Psychology Factors Influencing Investment Decision and Investment Performance: A Study on Individual Investors in Vietnam

Master Thesis Psychology Factors Influencing Investment Decision and Investment Performance: A Study on Individual Investors in Vietnam Ho Minh Phuc Mbus 3.2 Supervisor: Dr Thao P.Tran ACKNOWLEDGEMENT First of all, this thesis appears in its current form due to the assistance and guidance of several people I would therefore like to offer my sincere thanks to all of them who made this thesis possible and an unforgettable experience for my studying Furthermore, I want to express my deep thanks to my supervisor, Dr Tran Phuong Thao for the trust, the insightful discussion, offering valuable advice, for her support during the whole period of the study, and especially for her patience and guidance during the time of researching and writing of the thesis process Besides my supervisor, I would also like to thank the ISB research committee for their encouragement, insightful comments in my study Last but not the least, I would like to thank my family for their material and spiritual support in all aspects of my study Ho Chi Minh City, December 1st, 2014 HO MINH PHUC ` December, 2014 TABLE OF CONTENTS ACKNOWLEDGEMENT iii ABSTRACT iii LIST OF FIGURE iv LIST OF TABLE iv CHAPTER 1: INTRODUCTION 1.1 Background of the research 1.2 Problem Statement 1.3 Research Objectives and Questions 1.4 Research Scope .5 1.5 Research Structure CHAPTER 2: LITERATURE REVIEW, HYPOTHESES AND CONCEPTUAL MODEL 2.1 Theoretical background on psychology factors 2.2 An overview of psychology factors on the stock market 11 2.2.1 Overconfidence 12 2.2.2 Excessive Optimism 15 2.2.3 Herding Behavior 17 2.2.4 Risk attitude 19 2.3 Hypotheses development 20 2.3.1 Psychology factors and investment decisions .20 2.3.2 Investment decision and investment performance 23 2.4 Conceptual model 25 2.5 Chapter summary 26 CHAPTER 3: RESEARCH METHODOLOGY .27 3.1 Research Process 27 3.2 Research design 28 3.2.1 Questionnaire design: 28 3.2.2 Measurement of variables 29 3.3 Pilot Study .31 3.4 Main survey 32 i ` 3.4.1 Sampling 32 3.4.2 Data analysis method 32 3.5 Chapter summary 35 CHAPTER 4: EMPIRICAL RESULTS .36 4.1 Data analysis .36 4.2 Reliability Test using Cronbach’s Alpha 39 4.3 Factor analysis 41 4.4 Testing for regression assumptions .43 4.4.1 Influences of Psychology Factors on the Individual Investment Decision .45 4.4.2 Influences of the investment decision on the Individual Investment Performance 47 4.5 Chapter summary 49 CHAPTER 5: CONCLUSION, IMPLICATIONS AND DIRECTION FOR FURTHER STUDIES 51 Key findings of the thesis 51 5.2 Managerial Implication of the study 55 5.3 Limitation and direction for further studies 56 Reference .58 Apendix 4.1 Questionnaire ( English version) .65 Apendix 4.2 Questionnaire ( Vietnamese version) 70 Apendix 4.3: Cronbach’s Alpha Test for items of factors 75 Apendix 4.4: Factor analysis for psychology variables and investment performance 79 Apendix 4.5: Testing for regression assumptions 81 ii ` ABSTRACT The aim of this thesis is to investigate and determine the relationship between psychology factors including overconfidence, excessive optimism, herding behavior and risk attitude which influence investment decision and investment performance of the individual investors in Vietnam This research model was developed by different author who suggested various behavioral factors which may affect the investors‟ decision-making process and the investment performance such as Bondt (1985), Odean (1999), Bikhchandani and Sharma (2001)… Specifically, the thesis employs a survey approach by distributing questionnaire in Ho Chi Minh City stock exchange Sample size of this research is 200 respondents The 7-point measurements are tested for their consistency and reliability by Factor Analysis and Cronbach‟s Alpha, which prove that behavioral finance can be used for Vietnam stock market The findings indicated that, three of four factors have direct effects on investment decisions, in which they explained 63.1% of the variance of investment performance of respondents With the method analysis of exploratory factor analysis, the research shows that the strong relationship between psychology factors Future researches are encouraged to improve the financial knowledge scale to get better and accurate results Despite of some limitations, this study also has some significations for individual investors, financial education institutions or government agency Discussion and implications of the findings are delineated at the end of the study iii ` LIST OF FIGURE Firgure 1.1 The movement of VN Index from 2000 to 6/2014 ……… ……………4 Firgure 2.1: Prospect Theory…………………………………………………………11 Firgure 2.2: Conceptual model……………………………………………………… 26 Firgure 3.1: Conceptual model……………………………………………………… 28 LIST OF TABLE Table 3.3: Cronbach‟s Alpha Reliability Coefficient…………………………… 34 Table 4.0: Number of questionnaires of securities companies in Ho Chi Minh City.37 Table 4.1: Data description ………………………………………………… 38-39 Table 4.2: Cronbach‟s Alpha Test for items of factors 41 Table 4.3: KMO and Bartlett‟s Test 43 Table 4.4: Factor loadings 44 Table 4.5: Correlations ………………………………………………………………45 Table 4.6: Regression testing of psychology factor and the investment decisions… 46 Table 4.7: Summary of the relationship between psychological factors and investment decisions 47 Table 4.8: Regression testing of investment decisions and investment performance 49 Table 4.9: Summary of the relationship between investment decision and investment performance……………………………………………………………………………50 iv ` CHAPTER 1: INTRODUCTION This chapter introduces the background of the behavior finance as well as the status of psychology factors After that, problem statement is discussed in Vietnamese stock market to have the general picture about the stock market The research questions and objectives are proposed to explore the factors determining investment decision and investment performance Based on these, research scope is proposed and thesis structure is presented 1.1 Background of the research Theories of human behavior from psychology, sociology, and anthropology have motivated much recent empirical research on the behavior of financial markets They attempts to explain human behaviors‟ in markets, importing theories of human behavior from the social sciences (Shiller, 1999) to explain why and how financial markets might be inefficient (Sewell, 2007) It could be seen that the term “behavioral finance” has been emerged since 1896 when le Bon (1896) wrote a book “The Crowd: A Study of the Popular Mind” It is one of the greatest and most influential books of social psychology ever written Later, the second-most cited paper ever to appear in Econometrical in 1979, the prestigious academic journal of economics, was written by two psychologists Kahneman and Tversky who proposed the prospect theory (Kahneman and Tversky 1979) Then, Plous (1993) wrote The Psychology of Judgment and Decision Making which gives a comprehensive introduction to the field with a strong focus on the social aspects of decision making processes A wide range of behavior is taken into account when investigating investor psychology in finance Tversky and Kahneman (1994) confirmed a distinctive fourfold pattern of risk attitudes: risk aversion for gains and risk seeking for losses of high probability; risk seeking for gains and risk aversion for losses of low probability Later, Odean (1999) demonstrated that overall trading volume in equity markets is excessive, and one possible explanation is overconfidence He also found evidence of the disposition effect which leads to profitable stocks being sold too soon and losing stocks being held for too long Psychological research has established that men are more prone to overconfidence than women (especially in male- ` dominated areas such as finance) whilst theoretical models predict that overconfident investors trade excessively Barber and Odean (2001) found that men trade 45 percent more than women and thereby reduce their returns more so than women and conclude that this is due to overconfidence In recent years, behavioral finance issues are widely studying Under the light of behavioral finance, investors can be affected by psychological factors (emotional and cognitive factors) which are the so-called behavioral biases in their decision-making process Behavioral biases are abstractly defined the same way as systematic errors in judgment (Pompian, 2006) In fact, many phenomenon and individual investor‟s behaviors in the Vietnamese stock market cannot be explained by standard finance, which based on the efficient market hypothesis Through the studies, it is found that there are a great number of psychological factors having a significant influence on the behavior of investors Among them, four common psychological factors that exist in almost every human being are (1) overconfidence, (2) excessive optimism, (3) attitude towards risk and (4) herd behavior Up to now, there have been numerous studies related to these above psychological forms of individual investors in the world such as as Debond (1985), Odean (1999); Bikhchandani and Sharma (2001) A study by Lakonishok, Shleifer and Vishny (1994) postulate that value strategies produce superior returns because of investors consistently overestimate future growth rates of glamour stocks relative to value stocks The essence of this argument is that investors are excessively optimistic about value (glamour) stocks because they tie their expectations of future growth in earnings to past bad (good) earnings Prior studies shows that behavioral finance studies have been carried out popularly in developed markets of Europe and the United States (Caparrelli, Arcangelis & Cassuto, 2004, p.222–230) as well as in emerging and frontier markets (Lai, 2001, p.210–215 ; Waweru et al., 2008, p.24-41) Among these studies, Odean (2001) indicates behavior factors existing in developed markets while using behavioral finance for frontier and emerging markets is much fewer than for developed markets (Waweru et al., 2008) As such, understanding behavioral factors particularly psychology factors are important in emerging markets like Vietnam ` With the development of the science, technology and the economy, it is possible to consider stock market as the yardstick for economic strength and development Therefore, the movement of stock market trend represents the economic health of an economy The development of theories and models is try to attempt and explain the way how stock price goes up and down From the developed stock markets such as the USA, the UK, Japan which have strong impacts on global security markets (Reza, Zamri & Tajul, 2009) to the emerging and the frontier or pre emerging such as Vietnam, Kenya, the psychology of human being is complicated and cannot be predicted From that, researchers and investors show that to understand people‟ activities and behavior or psychology factors is necessary 1.2 Problem Statement In Vietnam, there are two stock exchanges The first Vietnamese stock exchange, known as the Ho Chi Minh Stock Trading Center (HOSTC) has been launched since 2000 and the second, known as the Ha Noi Stock Trading Center (HASTC) has been established since 2005 At the beginning, the market size was quite small and thin with only listed companies and security companies; however, the market has been developed significantly in recent years By December 2013, there were more than 300 listed companies on the Ho Chi Minh Stock Exchange (HOSE), the later name of the HOSTC, with market value was 949,000 billion VND, increased 184,000 billion VND in comparison with 2012, accounting for approximately 31% GDP In addition, the second stock Exchange also had significant growth as given in Huong (2014) Between the two markets, the Ho Chi Minh stock market has been developed significantly in the number of listed stocks and transaction value for 14 years (Mieu, 2014), the price movement seems to fluctuate unpredictably over different periods (Graph 1.1) However, this market index is often used for doing research and studying in Vietnam such as Ly (2010), Chi (2007) ` Constr uct Items Extremel Highly Disagre Neutral Agree Highly Extremel y Disagre e Agree y Disagree e Agree                                                  Investors like big price fluctuation to get the high profit Investors like to invest the companies which they knows clearly When price goes Risk attitud e down, the investors often keep the stocks longer to wait the price go up Investors like to invest the companies which have the stable dividend Our investment in stocks has a high degree of safety Our investment has the ability to meet Invest interest payment ment Decisio ns Our investment has a lower risk compared to the market in general 68 ` III YOUR INVESTMENT PERFORMANCE Constr uct Items Extremel Highly Disagre Neutral Agree Highly Extremel y Disagre e Agree y Disagree e Agree                      The return rate of your recent stock investment meets your expectation Your rate of return is recently equal to or Invest ment higher than the average return rate of the market perfor mance You feel satisfied with your investment decisions in the last many years (including selling, buying, choosing stocks, and deciding the stock volumes) 69 ` Apendix 4.2 Questionnaire ( Vietnamese version) PHIẾU PHỎNG VẤN NHÀ ĐẦU TƯ CÁ NHÂN VỀ CÁC NHÂN TỐ TÁC ĐỘNG ĐẾN QUYẾT ĐỊNH ĐẦU TƯ VÀ THÀNH QUẢ ĐẦU TƯ Kính gửi: Anh/Chị Tơi sinh viên cao học Viện Đào Tạo Quốc Tế - Trường Đại Học Kinh Tế TPHCM Hiện làm luận văn tốt nghiệp đề tài: “ Nghiên cứu nhân tố tâm lý tác động đến định đầu tư thành đầu tư – Một nghiên cứu thực nghiệm thị trường chứng khốn Việt Nam” Chính tơi mong Anh/Chị với tư cách nhà đầu tư cá nhân đưa quan điểm thơng qua bảng câu hỏi đính kèm Tất liệu tổng hợp giữ kín, trình bày hình thức báo cáo tổng hợp, thông tin cá nhân không bị tiết lộ I Thông tin cá nhân Giới tính Nữ  Nam  Tuổi 18 - 25  26 – 35  36 – 45  46 – 55  Over 55  Tình trạng hôn nhân: Độc thân  Đã kết hôn  Ly dị  Học Vấn Trung học thấp  Cao đẳng, trung cấp  Cử nhân  Thạc sĩ  Tiến sĩ  Khác  Thời gian đầu tư chứng khoán 70 ` Dưới năm  – 10 năm  Trên 10 năm  Trên tỷ  Số tiền đầu tư năm ngoái (VND) II Dưới 50 triệu  50- 200 triệu  200 – 500 triệu  500 triệu – tỷ  CÁC YẾU TỐ TÂM LÝ ẢNH HƯỞNG ĐẾN QUYẾT ĐỊNH ĐẦU TƯ Biến đo lường Yếu tố Hoàn Rất Khơng Trung Đồng Rất Hồn tồn khơng đồng hịa ý đồng ý tồn khơng đồng ý đồng ý đồng ý ý Anh/chị tin chọn lựa tốt cổ phiếu                             người khác Anh/chị tin hồn tồn kiểm sốt hành Quá tự động đầu tư tin Hầu hết nhà đầu tư thành công dựa kỹ họ Anh/chị tin hiểu rõ thị trường 71 ` Biến đo lường Yếu tố Hoàn Rất Khơng Trung Đồng Rất Hồn tồn khơng đồng hịa ý đồng ý tồn khơng đồng ý đồng ý đồng ý ý Anh/chị tiếp tục đầu tư thị trường xu hướng                                                         xuống Lạc Anh/chị bỏ thêm vốn đầu quan tư vào thị trường thái Anh/chị tin xu hướng thị trường lên vào năm tới Nếu VNIndex giảm 4%, thị trường phục hồi Quyết định nhà đầu tư Hành vi khác việc chọn cổ phiếu bầy đàn có ảnh hưởng đến định anh/chị Nếu anh/chị có thơng tin khác so với thị trường, anh/chị theo thơng tin Anh/chị có nhìn vào khối Hành vi lượng giao dịch để đầu tư bầy đàn Anh/chị có thường thay đổi nhanh chóng định đầu tư theo phản ứng thị trường 72 ` Biến đo lường Yếu tố Hồn Rất Khơng Trung Đồng Rất Hồn tồn khơng đồng hịa ý đồng ý tồn không đồng ý đồng ý đồng ý ý      Anh/chị có thích biến động Thái độ mạnh giá để kiếm lợi nhuận rủi ro Anh/chị đầu tư vào cơng ty mà hiểu rõ                                 Khi thị trường xuống, anh/chị Thái độ giữ cổ phiếu dài hạn hay bán rủi ro Anh/chị thích đầu tư vào công ty chia cổ tức Quyết định đầu tư anh/chị mang tính an tồn cao so với thị trường Quyết định đầu tư Quyết định đầu tư anh/chị có bù đắp lãi suất thị trường Quyết định đầu tư anh/chị có rủi ro thấp so với thị trường III THÀNH QUẢ ĐẦU TƯ CỦA ANH CHỊ DỰA TRÊN QUYẾT ĐỊNH ĐẦU TƯ 73 ` Yếu tố Biến đo lường Hồn Rất Khơng tồn khơng đồng khơng đồng ý đồng ý Trung Đồng hịa ý ý Rất Hoàn đồng toàn ý đồng ý Mức sinh lợi năm vừa qua có đáp ứng với kỳ vọng anh/chị Thành đầu tư               Hoàn Rất Khơng Rất Hồn tồn khơng đồng đồng tồn khơng đồng ý ý đồng ý đồng ý mong muốn Mức sinh lợi anh/chị năm qua cao mức sinh lợi trung bình thị trường Yếu tố Biến đo lường Trung Đồng hòa ý ý Anh/chị cảm thấy hài lòng định đầu tư Thành năm đầu tư qua ( bao gồm mua bán,        chọn cổ phiếu khối lượng giao dịch) 74 ` Apendix 4.3: Cronbach’s Alpha Test for items of factors 75 ` 76 ` 77 ` 78 ` Apendix 4.4: Factor analysis for psychology variables and investment performance 79 ` 80 ` Apendix 4.5: Testing for regression assumptions 81 ` 82 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