(Luận văn thạc sĩ) the influence of psychological factors of individual investors on the target of invectors in vietnam stock market

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY - - NGUYỄN BÍCH CHƯƠNG The influence of psychological factors of individual investors on the target of investors in Vietnam stock market MASTER OF BUSINESS HO CHI MINH CITY, 2014 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY - - NGUYỄN BÍCH CHƯƠNG The influence of psychological factors of individual investorson the target of investors in Vietnam stock market MAJOR: FINANCE / ACCOUNTING MASTER THESIS(Honours) SUPERVISOR: Dr TRẦN HÀ MINH QUÂN HO CHI MINH CITY, 2014 ACKNOWLEDGEMENT I wish to acknowledge the support of my supervisors, Dr Tran Ha Minh Quan who tirelessly encouraged and guided me in the completion of this research and was always available to tune me in the right direction I also express the most enthusiastically grateful to my professors at International School of Business, University of Economics, Ho Chi Minh City, for their teaching and guidance during my course I wish to recognise the support and encouragement I received from my friends to help each other to complete our theses I wish to thank my mum who has always supported me in my goals and equally encouraged me in my studies I wish to thank my company, Dong Nai Urban Environment Service Company Limited for creating favorable conditions of time and money for me to complete my course Abstract Economic activities appeared thousands of years ago, when people just exchange each other‟s basic necessities, until great progress today, economy have been extensively studied, but behavioral finance is a new area Behavioral finance theories, which are based on the psychology, attempt to understand how emotions and cognitive errors influence individual investors‟ behaviors This study examines the relationship between investors‟ sentiment and their target on Vietnam stock market There are many psychological factors that affect performance of investors, but this paper focus on four psychological factors of individual investors: Overconfident, ExcessiveOptimism, Psychology of Risk and Herd Behavior The target of investors is investor look for short-term arbitrage or dividend income and capital gains in the long-term The servey was conducted at some sercurities companies at Ho Chi Minh City and Bien Hoa city, 400 questionaires were distributed directly to investors, 214 votes was eligible The results show that there is existence of psychological factors of individual investors in the stock market and they impact the target of investors As there are limited studies about behavioral finance in Vietnam, this study is expected to contribute significantly to the development of this field in Vietnam Keywords: Stock market, behavioral finance, overconfident, optimism, herd behavior, psychology of risk Abstract CHAPTER 1: INTRODUCTION 1.2 Problem statement 1.3 Scope 1.4 Research questions 1.5 Research Structure CHAPTER 2: LITERATURE REVIEW AND HYPOTHESES 2.1 Target of investors 2.2 Review of psychological factors and hypotheses 10 2.2.1 Overconfidence 10 2.2.2 Excessive Optimism 11 2.2.3 Psychology of Risk 13 2.2.4 Herd Behavior 15 2.2.5 Moderator variables 16 2.3 Model 18 CHAPTER 3: METHODOLOGY 19 3.1 Research process 19 3.2 Data collection 19 3.3 Measurement items 20 3.4 Pilot study 21 3.5 Main survey 22 3.6 Methodology of data analysis 22 3.6.1 Descriptive statistics 22 3.6.2 Reliability analysis 22 3.6.3 Exploration factor analysis (EFA) 23 3.6.4 Binary logistic regression 23 CHAPTER 4: RESEARCH RESULTS 24 4.1 The main characteristics of the sample 24 4.2 Identify the general behavior of individual investors 26 4.2.1 Overconfidence 26 4.2.2 Excessive Optimism 27 4.2.3 Psychology of Risk 28 4.2.4 Herd behavior 29 4.3 Exploring and measuring the psychological factor group constitutes the behavior of individual investors 29 4.3.1 Over Confidence 30 4.3.2 Excessive Optimism 31 4.3.3 Psychology of risk 32 4.3.4 Hers behavior 33 4.4 Exploratory factor analysis (EFA) 33 4.5 Check the existence of the psychological factors 37 4.5.1 Overconfident 37 4.5.2 Excessive Optimism 37 4.5.3 Psychology of Risk 38 4.5.4 Herd behavior 39 4.6 The relationship between behavioral factors with gender, age and level 39 4.7 The effect of behavioral factors to investors‟ target 43 4.8 Hypothesis testing result 44 CHAPTER5:CONCLUSION,IMPLICATIONS,AND LIMITATIONS 46 5.1 Conclusion 46 5.2 Managerial implications 47 5.3 Limitation and for further research 51 References 53 APPENDIX 1: Questionnaire 56 APPENDIX 2: The frequency test of the general behavior of individual investors 58 CHAPTER 1: INTRODUCTION 1.1 Research background Vietnam's stock market was launched in 2000, in the first years, the market does not seem to really attract the attention of the wider public and the up and down movements of the market does not create social impact that may extend to affect theoperation of the economy as well as the lives of every citizen.But from the beginning to the mid of 2006, with growth reaching 60%, Vietnam stock market became the 2nd faster frowth “point” in the world anh the awakeing of the fledgling market is increasingly “fascinated” investers at domestic and abroad Many reasons are given to explain this strong growth, but the majority opinions, said that one of the main causes is psychological investing, investing with the movement of investors in domestic “Playing” the stock has been talking as a "fad", a "movement" spread with stunning speed After a time developextremely strongly and considered as one channel with highest interest, end of 2009 stock market peaked at 1,170 points and no brakes sliding bubble stock has burst, many investors were bankrupted… The sharp decline of the VN-Index was affected by various factors such as tightening of monetary policies, especially lending for stock investment, high deposit interest rates, high inflation rate, and a recession of the US economy Lack of timely intervention of authorities was also areason why VN-Index fell dramatically Many comments and recommendations given by security companies or even global financial organizations did not match with what has really happened Belief in the growth of stock market did not help these analysts to save the VN-Index from remarkable declination After 13year growth of Ho Chi Minh stock market, Vietnamese investors‟ decisions are still difficult 1.2 Problem statement Every theory, every model of efficient markets seems pointless in Vietnam stock market Maybe it's time to use the theory based on basic human psychology to explain stock market anomalies Behavioral finance can be helpful in this case because it is based on psychology to explain why people buy or sell stocks (Waweru et al., 2008) Behavioral finance is a financial sector that proposes psychology-based theories to explain the abnormal stock market In behavioral finance, it is assumed that the information structure and the characteristics of market participants affect system investment decisions as individuals and as a result of market Behavioral finance attempts to explain and increase understanding of the theoretical models of investors, including the emotional processes involved and the extent to which they influence the decision-making process Basically, behavioral finance attempts to explain what, why, and how of finance and investment, from the human perspective There has been controversy about the true meaning and effect of financial behavior since the field itself is still developing and perfecting itself This evolution continues to occur because many scholars have a wide range of such diverse specialties and academic and professional Finally, behavioral finance studies of psychological factors and sociological processes that affect financial decisions of individuals, groups and organizations Noted by Daniel Kahneman in a speech entitled "Psychology and Market" at Northwestern University in 2000: "If you listen to financial analysts on the radio or on TV, you quickly learn that the market has a psychology Indeed, it has character It has thoughts, beliefs, moods, and sometimes stormy emotions." 1.3 Scope There are many psychological factors discovered through research that they have a significant impact on the behavior of investors Among those, there are four common psychological factors exist in almost every human being, there are: Overconfident, ExcessiveOptimism, Psychology of Risk and Herd Behavior The research was conducted at some securities companies in Ho Chi Minh city and Bien Hoa city, The goal of this research: prove there is existenceof psychological factors of investorsin Vietnam stock market and clarify the impact of psychological factors to investors‟ target? This research focuses on understanding and analyzing the impact of the four psychological factors: over-confident, optimistic, attitude toward risk and herd behaviour to individual investors‟ target on Vietnam stock market 1.4Research questions The research focuses on achieving the following questions: • What are the behavioral variables influencing investors‟ target? The relationship between these variables • Are there herd psychological effects on Vietnam stock market? • At which impact levels (if any) the behavioral factors influence the individual investors‟ target at the VietNam Stock market? 1.5 Research Structure This thesis has five chapters Chapter 1: Introduction, give the overview of the research and the problem need to be solved Chapter 2: Literature review and hypotheses, describes theoretical background, build the theoretical model and hypotheses Chapter 3: Methodology, appraise measurement scale, research model and hypotheses proposal Chapter 4: Research results, present the result after conducting the research methodology and evaluation Chapter 5: Conclution, implication and limitations 47 5.2 Managerial implications This part aims to discuss major findings from the results of previous part First, the findings from this study showed that explaining the behavior of individual investors can not rely on the standard finance theory, must be based on the theory of behavioral finance and individual investors on the stock market always were affected by psychological factors, this leads to the following consequences: - Investors were influenced by many factors and psychological feelings Individual investors werevulnerability and changefrequently their psychology, depended on their status and position - The theory of technical analysis and fundamental analysis are not compelling enough to explain the behavior of Vietnam stock market, instead, the core theory should be used is the financial behavior - Psychological factors and emotions play an important role when developing regulatory policies and market management Second, the testing results in Chapter show that herd behavior occurred on Vietnam stock market.Herd behaviorimpliedthat the market was inefficient, distorted As a result, if the herd behavior is prolonged and systematic, it will make market unstable, even lead to the collapse Herd behavior was also one of the main reasons that made the stock market growth rapidly from 2006 to 2007, and too cold from 2009 to 2011 Herd behavior has created negative consequences for investors because they always depend on the others‟ investment decisions, ignore their judgment and analysis Over time they will lose theirreason as well as quick-wittedtoresponse with 48 changes of the market In Vietnam stock market,it is more dangerous when there are guidances, make price of the big investors, intent to corner the market At last, this thesis has explored the model measuresbehavior of individual investors in Vietnam stock market was composed of group elements, including 16items:Overconfidence, Excessive of Optimism, Psychology of Risk and Herd behavior.This result implied psychological factors govered the behavior of investors, that mean investors wereirrational like assumptions of standard financial At the same time, discovering model also dismissed the effectiveness of Vietnam stock market This result implied to construct an indicator of psychological of investor on the stock market And beside normal financial knowledge, investors need to know emotional finance to control emotions during investmenting Control the psychological factors in investment Individual investors should avoid the following psychological deviations: Avoid "stress in investment" The securities investment process is the process that leads investors to a series of psychological conflict, whether they are aware or unconscious The findings of behavioral finance showed that, if investors are more aware about the doubts and unconscious factors, they can deal more effectively with anxiety and stress Avoid "Overconfidence" Investorsare too confident often underestimate the risk of holding stock and usually hold a low diversification levelportfolios Overconfidence of investors‟ behavior is the main cause of the bubble in the stock market The combination of overconfidence and pessimism make investors assess 49 excessive reliability level of their knowledge, underestimate risks and overestimate the ability to adjust the events, lead to the large transactions and speculative bubbles More excessive credulity, morerisk incurs Enhanced knowledge for investors To ensure the development of Vietnam stock market sustainability, the question is how to enhance training and disseminating knowledge and skills investment for investors, especially the individual investors For investors, beside equipped the knowledge of securities analysis, we recommend organize training courses on behavioral finance to help investors evaluate and analyze themselves the behavioral characteristics and then propose specific strategies and investment, avoid short-term investments, avoid the traps related to awareness and emotion When individual investors identify how to psychological factors can influence and govern their actions will help investors insulate individual psychological factors and limit deviations in making investment decision Recommendations to the Stock exchange and securities firms: Develop a measurable system of indicators of individual investors’ psychological factors in Vietnam stock market The study results confirmed investors' behaviors were influenced by individual psychological factors: overconfidence, excessive optimism, herd behavior and psychology of risk These factors can be measured through 16 items, have been explored and tested Based on the results of this research, we propose, beside the quantitative indicators which were built by the stock exchange such as HNX30 (Hanoi Stock Exchange build), VN30 (HCM Stock Exchange build), VIR50 (Securities 50 Investment Report buid), we propose the stock exchanges should develop a measurable system of indicators behavioral of individual investors through a questionnaire as a reference index key Form derivatives market Vietnam stock market has formed and developed over 13 years Currently, we basically had enough conditions to form derivative securities markets The research results of chapter showed deviations in the behavior of individual investors, typically herd behavior Thus, to limit the herd mentality, apart from transparency of information and control information, to improve the operation mechanism of the stock price through enhance the relationship between stock market with other markets To enhance the performance of the market, to transparency and control informations, should improve the mechanism operation of the stock price through strengthening the regulation and interconnection from the stock market to other market The development of the derivatives market will create favorable conditions for investors to hedge and limit the deviations in the behavior of investors At the same time, derivative markets will also enable the management agencies state to regulate and manage the stock market and bond better However, the other side of derivative market is without good control will lead to speculation, market manipulation, even lead to the crisis of the stock market Therefore, the state should develop policies to ensure the implementation of the derivative instruments is sustainable Some policies have to heed such as: limit the amount and the purchase price, the demand for capital and mortgage when trading the derivative securities Enhance the transparency of Vietnam stock market 51 To protect individual investors, should increase the transparency of Vietnam stock market The solution as follows: - Publish informations of the macroeconomic situation and the information related to Vietnam stock market - Decentralise the trading surveillance activities for the stock exchange, securities commission state only supervises the trading members Improve the violation sanctions on stock market Nowaday, violations in Vietnam stock market more and more sophisticated, one of the main reasons is the sanctions was not seriously, the frame sanction I still slight so no deterrent We recommend that State Securities Committee should modify the provisions of sanctions on stock market 5.3 Limitation and for further research One of limitations could be the coverage of this study, in term of geography, this research was conductedin only Ho Chi Minh City and Bien Hoa city, and in some securities companies, can not cover the whole market Beside, survey process and data collection have met with many difficulties, it was difficult to access investors, the current stock market period is not as attractive as before, the number of investors participate in marketare not many as previous, the number of investors were surveyed not many, only 214votes were satisfactory, so the results can not be completely comprehensive the current market In addition, not only factors, but also there are many psychological factors affect investors, such as: loss aversion bias, illusion of control bias, self attribution bias, hindsight bias, conservatism bias…Besides, the behaviors of institutional investors, banks, and securities 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□ Phổ thông (1) □ Cao đẳng (2) □ Đại học (3) □ Sau đại học (4) II Nội dung chính: Xin Anh/chị đánh giá mức độ đồng tình Anh/chị phát biểu sau đây: Hồn tồn khơng đồng ý Anh/chị tự tin có khả lựa chọn cổ phiếu tốt nhà đầu tư khác Anh/chị hồn tồn kiểm sốt hoạt động đầu tư Anh/chị hiểu rõ cổ phiếu danh mục đầu tư Anh/chị hiểu rõ “sức khỏe” thị trường chứng khoán Anh/chị chưa thực giao dịch mang tính bốc đồng Trong thời điểm tại, anh/chị tiếp tục đầu tư thị trường chứng khốn Khơng Bình Đồng đồng thường ý ý Rất đồng ý □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 57 Anh/chị tăng vốn đầu tư vào thị trường chứng khoán năm tới Anh/chị tin thị trường chứng khoán phục hồi năm sau Nếu số VN-Index giảm 5%, anh/chị tin số phục hồi nhanh chóng 10 Thị trường chứng khoán Việt Nam kênh đầu tư hấp dẫn 11 Anh/chị thích “những đợt sóng mạnh” để có hội tìm kiếm lợi nhuận cao 12 Anh/chị thích đầu tư vào cơng ty tiếng cơng ty tiếng tăm 13 Khi giá cổ phiếu giảm, anh/chị thường nắm giữ cổ phiếu khoãng thời gian để chờ đợi giá tăng lên lại 14 Anh/chị thích đầu tư vào cơng ty trả cổ tức ổn định 15 Anh/chị có tham khảo ý kiến người khác trước mua cổ phiếu (ý kiến của: nhà đầu tư khác, nhà phân tích thị trường, nhận định cơng ty chứng khốn, giao dịch viên…) 16 Nếu anh/chị có thơng tin riêng ngược với xu hướng thị trường, anh chị thực giao dịch theo thông tin anh/chị có 17 Anh/chị có dựa vào khối lượng giao dịch thị trường để định đầu tư 18 Anh/chị có dựa vào khối lượng giao dịch nhà đầu tư nước để định đầu tư 19 Mục tiêu đầu tư Anh/chị Xin chân thành cám ơn Anh /chị □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □1 □2 □3 □4 □5 □ Tìm kiếm chênh lệch giá ngắn hạn (1) □ Thu thập cổ tức lãi vốn dài hạn (2) 58 APPENDIX 2: The frequency test of the general behavior of individual investors Table 1: Overconfidence 59 Table 2: Excessive Optimism 60 Table 3: Psychology of Risk 61 Table 4: Herd Behavior ...MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY - - NGUYỄN BÍCH CHƯƠNG The influence of psychological factors of individual investorson the target of investors. .. is the conscious personality (individual consciousness) disappear and the emotional turning, thinking of the individuals is in the same direction In the stock market, herd behavior involves the. .. reflected in the results answer of these questions:  Investors continued to invest in the market (in terms of market going slight increase when the survey was conducted) (o1)  Investors continued