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 TIEU LUAN MOI download : skknchat@gmail.com 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 TIEU LUAN MOI download : skknchat@gmail.com 1 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. TIEU LUAN MOI download : skknchat@gmail.com 2 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.
TIEU LUAN MOI download : skknchat@gmail. 8 CHAPTER 2: LITERATURE REVIEW AND HYPOTHESES .1 Target of investors .2 Review of psychological factors and hypotheses .3 Psychology of Risk .6 Methodology of data analysis .3 Exploration factor analysis (EFA) .4 Binary logistic regression. 23 CHAPTER 4: RESEARCH RESULTS.1 The main characteristics of the sample .2 Identify the general behavior of individual investors. 26 TIEU LUAN MOI download : skknchat@gmail.3 Psychology of Risk .3 Exploring and measuring the psychological factor group constitutes the behavior of individual investors.3 Psychology of risk .4 Exploratory factor analysis (EFA) .5 Check the existence of the psychological factors .3 Psychology of Risk .6 The relationship between behavioral factors with gender, age and level .7 The effect of behavioral factors to investors‟ target .8 Hypothesis testing result.
44 CHAPTER5:CONCLUSION,IMPLICATIONS,AND LIMITATIONS .3 Limitation and for further research. 56 APPENDIX 2: The frequency test of the general behavior of individual investors. 58 TIEU LUAN MOI download : skknchat@gmail.com 5 CHAPTER 1: INTRODUCTION 1.1 Research background Vietnam's stock market was launched in 2000, in the first 5 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 13- year growth of Ho Chi Minh stock market, Vietnamese investors‟ decisions are still difficult. TIEU LUAN MOI download : skknchat@gmail.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. 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, TIEU LUAN MOI download : skknchat@gmail.com 7 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.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 TIEU LUAN MOI download : skknchat@gmail.com 8 psychological factors: over-confident, optimistic, attitude toward risk and herd behaviour to individual investors‟ target on Vietnam stock market.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) do 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. TIEU LUAN MOI download : skknchat@gmail.com 9 CHAPTER 2: LITERATURE REVIEW AND HYPOTHESES This chapter presents a review of relevant literature related to factors affecting individual investors‟target. This chapter also states the hypotheses and propose conceptual model for this study.1 Target of investors In this study, target of investors was shown through their investment decision making: investors looking for short-term arbitrage or dividend income and capital gains in the long-term. A long-term investment was defined is holding a stock over one year.
Theoretically, if you hold a stock for a long time, you will go through periods of volatility and eventually, then you can gain profits as the underlying company grows, with an assumption that a good company will grow increasingly and revenues over time. Long-term investment also provides dividend income over the long-term. Short-term investment is not limited to day trading. Short-term investment was defined as those that are hold their stock within one year and then take advantage of market volatility that produces a quick profit.
Geist (2003) recognized the impact of psychology on investors‟ financial decision making. He said that from the investing process however much we try to eliminate our psychology, we will finally fail, because our conscious and unconscious psychological convictions continually operate and influence our decision-making. TIEU LUAN MOI download : skknchat@gmail.2 Review of psychological factors and hypotheses 2.1Overconfidence In the financial field, overconfidence is defined as the overestimating valuation of a financial asset (Odean, 1998). Investing is not an easy process.
Investors have to gather information, analyze the information, and making a decision. However, investors used to misinterpret the accuracy of our information when they are overconfident and overestimate their skill in analyzing it. It happens after we get some success. After getting some success in the market, investors may exhibit overconfident behavior.
Many psychological researchers have found that investors used to overestimate their knowledge (Lichtenstein, Fischhoffs and Philips, 1982) and they also overestimate their ability and with the personal importance of the task, their overestimates increase. "People are overconfident. Psychologists have determined that overconfidence causes people to overestimate their knowledge, underestimate risks, and exaggerate their ability to control events. Does overconfidence occur in investment decision making? Security selection is a difficult task.
It is precisely this type of task at which people exhibit the greatest overconfidence. According to Daniel and Titman (1999) overconfidence effects on the way that individual investors process information directly and indirectly. The direct effect, discussed by Daniel, Hirshleifer and Subrahmanyam (1998) is that investors put too much weight on their own information because they tend to overestimate the precision of their information. The indirect effect occurs because investors filter information and bias their behavior in ways that allow them to maintain their confidence.
TIEU LUAN MOI download : skknchat@gmail.com 11 Barber and Odean (1999) also believe that overconfidence cause high levels of trading in financial markets. They attest that overconfidence increases trading activity because it causes investors make sure about their own opinions and not consider sufficiently the other opinions. In their paper, they test whether a separate class of investors, those with accounts at discount brokerages, trade excessively, in the case that their trading profits are not enough to cover their costs. In the precision of information, their method to test for overconfident was to determine whether the securities bought by the investors outperformed those they sold by enough to cover the costs of trading.