The impacts of behavioral factors on individual investors decision making at the ho chi minh stock exchange

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY NGUYEN HAI NAM THE IMPACTS OF BEHAVIORAL FACTORS ON INDIVIDUAL INVESTORS’ DECISION MAKING AT THE HO CHI MINH STOCK EXCHANGE MASTER OF BUSINESS ADMINISTRATION THESIS HoChiMinh City – 2012 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY NGUYEN HAI NAM THE IMPACTS OF BEHAVIORAL FACTORS ON INDIVIDUAL INVESTORS’ DECISION MAKING AT THE HO CHI MINH STOCK EXCHANGE Major: Major Code: Business Administration 60.34.05 MASTER OF BUSINESS ADMINISTRATION THESIS Supervisor: DR TRAN HA MINH QUAN HoChiMinh City – 2012 ACKNOWLEDGEMENT I would like to express my heartfelt gratitude and deepest appreciation to my research Supervisor, Dr Tran Ha Minh Quan for his intensive support, valuable suggestions, guidance and encouragement during the course of my study I would like to express my sincere gratitude to all of my teachers at Faculty of Business Administration and Postgraduate Faculty, University of Econimics Ho Chi Minh City for their teaching and guidance during my MBA course I would like to express my gratefulness to my friends working at the Ho Chi Minh Stock Exchange and securities companies, who help me to arrange interviews and distribute questionnaires I am also thankful to beneficiary customers who participated in the interviews and the survey I would like to specially express my thanks to all of my classmates, my friends from for their support and encouragement I would also like to avail this opportunity to express my appreciation to Professor Nguyen Dong Phong, UEH Board of Directors for creating MBA program in English and Dr Tran Ha Minh Quan for his support during the course Finally, I heartily dedicate this study to my beloved parents, my younger brother Duc Vinh, and my wife, Doan Phuong who have encouraged and supported me during my study Page i ABSTRACT This study investigates the impacts of behavioral factors on the investment decisions of individual investors in stock market It applies behavioral finance theory to explore the possible behavioral factors influencing individual investors’ investment decisions then identify the impact levels of those factors using data from respondents of 180 individual investors at the Ho Chi Minh Stock Exchange (HOSE) According to the findings of this study, there are four behavioral factors affecting the investment decisions of individual investors at HOSE: Heuristic, Market, Prospect, and Herding The impacts of four behavioral factors on individual investors’ decision making at HOSE are in varying degrees from high impact to low impact: Market factor has highest impact; Heuristic and Prospect have moderate impact; while Herding factor only has low impact Keywords: “Behavioral finance”, ”Behavioral factors”, “Individual investors’ decision-making”, “Ho Chi Minh Stock Exchange”, “HOSE”, “Vietnam” Page ii CONTENTS Acknowledgement i Abstract ii Contents iii List of Tables v List of Figures vi CHAPTER1: INTRODUCTION 1.1 Research background 1.2 Problem statement 1.3 Research objectives and research questions 1.4 Research scope 1.5 Research structure CHAPTER 2: LITERATURE REVIEW 2.1 Traditional finance theory versus behavioral finance 2.2 Behavioral factors impact the process of investors’ decision-making 2.2.1 Heuristic theory 2.2.2 Prospect theory 12 2.2.3 Market factors 13 2.2.4 Herding effect 15 2.3 Research model 19 CHAPTER 3: RESEARCH METHODOLOGY 21 3.1 Introduction 21 3.2 Research design 22 3.3 Data collection method 23 3.4 Design of Measurements and Questionnaire 25 3.5 Data process and analysis 27 Page iii CHAPTER 4: RESEARCH RESULT AND FINDING DISSCUSSION 4.1 Introduction 4.2 Characteristic of sample 4.3 Measurement Reliability Test using Cronbach’s Alpha 4.4 Factor analysis of behavioral variables influencing the individual in decisions 4.5 Decisions 4.6 Impact Levels of Behavioral Factors on the Individual Investors’ In Finding discussion 4.6.1Impacts of Heuristi 4.6.2Impacts of Prospect 4.6.3Impacts of Market V 4.6.4Impacts of Herding CHAPTER 5: CONCLUSION AND RECOMMENDATIONS 5.1 Introduction 5.2 Conclusions 5.3 Contributions of the study 5.4 Recommendations for Individual Investors 5.5 Limitations and further researches References Appendix Appendix Appendix Page iv LIST OF TABLES Table 2.1: Behavioral factors influencing the investment decision-making 18 Table 3.1: Type of measurements for personal information 25 Table 3.2: Type of measurements for behavioral variables 26 Table 4.1: Sex of respondents 30 Table 4.2: Age of respondents 31 Table 4.3: Time for attending stock market 31 Table 4.4: Attending course of stock exchange 32 Table 4.5: Amount of investment last year 32 Table 4.6: Cronbach’s Alpha Test for items of Factors 34 Table 4.7: Factor analysis (EFA) for behavioral variables 36 Table 4.8: Impacts of variables on investment decision at HOSE 38 Table 4.9: Results of the hypotheses 41 Page v LIST OF FIGURES Figure 2.1: The research model of behavioral factors’ impacts on investment decisions of Individual investors at HOSE 21 Figure 3.1: The research process 22 Page vi CHAPTER INTRODUCTION 1.1 Research background Stock market is a market where stocks are bought and sold (Zuravicky, 2005) It has the important role on the development of an economy It can be considered as the yardstick for economic strength and healthy Stock market is a source of financing investment Besides, stock market also performs a function as a signaling mechanism to managers regarding investment decisions and a catalyst for corporate governance (Supat, 1998) Additionally, stock market may push the development of an economy through efficient allocation of resources and better utilization of resources (Supat, 1998) However, stock market is best known for being the most effective channel for company’s capital raise (Zuravicky, 2005) There are some reasons that make interesting to people when investing in stock market The first reason is because of “long-term growth of capital, dividends, and a hedge against the inflationary erosion of purchasing power” (Zuravicky, 2005) The other reason that makes the stock market more attractive than other types of investment is its liquidity (Bencivenga et al., 1996) Liquidity allows investors to trade stocks easily and quickly while firms still have permanents use of capital for stable development (Bencivenga et al., 1996) Most people invest in stocks because they want to be the owners of the firm, from which they benefit when the company pay dividends or when stock price increases (Zuravicky, 2005) However, many people buy stocks for the purpose of control over the firms Regularly, shareholders need to own specific amount of shares to be in the board of directors who can make strategic decisions and set directions for the firms Page Vietnam stock market, which established from 2000, is still a frontier or pre-emerging market due to the quality of market criteria (FTSE, 2011) In comparison to developed markets (such as the USA, the UK, Japan, EU,…) and emerging markets (such as Mexico, China, India,…), Vietnam stock market appears to be much smaller in terms of scale and maturity However, Vietnam stock market with reprentativeness from Ho Chi Minh Stock Exchange (HOSE) has been developed significantly in both the number of listed stocks and transaction value for 11 years During that period, the price movement at HOSE seems to fluctuate unpredictably In addition, Vietnamese investors’ decisions are still difficult for financial analysts to understand Many comments and recommendations given by security companies or even global financial organizations did not match with what has really happened At the early of 2008, when VN-Index was standing at around 830 points, Yoong, the analysis manager of Mekong Securities was confident to assert that VN-Index would go up to 1140 point in 2008 (Tu, 2008) Publishing the same opinion, HSBC and many security companies affirmed that VN-Index would be likely to reach 1,100 point by the end of 2008 (HSBC, 2007) Belief in the growth of stock market did not help these analysts to save the VN-Index from remarkable declination In a forecast at the early of 2009, HSBC predicted that 2009 would be another difficult year and the Ho Chi Minh stock market would be volatile with some large up and down swings, but end up at the same level as 2008, around 316 points (HSBC, 2009) This forecast is not accurate as at the end of 2009, VN-Index was 1.5 times more than that of 2008 Therefore, it is possible to state that the forecast methods based on the conventional financial theories are not suitable for Ho Chi Minh stock market in this context These theories assume that investors rationally maximize their wealth by following basic financial rules Page In term of Prospect, recommendations given to investors are that they should consider carefully before making investment decisions, but should not care too much about the prior loss for their later investment decisions This can limit the good chances of investment and impact badly the psychology of the investors and lead to bad investments Besides, the investors should reduce their regret in investment by avoiding selling decreasing stocks and selling increasing ones As discussed above, this can lead to the fact that the investors can keep all losing stocks and this impact negatively the investment result Finally, the investors should not divide their investment portfolio into separate accounts because each element of the portfolio may have a strict relation to the others and the treating each element as an independence can be result a bad investment 5.5 Limitations and further researches The study has some limitations as the following: • Although the sample size is relative high (N = 180) and satisfy the requirements of statistical methods; however, it is suggested to have a larger sample size in further research to reflect more accurately the realistic situation of Vietnam stock market • Object of this study is only individual investors from HOSE • Behavioral finance and its measurements are very new to investors in Vietnam This study is one of the volunteers using behavioral finance in Vietnam It is necessary to have further researches to confirm the findings of this research with the larger sample size and the more diversity of respondents Page 50 It is also suggested to conduct the further researches to improve the measurements of behavioral finance as well as adjust them to fit the case of Vietnam security market The further researches are also suggested to apply behavioral finance to explore the behaviors influencing the decisions of institutional investors at the Stock Exchanges of Vietnam These researches can help to test the suitability of applying behavioral finance for all kinds of security markets with all components of investors Page 51 REFERENCES Allen, D W and Evans, A D (2005) Bidding and overconfidence in experimenting 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Dưới năm Từ năm đến 10 năm Xin vui lòng cho biết Anh/Chị tham gia khóa đào tạo chứng khốn chưa? Có Nếu có, thời gian đào tạo bao lâu? < tháng 10 Xin Anh/Chị vui lòng cho biết số tiền đầu tư sàn TPHCM năm vừa qua Dưới 100 triệu VNĐ Từ 500 triệu đến 1tỷ VNĐ 11 Xin Anh/Chị vui lòng cho biết tổng khoản đầu tư sàn TPHCM tứ tham gia vào thị trường chứng khoán TPHCM Dưới 100 triệu VNĐ Từ 500 triệu đến 1tỷ VNĐ Page 57 B CÁC YẾU TỐ ẢNH HƯỞNG ĐẾN QUYẾT ĐỊNH ĐẦU TƯ Xin vui lòng đọc kỹ đánh dấu (X) mức độ đồng tình/khơng đồng tình Anh/Chị với phát biểu bảng đây: 12 Anh/Chị hay mua loại cổ phiếu “nóng” tránh mua chứng khoán sinh lợi giai đoạn gần 13 Anh/Chị phân tích xu hướng vài cổ phiếu đại diện để định đầu tư cho cổ phiếu khác 14 Anh/Chị tin kỹ kiến thức Anh/Chị thị trường chứng khốn giúp Anh/Chị đạt mức sinh lợi cao mức trung bình thị trường 15 Anh/Chị dựa kinh nghiệm thân tích lũy từ đầu tư khứ để định cho đầu tư tương lai 16 Anh/Chị có khả lường trước điểm đảo chiều sàn chứng khoán TP Hồ Chí Minh 17 Đối với Anh/Chị, thơng tin có từ người thân bạn bè nguồn thơng tin đáng tin cậy cho q trình đinh đầu tư 18 Sau đầu tư thành công, Anh/Chị trở nên mạo hiểm 19 Sau đầu tư thất bại, Anh/Chị mạo hiểm 20 Anh/Chị tránh bán cổ phiểu giảm giá trị sẵn sàng bán cổ phiếu tăng giá trị 21 Anh/Chị cảm thấy tiếc giữ cổ phiểu giảm giá lâu bán cổ phiếu tăng giá sớm 22 Anh/Chị định cổ phiếu danh mục đẩu tư độc lập, không phụ thuộc lẫn 23 Anh/Chị bỏ qua mối liên hệ khả đầu tư khác 24 Anh/Chị xem xét kĩ lưỡng thay đổi giá cổ phiếu mà Anh/Chị định đầu tư 25 Anh/Chị phản ứng mạnh thay đổi giá chứng khốn 26 Thơng tin thị trường quan trọng trình định đầu tư chứng khoán Anh/Chị 27 Anh/Chị xem xét xu hướng khứ cổ phiếu trước định 28 Anh/Chị phân tích thị hiếu khách hàng công ty trước định đầu tư vào cổ phiếu cơng ty 29 Anh/Chị nghiên cứu quyền mua bán cổ phiếu trước đinh đầu tư 30 Quyết định chọn loại chứng khoán nhà đầu tư khác ảnh hưởng đến định đầu tư Anh/Chị 31 Quyết định số lượng cổ phiếu mua bán nhà đầu tư ảnh hưởng đến định đầu tư Anh/Chị 32 Quyết định mua bán chứng khoán nhà đầu tư khác ảnh hưởng đến định đầu tư Anh/Chị 33 Anh/Chị phản ứng nhanh thay đổi định nhà đầu tư khác theo định họ Xin chân thành cám ơn hợp tác Anh/Chị! Page 58 APPENDIX 2: FACTOR ANALYSIS FOR BEHAVIORAL VARIABLES KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartlett's Test of Sphericity Total Variance Explained Component 10 11 12 13 14 15 16 17 18 Extraction Method: Principal Component Analysis Page 59 Rotated Component Matrix(a) H5 H6 H4 H3 H1 X3 X1 X2 X4 P1 P5 P2 P4 P6 M1 M4 M2 M3 Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization a Rotation converged in iterations Page 60 APPENDIX 3: CRONBACH’S ALPHA TEST FOR ITEMS OF FACTORS 1) Heuristic Items Reliability Statistics Item-Total Statistics H1 H2 H3 H4 H5 H6 2) Prospect Items Cronbach's Alpha 766 P1 P2 P3 P4 P5 P6 Page 61 3) Market Items Cronbach's Alpha 791 Scale Mean if Item Deleted M1 M2 M3 M4 M5 M6 4) Herding Items Cronbach's Alpha 878 Scale Mean if Item Deleted X1 X2 X3 X4 Page 62 ...MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY NGUYEN HAI NAM THE IMPACTS OF BEHAVIORAL FACTORS ON INDIVIDUAL INVESTORS? ?? DECISION MAKING AT THE HO CHI MINH STOCK. .. identify the impact levels of those factors using data from respondents of 180 individual investors at the Ho Chi Minh Stock Exchange (HOSE) According to the findings of this study, there are four behavioral. .. factors affecting the investment decisions of individual investors at HOSE: Heuristic, Market, Prospect, and Herding The impacts of four behavioral factors on individual investors? ?? decision making