HEURISTIC, PROSPECT AND HERDING FACTORS IMPACTING STOCK INVESTMENT PERFORMANCE OF INDIVIDUALS INVESTORS
RESEARCH QUESTION
Dear Respondents,
This study is a Graduate Research Project as a partial fulfillment of the requirements for the Masters in Business Administration (MBA) at School of Management, Tribhuvan University. The general objective of the study it to evaluate the heuristic, prospect and herding factors impacting stock investment performance of individual investors.
I would like to make a humble request to spare 10 to 15 minutes of your time to fill up the questionnaire with honesty. Your authentic responses will have an impact on the result of the study. Your information will be kept confidential and will solely be used for the purpose of the study. So, you are suggested to fill the questionnaire with your own conscience as you fill right.
Please check the relevant box in every situation where there are answer options available.
Regards,
Sabim Krishna Babu
MBA Research Scholar
School of Management, Tribhuvan University
Section A: Demographic Information
1. Gender
a. Male b. Female
2. Age
a. 18-25 b. 26-35
c. 36-45 d. 46-55
e. Over 55 years
3. Marital Status
a. Married b. Unmarried
4. Educational Background
a. Below Intermediate b. Intermediate
b. Bachelor’s Degree c. Masters and above
5. Income
a. Less than 40,000 b. Between 40,000 to 100,000
c. Between 100,000 to 500,000 d. 500,000 and above
6. How long have you been in the stock market?
a. Less than 1 year b. 1 – under 3 years
c. 3 – under 5 years d. 5 – under 10 years
e. 10 years and above
7. Have you attended any course of stock market?
a. Yes b. No
8. The total amount of money (Rs.) that you have invested at Nepal Stock Exchange.
a. Less than Rs 100,00 b. Rs 100,001 to Rs 300,000
c. Rs 300,001 to Rs 500,000 d. Rs 500,001 to Rs 10,00,000
e. Above Rs 10,00,000
9. What is the purpose of your investment?
a. Regular Income b. Capital Growth
c. Liquidity d. Security
SECTION B – BEHAVIORAL FACTORS INFLUENCING YOUR INVESTMENT
The following statements relate to the general opinion about the impacts of behavioral factors on your investment decision. Please read each statement carefully. There are five response categories, that is, 1 for SD: Strongly Disagree, 2 for D: Disagree, 3 for Neutral: neither agree nor disagree, 4 for A: Agree and 5 for SA: Strongly agree. Indicate the degree of your agreement or disagreement with each statement by marking in the column that best represents your opinion.
10. Over Confidence
| Statements | Strongly Disagree | Disagree | Neutral | Agree | Strongly Agree |
| I have the ability to choose stocks whose performance will be better than market performance. | |||||
| I feel more confident in my own investment opinions over the opinions of my friends or colleagues. | |||||
| I trade shares excessively. |
11. Representativeness
| Statements | Strongly Disagree | Disagree | Neutral | Agree | Strongly Agree |
| I try to avoid investing in companies with a history of poor earnings. | |||||
| I rely on past performance to buy shares because I believe that good performance will continue. | |||||
| Good shares are of firms with past consistent earnings growth. | |||||
| I buy hot stocks and avoid stocks that performed poorly in the near past. |
12. Anchoring
| Statements | Strongly Disagree | Disagree | Neutral | Agree | Strongly Agree |
| I compare the current share prices with their recent year high and low price to justify my share purchase. | |||||
| I am likely to sell my shares after the price hits recent year high. | |||||
| I am unlikely to buy shares if it is more expensive than last year. | |||||
| I use purchase price of share as a reference point for trade. |
13. Availability
| Statements | Strongly Disagree | Disagree | Neutral | Agree | Strongly Agree |
| If I heard from a friend about a share that achieved high returns, I would buy it. | |||||
| If a friend advised me to purchase a share of certain company, then news arrived me about the probability of that share’s price rising, I will invest in those shares. | |||||
| If I want to buy shares of certain company, I will rely on information from the same company. |
14. Loss Aversion
| Statements | Strongly Disagree | Disagree | Neutral | Agree | Strongly Agree |
| I am more concerned about a large loss in my stock than missing a substantial gain. | |||||
| When it comes to investment, no loss of capital (invested money) is more important than returns (profits). | |||||
| After a prior gain, I am more risk seeking than usual. | |||||
| After a prior loss, I become more risk averse. |
15. Mental Accounting
| Statements | Strongly Disagree | Disagree | Neutral | Agree | Strongly Agree |
| I divide my money to capital account for investment and money account for daily spending. | |||||
| I tend to treat each element of my investment portfolio separately. | |||||
| I don’t care about the performance of my investment portfolio as a whole but I care about the return of each account separately. |
16. Regret Aversion
| Statements | Strongly Disagree | Disagree | Neutral | Agree | Strongly Agree |
| I sell stocks that increased in value very quickly. | |||||
| I keep stocks that decreased in value for long time. | |||||
| I feel more sorrow about holding losing stocks too long than about selling winning stocks too soon. |
17. Herding
| Statements | Strongly Disagree | Disagree | Neutral | Agree | Strongly Agree |
| Other investors’ decisions of the stock volume impact on my investment decisions. | |||||
| Other investors’ decisions of choosing stock types have impact on my investment decisions. | |||||
| I usually react quickly to the changes of other investors’ decisions and follow their reaction to the stock market. | |||||
| Other investors’ decision of buying and selling stocks have impact on my investment decisions. | |||||
| Market information is important for stock investment to me. |
SECTION C – YOUR INVESTMENT DECISION
Please give your opinions about the levels of agreement for the following statements:
18. Investment Decision
| Statements | Strongly Disagree | Disagree | Neutral | Agree | Strongly Agree |
| I feel it is risky to invest in the stock market. | |||||
| I want to invest in the share market in the next time. | |||||
| I am likely to invest in the share market the next time. |
SECTION D – YOUR INVESTMENT PERFORMANCE
Please give your opinions about the levels of agreement for the following statements:
19. Investment Performance
| Statements | Strongly Disagree | Disagree | Neutral | Agree | Strongly Agree |
| The return rate of my recent stock investment meets my expectation. | |||||
| My rate of return is equal to or higher than the average return rate of the market. | |||||
| I feel satisfied with my investment decisions in the last year (including selling, buying, choosing stocks, and deciding the stock volumes). |
RESEARCH OBJECTIVES
The main aim of this study is to explore how behavioral factors, such as prospect, heuristic, and herding theories, affect the investment decisions and performance of individual investors. The particular goals are to:
i. To evaluate the effects of heuristic, prospect, and herding behaviors on the investment performance of individual investors.
ii. To investigate the influence of heuristic, prospect, and herding variables on the investment decisions of individual investors.
iii. To establish the role of investment decisions in mediating the relationship between heuristic, prospect, and herding variables and the investment performance of individual investors.
HYPOTHESIS
H1: There is a significant relationship between overconfidence and investment performance.
H2: There is a significant relationship between representativeness and investment performance.
H3: There is a significant relationship between anchoring and investment performance.
H4: There is a significant relationship between availability and investment performance.
H5: There is a significant relationship between loss aversion and investment performance.
H6: There is a significant relationship between mental accounting and investment performance.
H7: There is a significant relationship between regret aversion and investment performance.
H8: There is a significant relationship between herding and investment performance.
H9: Investment decision significantly mediates the relationship between overconfidence and investment performance.
H10: Investment decision significantly mediates the relationship between representativeness and investment performance.
H11: Investment decision significantly mediates the relationship between anchoring and investment performance.
H12: Investment decision insignificantly mediates the relationship between availability and investment performance.
H13: Investment decision insignificantly mediates the relationship between loss aversion and investment performance.
H14: Investment decision significantly mediates the relationship between mental accounting and investment performance.
H15: Investment decision significantly mediates the relationship between regret aversion and investment performance.
H16: Investment decision significantly mediates the relationship between herding and investment performance.
THEORETICAL FRAMEWORK
Behavioral Factors
RESULT
| Hypothesis | P- Value | Results | |
| H1 | There is a significant relationship between overconfidence and investment performance | .003 | Supported |
| H2 | There is a significant relationship between representativeness and investment performance | .000 | Supported |
| H3 | There is a significant relationship between anchoring and investment performance | .002 | Supported |
| H4 | There is a significant relationship between availability and investment performance | .001 | Supported |
| H5 | There is a significant relationship between loss aversion and investment performance | .111 | Rejected |
| H6 | There is a significant relationship between mental accounting and investment performance | .001 | Supported |
| H7 | There is a significant relationship between regret aversion and investment performance | .475 | Rejected |
| H8 | There is a significant relationship between herding and investment performance | .001 | Supported |
| H9 | Investment decision significantly mediates the relationship between overconfidence and investment performance | .000 | Supported |
| H10 | Investment decision significantly mediates the relationship between representativeness and investment performance | .001 | Supported |
| H11 | Investment decision significantly mediates the relationship between anchoring and investment performance | .001 | Supported |
| H12 | Investment decision insignificantly mediates the relationship between availability and investment performance | .012 | Supported |
| H13 | Investment decision insignificantly mediates the relationship between loss aversion and investment performance | .252 | Rejected |
| H14 | Investment decision significantly mediates the relationship between mental accounting and investment performance | .014 | Supported |
| H15 | Investment decision significantly mediates the relationship between regret aversion and investment performance | .826 | Rejected |
| H16 | Investment decision significantly mediates the relationship between herding and investment performance | .031 | Supported |