that Information regarding overall economic condition doesn’t significantly (WII, p=.642) influence Controllability over different risk source because economic condition are not controllable by any single investor or group of investors. Complete and accurate Information discloser significantly (p=0.000) influence Controllability over different risk source, investors are in better position to accurately judge the risk associated with investment and their risk perception will be low and coefficient shows (b=-2.374) negative relationship more complete and accurately companies disclose their financial reports less will be the risk perception of investors. Information asymmetry significantly (p=0.000) influence Controllability over different risk source, when investor believe all the information is available in the market then their risk perception will be low and coefficient (b=0.752) shows positive relationship Results indicate that Information regarding overall economic condition significantly (WII, p=0.000) influence Familiarity of risk source and coefficient (b=1.351) show positive relationship. More familiarity about economic condition will lower down the risk perception Complete and accurate Information discloser significantly (p=0.000) influence Familiarity of risk source, investors are in better position to accurately judge the risk associated with investment and their risk perception will be low and coefficient shows (b=-1.184) negative relationship more complete and accurately companies disclose their financial reports less will be the risk perception of investors. Information asymmetry significantly (p=0.021) influence Familiarity of risk source source, when investor believe all the information is available in the market then their risk perception will be low and coefficient (b=-0.073) shows negative relationship. H4: Past Investment Experience is positively related to Expected Return and Reinvestment Behavior. Adjusted Std. Error Mod R R of the el R Square Square Estimate 1 .781(a) .609 .595 .34471 a Predictors: (Constant), EI, IP Mod el Unstandardized Coefficients Std. B Error Standardiz ed Coefficients Beta t Sig. 1 (Consta 3.563 nt) IP -1.094 EI -.027 a Dependent Variable: RE .333 .116 .111 -.780 -.020 10.712 .000 -9.419 -.246 .000 .807 Based on theoretical framework we hypothesis that longer the past investment experience higher will be the expected return investors demand. Our result indicates that there exist strong correlation(R= 0.781) between experience and expected return but number of years experience doesn’t significantly (IE, p=0.807) influence the return expectations. Investors having successful/un-successful history significantly (IP, p=0.000) influence the return expectations. Adjusted Std. Error Mod R R of the el R Square Square Estimate 1 .889(a) .790 .783 .29059 a Predictors: (Constant), EI, IP Mod el 1 Unstandardized Coefficients Std. B Error (Consta 1.923 nt) IP .987 EI 1.004 a Dependent Variable: RI Standardiz ed Coefficients Beta .280 .098 .094 .612 -.652 t Sig. 6.856 .000 10.083 -10.734 .000 .000 Our result indicates that there exist strong correlation (R= 0.889) between experience and reinvestment behavior, experience significantly (p=0.000) influence the reinvestment behavior and coefficient is positive. Higher the number of years experience and previous successful history of investment will lead to more investment. H5: Risk Perception and expected return are positively correlated Adjusted Std. Error Mod R R of the el R Square Square Estimate 1 .959(a) .920 .918 .17877 a Predictors: (Constant), WIC, WINF Mod el 1 Unstandardized Coefficients Std. B Error (Consta -2.054 nt) WINF .777 WIC .675 a Dependent Variable: RE Standardiz ed Coefficients Beta .158 .061 .033 .479 .775 t Sig. -12.979 .000 12.723 20.581 .000 .000 H6: Information Type influences the Expected Return. Adjusted Std. Error Mod R R of the el R Square Square Estimate 1 .883(a) .779 .767 .26136 a Predictors: (Constant), WIAS, WII, WIS Mod el Unstandardized Coefficients Standardiz ed t Sig. Coefficients B 1 (Consta 1.533 nt) WII -.062 WIS .569 WIAS -.650 a Dependent Variable: RE Std. Error Beta .897 .151 .228 .047 -.027 .168 -.909 1.709 .093 -.408 2.492 -13.861 .685 .016 .000 Discussion This study uses the theoretical framework to verify the relationship between Risk Propensity/Perception, past investment experience, information type, Return expectations, and Reinvestment behavior of investors. Due to frequent market crashes, Terrorist attacks and economic recessions, investors lost huge amount of money. The worst effect of all these factors can be seen especially in developing countries with addition to poor law and order situation, Asymmetric information, poor investment knowledge and unstable political environment. Based on theoretical evidences there is positive correlation between Investment experience and risk propensity. Investors place more weight to their recent experience; Previous successful risk taking behavior leads to low risk perception and high propensity to take risk while unsuccessful experience leads to risk aversion (Thaler & DeBondt, 1985). The more the investor feels risk the less he is willing to take it. Risk perception and risk propensity are in negative correlation. Investors with less investment experience perceive more risk and reluctant to invest. On the other hand experienced investors perceive less risk and accept more risky investment. Investors with more experiences are able to assign probabilities which are very close to actual outcome based on their past investment history while novice investors don’t have this ability to accurately assign probabilities to outcome and makes risk-return judgment, in the context risk is presented(.( Sitkin & Wiengert, 1995: Kathleen, 2005) . (Shyan, Gow, & Hui, 2010) confirmed this relationship between experience and risk perception. Investor thinks future will be same as the past. Investment in stock market is continuous process. Investors repeatedly confront with reinvestment decisions. Most of the time while making reinvestment decisions investors relay heavily on past investment experience. If they have successful history of risk, taking this will lead them to engage in more risky investment decisions. Investor shows emotional attachment with the stocks they previously held (Kahneman, & Tversky, 1979, 1982). Investors prefer to re- invest in stocks/bonds that they sold for gain in the past rather than loss. Investment is complex decision requires rigorous analysis of available data (financial statements, Industry analysis, Economic reports & expert opinions) but due to time constrains and poor investment knowledge investors reply on intuition judgment looking back to their previous investment history. Imply different heuristics (representativeness, availability etc) to simplify these complex investment decisions. For example: whenever we go to buy something if we have positive past history of use/utilization of brand (Terrance, Michal & Brad, 2004). We prefer to repurchase the same brand same can be applied to stock market. Based on theoretical framework there is positive relationship between past investment experience and re-investment behavior. (Reed & Barnes, 2010: James, David, Brigitte & Andrew, 2010: Terrance, Michal, & Brad, 2010) confirmed this hypothesis. Risk & Return on financial assets heavily relay on economic condition of the country, industry and specific organization. The impact of economy boom or recession is not same for all the industries in the economy. For example: in economic recession, food industry doesn’t much suffer as compare to construction industry. Economic boom/recession information helps in selection of particular financial assets available in the market. In economic boom, investor makes risky investment (low risk perception) and demands high returns. While in recession investors are reluctant to invest money because they feel it more risky while the return is low. Information about company, industry, and economy is not an end itself it is the analysis that provide useful knowledge out of information. Information can be useful only when the source of origin is authentic and processing of information is easy (Xiao, Kan, & Hong, 2006: Lee, Chang, K., Chung, Namho, Kang & Inwon, 2008). Information importance also depends on investor’s view about market. If investor believes that market is highly efficient they trade passively. There is no need of information processing because market itself reflect the all information available and adjust prices according. Studies proved that market is less efficient and investor process information to earn above average returns or try to beat the market (James, David, & Colby, 2010). So we can say that information plays a vital role in assessing the risk perception and return expectation. Past investment information helps in selection of financial assets but this does not grantee that the future will be the same as the past. For example: if you toss a coin and it shows, Head (H), H, Tail(T), H, H. Based on the past information available one can judge next turn will be T but not grantees the same. There are equal chances of H or the T. Practical Implementation Investing involves huge amount of money, considerable time, and effort, so that investors can accurately judge the risk-return combination. Most of the investors just look at their past investment history and over or under estimate the risk and return of the financial assets. This paper provides more comprehensive model, in what asset to invest and accurately assess the risk and return. Paper found that investors not only look at their previous experience but also analysis the information available in the market to measure the risk and return. By looking at the previous experience and then making analysis for the selective assets makes investment decision little bit simple. Concluding Remarks & Future Research Direction This paper conclude that more experience the investor more accurately they assign probabilities to expected return and more willing to take risk. Past investment, experience helps in selection of future investment options. Past investment is positively correlated with risk propensity, expected return, and re-investment behavior. The result is consistent with the previous research findings (Sitkin and Wiengert, 1992, 1995: Kathleen, 2005: James, David, Brigitte & Andrew, 2010). Investors will reluctant to invest when they feel it more risky, investors behave differently in different situations. When they are sure about the gain in future they invest less to avoid possible loss, but when there is sure loss in future they will invest more to cover expected loss. Investor put more weight to losses than gains. So risk propensity is negatively correlated with risk perception. Result is consistent with the previous research findings (Kahneman & Tversky, 1982, 1985: Sitkin and Wiengert, 1992, 1995: Kathleen, 2005, Shyan, Gow, & Hui, 2010). Investor’s trading behavior heavily influenced by the market efficiency, markets are not completely efficient. Investor needs financial reports, business & economic condition and expert advice to make risk and return judgments. Information type is positively correlated with risk perception and return expectations. Result is consistent with the previous research findings (Diacon & Hasseldine, 2005.II: Xiao, Kan, & Hong, 2006: James, David, & Colby, 2010). When there is recession or industry is facing losses, investors feel it more risky to invest and set high return expectations. So risk perception and return expectation is positively correlated. The future research can empirically test the relationship between past investment experience and re-investment behavior. Referencing 1) Kahneman, D., & Tversky, A. (1974). Judgment under Uncertainty: Heuristics and Biases. Science, New Series, 83(4157). P 1124-1131 2) Kahneman, D., & Tversky, A. (1979). ‘Prospect theory: An analysis of decision under risk’, Econometrica, Vol. 47(2), p. 263–91. 3) Richard, T. (1980). Toward a Positive Theory of Consumer Choice. Journal of Economic Behavior & Organization, 1(1), 39-60. 4) DeBondt F. M. W. & Thaler H.R. (1985). Does the stock market overreact?, The Journal of Finance, 11(3), 793-807. 5) Ricciardi, V., & Simon, H.K., (2000). What is Behavioral Finance? Business, Education and Technology Journal. 6) Ganzach, Y., (2000). Judging Risk and Return of Financial Assets. Organizational Behavior and Human Decision Processes. 83(2). P 353-370. 7) Johnsson, M., Lindblom, H., & Platen, P. (2002). Behavior Finance: and the changing the behavior of investors during and after the speculative bubbles at the end of 1990s. Master’s Thesis: School of Economic and Business. Lund University. P 10-21 8) Ritter, J. R.,(2003). Behavior Finance. Pacific-Basin Finance Journal, 11(4), P 429-437. 9) Curtis, G., (2004). Modern Portfolio theory and Behavioral Finance. THE JOURNAL OF WEALTH MANAGEMENT. P 16-22 10) Byrne, K. (2005). How do consumers evaluate risk in financial products? Journal of Financial Services Marketing, 10(1), P. 21-36. 11) Diacon, S., & Hasseldine, John. (2005). Framing Effects and Risk Perception: The Effect of Prior Performance Presentation Format on Investment Fund Choice. Centre for Risk & Insurance Studies. CRIS Discussion Paper Series – 2005.II 12) Wang, X.L., Shi, K., & Fan, H.X. (2006). Psychological mechanisms of investors in Chinese Stock Markets. Journal of Economic Psychology, 27, P.762–780. 13) Choi, J.J., Laibson, D., Madrain, B.C., & Metrick. A. (2007). Reinforcement Learning and Savings Behavior. Journal of Finance, 64(6), P.2515–2534. 14) Ganzach, Y., Ellis, S., Pazy, A., &Ricci, T. (2008). On the perception and operationalization of risk perception. Judgment and Decision Making, Vol. 3(4), April, 2008, p. 317–324. 15) Lee, Chang, K., Chung, Namho, Kang, & Inwon. (2008). Understanding individual investor's behavior with financial information disclosed on the web sites. Behavior & Information Technology, 27(3), 219 — 227. 16) Statman, E. (2008, April 8-9). Countries and Culture in Behavioral Finance. Paper presentation comes from the Wealth Management 2008 conference held in Atlanta on 8–9 April 2008. 17) Vlaev, I., Chater, N., & Stewart, N. (2009). Dimensionality of risk perception: Factors affecting consumer understanding and evaluation of financial risk. Journal of Behavioral Finance, 10, 158-181. 18) Doran, J. S., Pererson, D. R., & Wright, C. (2009). Confidence, Opinions of market efficiency, and investment behavior of finance professors. Journal of Financial market, 13(2010), P 174-195. 19) Chou, S.R., Huang, G. L., & Hsu, H. L. (2010). Investor Attitudes and Behavior towards Inherent Risk and Potential Returns in Financial Products. International Research Journal of Finance and Economics. 20) Reed, R., & Storrud-Barnes, S.F (2010). Uncertainty, risk, and real options: who wins, who loses. Emerald, 48(7), Retrieved April, 4th, 201, from www.emeraldinsight.com/00251747.htm. 21) Chen, S.H., & Tsai, C.H. (2010). Investment Preference, Risk Perception, and Portfolio Choices under Different Socio-Economic Status: Some Experimental Evidences from Individual Investors. Master Thesis. Nanhua University, Chiayi, Taiwan. Retrieved April, 10th, 2011, from http://ssrn.com/abstract=1787842. 22) Odean, T., Strahilevitz, M., & Barber, B.M (2010). Once Burned, Twice Shy: How Naïve Learning, Counterfactuals, and Regret Affect the Repurchase of Stocks Previously Sold. Mimeo, University of California; Berkeley. 23) Lovric, M., Kaymak, U., & Spronk, J. (n.d) A Conceptual Model of Investor Behavior. Master Thesis. Erasmus School of Economics, Erasmus University Rotterdam. Netherlands. 24) Mahenran, N., & Muhammad, N. (n.d). STUDY ON BEHAVIORAL FINANCE: IS THE INDIVIDUAL INVESTORS RATIONAL? Retrieved March 5th 2011, from http://www.nikmaheran.com/v1/attachments/029_DBA%20FINANCE%20IVESTORS%20BEHAVIOR.pdf Appendix: Questionnaire Please write your gender: ______________ Q 1: Please Tick your age group 18–29 30–39 40–49 50–59 MS/M Phil PhDs 60 and Above Q 2: Please Tick your Educational Level Graduate Masters Post Doctorate (INDEPENDENT) Please tick in which class you are a) Have Practical Experience of investment in financial products b) Only have Theoretical Knowledge not practical experience If you choose option (a) indicate in which financial products you have experience Shares Bonds Others (Please Specify) _____________ Please indicate length of investment experience (Number of years) ___________ Risk Perception and Return: How you think about risk and your required rate of return Indicate the level of risk in your own subjective preference you associate with each statement below: (R) Using a day’s pay to Purchasing Lottery Ticket or Place Sporting bets Lending One month pay to friends Using 25-50% of a month’s pay to buy speculative stocks Doing job without any fixed pay Highl y Risky Modera te Risk Low Risk Risk Free Don’ t kno w To gamble with a week’s pay If I have previously successful history of investment, I will perceive re-investment in the same or other stock Please evaluate the extent how you feel the following information is familiar or Un-Familiar to you. (I-F) Information about the fluctuation of interest rate Totall y Famil iar Moder ate Famili ar Neither Familiar /Nor Un Familiar Un Famil iar Totally UnFamilia r Information about the investment intention of market maker/banker Information about the improper management of listed company Information about the variation in policies related to stock Market Information about the excessive speculation Please evaluate the extent how you feel the following information is Control able or Un-control able to you. (I-C) Information about the fluctuation of interest rate Totall Modera y te Contro Control l Neither Control /Nor Un Control Un Cont rol Tota lly UnCont rol Information about the investment intention of market maker/banker Information about the improper management of listed company Information about the variation in policies related to stock Market Information about the excessive speculation How would you formulate your return expectations for taking risk? (RE) Comple Partia tely lly Agree Agree You must bear the risk to earn expected return on financial Neither Agree /Nor Dis Dis Agr ee Comple tely Dis Agree products Agree You formulate your return expectations based on previous performance of share, bonds etc. You want more returns for the extra knowledge investment knowledge you posses Stocks, Bonds of familiar companies are better for investment(low risk involved) Information Section: Assesses the weight investor gives to the information about the risk when making investment decisions and the extent of satisfaction with the listed company’s information discloser. How important is the information about each statement to you when making investment decision (II) Highl Modera Low y te Import Impor Import t Information about the fluctuation of interest rate Un Import Don’t know Information about the investment intention of market maker/banker Information about the improper management of listed company Information about the variation in policies related to stock Market Information about the excessive speculation If the information provided for financial product is insufficient, I would feel it unsafe to make investment How satisfied you are with information disclosure about listed companies (IS) Completeness of Information Disclosed Information transparency Information authenticity Timely getting information Totally Satisfie d Modera te Satisfie d Neither Satisfied Nor Unsatisfied Moderate Un Satisfied Totally UnSatisfied What is your opinion about information asymmetric and its impact on investment decision making? (IAS) Totall y Satisf ied Information asymmetry does not exist in stock markets Moder ate Satisfi ed Neither Satisfie d Nor Unsatis fied Moder ate Un Satisfi ed Total ly UnSatisf ied Information asymmetry is just heard of but is not supported by any evidence Information asymmetry indeed exists in stock market but does not have any impact on investment decision Information asymmetry frequently happens in stock market and has little impact your investment decision Information asymmetry has great impact on your investment decision How satisfied with were you with your investment in stock market last year? How satisfied with are you with the whole stock markets. Investment behaviors Consist of three parts: Past investment experience, Re-investment intention and investment satisfaction How was your last investment performance? (IP) The performance of your investment in shares last year Very Success Neithe Un Success ful r Success ful Succes ful s Nor Unsuc cessful The performance of your investment in debt products last year The performance of your overall portfolio (DEPENDENT) What is your investment plan in financial products for next year? Totally UnSuccessfu l What is your plan of investment in stocks perform successfully last year What is your plan of investment in stocks perform Unsuccessfully last year What is your plan of investment in overall stock market keeping in view the last year performance Increas Statu e s Investm Quo ent Neither Increase Nor Decrease Decreas e investm ent With draw from market