MỤC LỤC
There are factors that mentioned in several studies such as the research on overconfidence bias (Glaser and Weber, 2012), the study on representativeness bias (Taffler, 2012) and analysis regarding to the effects of behavioral factors on investment decision making by unit companies in Kenya (Shikuku, 2010) and so on. In this thesis, individual investors are concerned because according to the report of the Wall Street Securities (2014) this group of investors account for over 60 percentages of investors trading in the Vietnamese stock market.
The Ho Chi Minh City is chosen because it is often considered as the biggest economic center of Vietnam and the biggest Vietnamese stock exchange, namely the Ho Chi Minh Stock Exchange, is located there. Furthermore, this part also discusses the method for collecting data used to test the hypothesis, and it analyses the data received, its reliability and multiple regression as well.
Heuristics are defined as the rules of thumb, which makes decision making easier, especially in complex and uncertain environments by reducing the complexity of assessing probabilities and predicting values to simpler judgments (Kahneman & Tversky, 1974, p.1124). It is observed that there are also some investors trading in the stock market who are illiterate and have no sufficient financial educational background so that they are unable to do detail financial analysis before taking any decision and use heuristics to get rid of that critical decisional phase (Hassan, 2013).
Gilovich (1991, p.18) described the nature of the heuristic in more detail: “Representativeness is a tendency to assess the similarity of outcomes, instances and categories on relatively salient and even superficial features, and then to use these assessments and similarity as a basis of judgment. Researchers have offered overconfidence as an explanation for wars, strikes, litigations, entrepreneurial failures, and stock market bubbles (Camerer & Lovallo, 1999; Glaser &. 217), “no problem in judgment and decision making is more prevalent and more potentially catastrophic than overconfidence.” On the contrary, when people overestimate the reliability of their knowledge and skills, it is the manifestation of overconfidence (DeBondt & Thaler, 1995, Hvide, 2002).
Odean (1999) and Schlarbaum, Lewellen, and Lease (1978b) analyze the profitability of common stock trades (as distinct from positions held) by individual investors. p.208) measure investment performance using three criteria of returns (raw returns, risk- adjusted returns, and momentum-adjusted. returns) through five-time horizons (daily, weekly, monthly, quarterly, annually). Serveral authors mainly used the secondary data of investors’ results in the security markets to measure the stock investment performance (Lin et al., 2003) while others use primary data collected from interview to evaluate their investment performance, such as Oberlechner &.
Raines & Leather (2011) argue that the tendency to make numerical predictions of values of stocks that is representative of the descriptions of the companies but ignoring the reliability of those descriptions results in overreliance on stereotypes and the underweighting of base rate information. For example, Klibanoff, Lamont, & Wizman (1998) showed that dramatic country-specific news affects the response of closed-end country fund prices to asset value. In a typical week, prices underreact to changes in fundamentals. In weeks where news of the particular country appears on the front page of the Saigon Times, prices react much more aggressively. In general, the behavioral finance is suggested for some period in Vietnam, however, there is no empirical study on the availability bias towards decision making of investors. As such, one hypothesis is suggested as follows. Hypothesis 2: Availability has positive impact on the individual investors’. decision- making in Vietnam. 2.4.3 Overconfidence and investors’ decision making. Most of the overconfidence models predict high trading volume in the market when there are overconfident traders. Moreover, at the individual level, overconfident investors trade more aggressively: The higher the degree of investor overconfidence, the higher the investor’s trading volume. 1888) called this finding “the most robust effect of.
Anderson, Henker and Owen (2005, p.71) concluded that individual investors who make higher amount of transactions may result greater returns than individuals with fewer transactions may. Kim and Nofsinger (2003, p.2) claimed that stocks experiencing the greatest increase in individual possession can earn a negative abnormal return during the year; whereas, stocks that experience the most decrease in individual ownership may earn a positive abnormal return. Such results led Papadakis (1998) to hypotheses that performance is positively related to comprehensiveness/rationality and formalization in the investment decision- making process.
It could be seen that relationship between decision making and performance of individual investors is suggested for some period in Vietnam, nevertheless, there are no empirical study whether the individual investors of decision making impacts on performance of investors or not.
Chapter summary
After that, this study conducted a literature review to review some relevant theories about heuristic factors influencing decision making and performance of individual investors to find out the suitable one to Vietnamese stock market model and built the hypotheses for this study. In these parts, the 5 -point Likert scales, which are rating scales widely used for asking respondents’ opinions and attitudes (Fisher, 2010, p.214), are utilized to ask the individual investors to evaluate the degrees of their agreement with the impacts of heuristic factors on their investment decision as well as with the statements of investment performance. The subjective assessment of investors is made by asking them to compare their currently real return rates to their expected return rates while the objective evaluation is done by the comparison between the real return rates and the average return rate of the security market.
They are representativeness bias, overconfidence bias, decision making and performance of individual investors (value of availability variable (AVA2 is removed because it is loaded double, AVA1 and AVA3 is loaded in the same component of representativeness variable and overconfidence, details could be seen in Appendix 1, so that we renamed AVA1 to RE4, and AVA3 to OVER3.
As the result of testing reliability and Exploratory Factor Analysis (EFA) are 02 independent variables that consist of representativeness (which including RE1, RE2, RE3 and RE4) and overconfidence (including OVER1, OVER2 and OVER3) and 02 dependent variables that consist of investment decision making (DEC1, DEC2, DEC3) and investment performance (PER1, PER2, PER3) are acceptable and have practical value. Results of regression analysis show that OVER (overconfidence) has the strongest effect on DEC (investment decision making) with Standardized Coefficients β = 0.343, the second is RE with Standardized Coefficients β = 0.033. R2 adjusted is 0.131 indicates that 13.1% of the variance can be predicted from the independent variables, It indicates that the percentage of total variation of investment performance of individual investors explained by the regression model consisting of investment decision making are 13.1%.
From the results obtained in the multiple regression analysis, we can conclude that investment decision making is significant and they explain 36.9% of the variance in the dependent variable (investment performance of individual investors).
The study tries to use some of heuristic factors to assess their impacts on Vietnamese individual investors while prior studies only consider the impacts of some limited dimensions of behavioral factors, for examples: Nguyen and Vuong (2006); and Tran (2007) which focus mainly on herding effects. Besides, the measurements of investment performance in this research are designed to ask the investors to evaluate their own performance based on the criteria: the investment return rate and the level of investment satisfaction. This measurement method is different from prior authors, for example: Lin and Swanson (2003), Kim and Nofsinger (2003) and so on, who used the secondary data of investors’ results in the security markets.
After running the multiple regression analysis, it be seen that overconfidence bias is significant and they explain 34.3% of the variance in the dependent variable (investment decision making of individual investors).
Implication of the study
Therefore, the measurements of investment performance should combine the investors’ assessment with secondary data of the market to enhance the accuracy of the measurements. It is also suggested to conduct the further researches to improve the measurements of heuristics as well as adjust them to fit the case of Vietnam security market. The further researches are also suggested to apply heuristic factors to explore the behaviors influencing the decisions of institutional investors at the Stock Exchanges of Vietnam.
I am currently in the process of doing thesis on "Studies of heuristic factors influencing on decision making and securities investment performance of individual investors in Vietnam".
HEURISTIC FACTORS INFLUENCING YOUR INVESTMENT DECISION Please evaluate the degree of your agreement with the impacts of heuristic factors on
YOUR DECISION MAKING
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PILOT STUDY
LIST OF SECURITIES FIRM SELECTED No. Name of securities company