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 5 Supervisor: Dr. Nguyen Quynh Tho September 2022 i 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.
Background of the Research. 3 CHAPTER II – THEORETICAL BACKGROUND AND LITERATURE REVIEW. Overview of the Vietnamese Stock Market. Investors’ investment decision.
Psychological factors affecting investors’ investment decision. Fear of losses. Multiple Regression Analysis. Reliability and Validity.
24 CHAPTER IV – DATA ANALYSIS, FINDINGS AND DISCUSSIONS. 34 CHAPTER V – CONCLUSIONS AND RECOMMENDATIONS. Summary of the Main Findings. Limitation of the Study.
Area for Further Study. 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 decision- making.
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. 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. 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 4 brokerage firms and 2 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. 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 1 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.
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. 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.
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 2 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 decision- making during COVID-19. The questionnaire will be firstly sent to 5 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.
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. 3 CHAPTER II – THEORETICAL BACKGROUND AND LITERATURE REVIEW 2.
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 1 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).