Psychological determinants on stock market investors’ investment decision in vietnam stock exchange market during covid 19

Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE DISSERTATION ON Psychological Determinants on Stock Market Investors’ Investment Decision in Vietnam Stock Exchange Market during COVID-19 Bui Dieu Linh ID No: 21071819 Intake Supervisor: Dr Nguyen Quynh Tho September 2022 i Tai ngay!!! Ban co the xoa dong chu nay!!! 17014128811641000000 ACKNOWLEDGEMENT I would like to send my deepest thanks to my supervisor, Dr Nguyen Quynh Tho for her guidance throughout the process of conducting this research The precious advices from her have helped my research to go on the right way In addition to that, I would like to say thanks to all participants who are investors in Vietnam stock market who have spent their time involving in the survey questionnaire to provide precious source of primary data which is necessary for the completion of this research Finally, I would like to thank my family for their supports and loving Sincere regards, Hanoi, 17th Sep, 2022 Table of Contents ABSTRACT iv ii CHAPTER I – INTRODUCTION 1.1 Background of the Research 1.2 Research Rationale 1.3 Research Objectives 1.4 Research Questions 1.5 Research Approach 1.6 Research Structure CHAPTER II – THEORETICAL BACKGROUND AND LITERATURE REVIEW 2.1 Overview of the Vietnamese Stock Market 2.2 Investors’ investment decision 2.3 Literature review 2.4 Theoretical Framework 11 2.5 Psychological factors affecting investors’ investment decision 13 2.5.1 Herd Behaviour 13 2.5.2 Excessive Optimism 14 2.5.3 Fear of losses 15 2.5.4 Availability bias 17 2.5.5 Representativeness bias 18 3.1 Chapter Introduction 20 3.2 Research Design 21 3.3 Data Collection 22 3.4 Questionnaire Design 22 3.5 Descriptive Analysis 23 3.6 Multiple Regression Analysis 24 3.7 Reliability and Validity 24 3.8 Research Ethics 24 CHAPTER IV – DATA ANALYSIS, FINDINGS AND DISCUSSIONS 26 4.1 Chapter Introduction 26 4.2 General Information 26 4.3 Descriptive Analysis 27 4.4 Regression Analysis 30 4.5 Chapter Conclusion 34 CHAPTER V – CONCLUSIONS AND RECOMMENDATIONS 35 5.1 Chapter Introduction 35 5.2 Summary of the Main Findings 35 iii 5.3 Recommendations 37 5.4 Limitation of the Study 38 5.5 Area for Further Study 38 References 40 QUESTIONNAIRE 45 ABSTRACT iv Psychologists argue that the behaviours of investors are not simply rational as they are assumed to be This phenomenon is observed and known as the emerging area of finance – the Behavioural finance While the relationship between psychological determinants and the decision-making process has been paid attention to by various papers from Western, Middle East and even some ASEAN countries, this relationship in the Vietnam stock market has been paid only modest attention by very few studies In addition, the outbreak of the COVID-19 pandemic is also a strong factor affecting investor sentiment The decision of investors at that time was also a little different Thus, this paper is motivated to be conducted in order to enrich the existing literature using psychological determinants to explain the decision-making process of investors in Vietnam Specifically, the linear correlation between dependent variable (the investment decision) and independent variables (heard behaviours, excessive optimism, fear of losses, availability bias, and representative bias) has been examined via the conduct of a survey questionnaire to collect information from 200 investors in the Vietnam stock exchange market in order to understand the psychological factors of them affecting their investment decisionmaking It is highlighted the dependent construct which is the investment decision of investors in Vietnam Stock Exchange market could be explained by the five independent constructs of the framework including heard behaviours, excessive optimism, fear of losses, availability bias, and representative bias by 81.5% Four among the five determinants (heard behaviours, excessive optimism, fear of losses, availability bias) are proved to have influence on the decision making process of investors Meanwhile, the representative bias does not have influence on the investor’s decision to invest in Vietnam Stock market v CHAPTER I – INTRODUCTION 1.1 Background of the Research It is traditionally that the finance industry considers the investment decision making of investors is a typical and sensitive process which urges them to be active in exploiting value and risk return trade-offs (Bakar & Yi, 2016) However, psychologists argue that the behaviours of investors are not simply rational as they are assumed to be This phenomenon is observed and known as the emerging area of finance – the Behavioural finance This new area of finance pays attention to the impacts of different psychological traits on the investments decisions of investors in the stock market Founded in 1998, the Vietnamese stock market currently includes the Hanoi Stock Market (HAS) and the Ho Chi Minh stock market (HOSE) Initially, in the early 2000s, the market only had brokerage firms and listed companies Nevertheless, until now, the number of listed companies in the stock market of Vietnam is 682 (Phung, 2015) During the development process of the market, the Vietnamese Stock exchange has fluctuated frequently which makes it hard for the investors to make sound investment decisions The Vietnam Stock Market was even once mentioned by various financial newspapers and The American Chamber of Commerce in 2007 as the “bubble market” whose growth rate was impractical and impacts were negative Behavioural finance is one of the widely applied theories which could explain the bubble situation of the Vietnam Stock Market In fact, the theory focuses on psychology in order to understand the reason underlying the buying or selling stocks of investors (Waveru, Munyoki, & Uliana, 2008) The application of psychological theory in Vietnam, however, is still new 1.2 Research Rationale Investment decisions of investors are affected greatly by various different technical and psychological determinants Different from the financial specialists who are good at analyzing the financial report conditions, risks, and other indicators etc to make investment decision, normal investors might not accurately make such rational decisions In fact, their investment decisions are affected by various determinants including the situations they find themselves in The existence of COVID-19 pandemics is such a typical event whose impacts on investment decisions of investors are significant (Kiruba & Vasantha, 2021) The COVID-19 has continued leaving great impacts on the world economy including the financial market Even though there are still opportunities to earn in the pandemics, most investors are reluctant to involve in any investment decisions In the literature, there are various papers paying attention to investment decision during economic booming Nevertheless, there are few of them paid attention to identify the investment decision of investors during pandemics, especially the emerging COVID-19 one (Sohail et al, 2022) This leaves a gap in the literature The relationship between psychological determinants and the decision-making process has been paid attention to by various papers from Western, Middle East and even some ASEAN countries (Qadri & Shabbir, 2014; Nofsingera & Varmab, 2013; Kengatharan, 2014) Nevertheless, the psychological bias on investment decision of investors in the Vietnam stock market has been paid only modest attention by very few studies Thus, this paper is motivated to be conducted in order to enrich the existing literature using psychological determinants to explain the decision-making process of investors in Vietnam 1.3 Research Objectives The research aims at identifying the psychological determinants affecting the investment decision-making of Vietnamese investors in Vietnam Stock Exchange Market According to the research aim, the objectives which will drive the whole research include:  To identify the influential psychological factors affecting investment decisions of investors in Vietnam Stock Exchange market during COVID-19  To measure the influence of those psychological factors on investment decisions of investors in Vietnam Stock Exchange market during COVID-19 1.4 Research Questions (1) What are the influential psychological factors affecting investment decisions of investors in Vietnam Stock Exchange market during COVID-19? (2) How strong is the influence of those psychological factors on investment decisions of investors in Vietnam Stock Exchange market during COVID-19? 1.5 Research Approach First of all, the researcher uses secondary data to develop the conceptual framework for the study Most secondary data in the research is accessed via the university’s library as well as the Internet However, being aware of the reliability level of online resources, the researcher will only select reliable sources of secondary data from online Journal or books only In addition to that, the primary data is collected via the responses of participants who are investors of the Vietnam stock exchange market After that, the paper employs quantitative methods as the main data collection and analysis technique Specifically, a survey questionnaire will be adopted in order to collect information from investors in the Vietnam stock exchange market in order to understand the psychological factors of them affecting their investment decisionmaking during COVID-19 The questionnaire will be firstly sent to investors for piloting with the purpose of testing the reliability level of the measurement scale After the testing, some questions which are irrelevant will be deleted and the revised version is delivered to 200 investors of the Vietnam stock exchange market 1.6 Research Structure There are five major sections to be involved in the research The first section is the current one which is Introduction part This part sheds lights on the general information of the paper which gives the readers a first view regarding the research topic and structure After this section, the literature review part is introduced with the purpose of providing general information about Vietnam Stock market, especially in the time of COVID-19 pandemics The chapter also round up on the former researchers and studies on psychological determinants affecting the decision to invest of investors in the stock market including herd behaviour, excessive optimism, fear of losses, availability bias, and representativeness bias After the analysis in literature review section, the conceptual framework and hypotheses will be developed before the methodology section is taken into consideration Within methodology section, the set of methodological choice including research philosophy, approach, data collection and analysis method will be discussed More importantly, the researcher also give reference to the design of survey questionnaire which is critical to collect valuable source of information from respondents Results from analysis of data will be provided in Chapter IV – Data Analysis and Findings Finally, the findings will be summarized and discussed with practical implications in chapter V Also, research limitations as well as suggestion for further study will be brought about CHAPTER II – THEORETICAL BACKGROUND AND LITERATURE REVIEW 2.1 Overview of the Vietnamese Stock Market In recent years, Vietnam’s stock market has had progressive developments For instance, Vietnam’s stock market witnessed the rise of the companies with market capitalizations higher than USD billion, reaching the number of over 50, and this market has increased its total value to 90%/GDP (as figured in 2018) These developments made the Vietnamese Stock Market comparable to other stock markets in the region (Ton & Dao , 2014) Since 2020, this market has had an increasing number of new stock brokerage accounts, which almost doubled the number of new stock brokerage accounts in the past two years Especially after the COVID-19 period, the number of enthused investors has increased by months, making this market relatively nurturing and potential for investors in both domestic and foreign views (Vietnam News, 2022) So far, Vietnamese investors had had a long history of investing in other forms of capital, such as gold, real estate, and the stock market, with the last item accounting for the lowest rate of capital However, due to the recent economic content and the lasting effects of the COVID-19 pandemic, the prospect to invest in Vietnam’s real estate market has reduced significantly in these years (Vietnam Plus, 2022a) The situation is similar to gold, indicating that the local savers have had a low interest to invest in gold since the prices of gold in Vietnamese domestic markets have been very fluctuating Besides, because of the strict quotas on gold imports, gold prices in this country have been much higher than that in the world market, indicating that there are significant risks of price losses for Vietnamese investors (Vietnam Plus, 2022b) These concerns encouraged those investors to invest in stock as a safer means of investment The above lack of attractive investment alternatives inspired Vietnamese investors to invest in the stock market, featuring the rising number of newly initiated retail investors As compared with the past, this investing number of retail investors indicates that there is a great potential for sustainable development of the Vietnamese stock market (Vietnam Net, 2022) As compared with the stock market in Taiwan, Vietnam with its rising number of retail stock brokerage accounts has achieved greater potential to become an Asian Tiger in stock market developments (Vietnam Net, 2022) Reviewing the history of developments of the Vietnamese stock market, this market is still in the immature stage, indicating that there is still great potential for Vietnam to thrive in the economic years 2.2 Investors’ investment decision According to Adiputra (2021), the investments of the investors can be considered as the expenditures delivered to acquire gains in the future The expenditures, if managed successfully, can be the main means for investors to make fortune, disregarding the forms of investments they made and the industries involved Competent and experienced investors used to make subjective investment decisions after forming their analysis of the investments Those decisions depend on the costs of the expenditures, the knowledge about the industries and the sectors directly receiving the investments, and the perceived risks with those investments (Shabgou & Mousavis, 2016) Upon comparing the balance between the gains and risks associated with those investments, the investors would make final decisions Harcourt et al (1967) stated that investors always need a period to analyse data related to the investment and justify the benefits and drawbacks of the investments In cases where the investors could make good investing decisions, they need to have abundant data related to the investments to fully justify the investing opportunities, and the factors affecting the investment until it can create gains Any failure when forming investment decisions would result in devastating consequences (Grinblatt & Keloharju, 2001) Thus, the investors need to understand the basic ideas in making investment decisions so that they can make the decisions that can bring them the highest excepted values This also indicates that the investors should collect as much information about the project to invest as possible so that the accuracy level of the investment can be ensured to the highest level possible (Cao et al., 2021) From the view of the investors, the investments can be considered as the allocation of resources that they perform in the planned time to bring back the costs of the investment and generate benefits (Keswani et al., 2019) Those investments can be planned into long and short term Besides, the investor should also consider the material and human resources associated with the investment, since those are the effective forces to the ability to generate benefits for the investments Adam and Shauki (2014) further stated that the external environment can also have significant impacts on the prospect of gains for the investments, including the economic, political, social, and environmental factors affecting the investment’s performance Thus, the decisions to invest should be made upon a complete and comprehensive analysis of the context and the environment of the project Among those contextual and environmental factors, risk factors should be placed as one of the most important elements to shape the profitability of the investments (Zahera & Bansal, 2018)