Discussion of willingness and financial risk attitude about stock

Transcription

1 Discussion of willingness and financial risk attitude about stock investment Department of Wealth Management, Hsin Wu University, Abstract The work investigates the relationship of people willingness to invest in stocks, financial risk attitude and spending attitude through conducting the questionnaires to analyze. The result of this work discovers that the people who have tendency of Obsession, Budget, Evaluation and Anxiety dimensions, their spending attitudes would like to invest risk stocks than tendency. Especially in the Anxiety dimension, those people have no significant affect about willingness to invest in stocks and financial risk attitude. Based on this result, the financial products designers should pay attention to this information for creating his devise and therefore make their sales volume increased. Actually, to increase the market demand would be the core mission for every enterprise. Keywords: Willingness to invest in stocks, Financial risk attitude, Spending attitude 1. Introduction One of the most fundamental questions related to investing is whether one should actively or passively invest [1]. In these years, people more hardly to survive above problems like society s unsettlement, political wrestling and economic depression of whole world over time. However people live in this chaos, there are still a great deal of capital pass in and out investment marketing in every moment. Under Modern Portfolio Theory [2] and Efficient Market Theory [3, 4] these traditional finance theories are support the hypotheses of rational investors and efficient markets. Also based on the evidence provided by the literature it becomes apparent that investors stock trading behaviour (including stock performance, stock volume and stock frequency) is affected by personality traits and psychological biases (overconfidence, risk tolerance, self-monitoring, social influence) [5]. So the mentality who will invest in stock during this confused economic situation imply worth exploration. Therefore, product market power ers the firm s cash f volatility and, consequently, also its stock return volatility [6]. Tookes (2008) [7] model, wealth-constrained, risk-neutral informed traders prefer to trade in the stocks of weaker product market competitors since the values of such stocks are more sensitive to private information. Above mention is focus on er product market power, but present situation is different that full of ambiguity and alteration lead to unpredictable. Thus the work survey what is the response when people face to financial risk. To sum up the work would like to investigate the degree of people willingness to invest in stocks, financial risk attitude and spending attitude. Also connection of these three factors is the work imperative to analyze especial at this confused moment. Because the work expect to propose a guide for stock researcher or stock dealer to design matched financial product and get better performance. 2. Literature review Financial literacy can be generally defined as a person s ability to understand, analyze, manage, and communicate personal finance matters [8]. The population is becoming increasingly older that straining the financing of the social security systems of most governments. It is of great interest to find out what factors promote or inhibit investing on the stock market for taking personal responsibility [9]. So the work applies people willingness to invest in stocks include four items that Carmen Keller and Michael Siegrist [9] recommended. Also under the assumption that the firm s optimal investment plan is determined by maximizing its firm value, one ingenious bypass to avoid handling expectations is the use of stock market information for conveying all of the information that is relevant for investment [10]. Thus the matter whether investment depend on individual attitude toward money and their personality, under sections describe their relationship via past researches. International Journal of Digital Content Technology and its Applications(JDCTA) Volume7,Number9,May 2013 doi: /jdcta.vol7.issue

2 2.1. Financial risk attitude Both economic theory and every-day observation suggest that risk-taking or risk-propensity is important aspects of running a business [11]. Risk-attitude is especially relevant if the shock originates from the financial sector, causing uncertainty and distrust [12]. Regarding individual differences, several studies [13, 14, 15] have shown that differences in risk-judgments that occur between individuals are not due to more positive or negative attitudes towards risk, but instead can be attributed to individual differences in the perceived riskiness of situations. So the latter phenomenon implies that investment behavior is less risky when investments can be evaluated and modified frequently and is found in individual decision making [16, 17, 18, 19, 20, 21], team decision making (Sutter, forthcoming) and experimental asset markets [22]. In investment studies have identified one the effect of uncertainty on investment is the risk attitude of decision-makers [23, 24, 25]. Also recent empirical research supports the theoretical proposition of a positive correlation between risk attitudes and the decision to become an entrepreneur [26, 27]. Hong Bo and Elmer Sterken [28] find that in general a degree of risk aversion coincides with a positive impact of demand uncertainty. So the work would like to explore the financial risk attitude when people invest in stock under such economy Spending attitude Largely ignored by psychologists, economists have developed the concept of financial capability that reflects people s knowledge of financial matters, their ability to manage their money and to take control of their finances [29, 30]. Money attitudes (i.e., perception of money as a reward for efforts or as an object for retention) can also play a significant role in boosting the motivation to gain additional financial management knowledge [31]. Roberts and Jones [32] showed that money attitudes, especially in the power and prestige domain, were driving forces of compulsive buying. Burgess [33] found that specific money attitudes were related to self-direction and security values, implying that those attitudes likely interact with a self-directed behavior for security such as financial knowledge seeking. By contrast to personality, attitudes are often influenced by situational and circumstantial factors and hence, they are believed to be less stable than personality traits [34]. The money attitudes scale the work used develop by Lim and Teo [35], Lim and Teo divide individual attitude toward money into eight dimensions are obsession, power, budget, achievement, evaluation, anxiety, retention and non-generous. So the work stand on these eights dimensions to measure people attitude to money. 3. Survey 3.1. Assumption According to past researches, first eights dimensions of attitude toward money to be spending attitude to analyze people willingness to invest in stock and financial risk attitude. Then the work compare these two result to find out which dimensions of spending attitude has special character to people willingness to invest in stock and financial risk attitude. Figure 1. Shows the structure of the work. 486

3 Figure 1. Research Structure 3.2. Method Questionnaire is used to be the work tool for investigation, there are four parts involved are population, people willingness to invest in stocks, financial risk attitude and spending attitude. Questionnaires sent to customer who exchanges stocks in a legal, historied and local securities company of Taiwan which operates a lot of branches all around. People willingness to invest in stocks, financial risk attitude and spending attitude these three parts are measured by five point Likert scale. Especial spending attitude, the work separates each dimension into three levels are, and for difference identification. Every dimension has own items to estimate, the work average all items grades to represent that dimension degree. The grade less than 3 belong level, the grade is more than or equal to 3 but less than 4 belong level and the grade is more than or equal to 4 belong level. After dimension differentiated, the work analyzes different level of spending attitude dimension, people willingness to invest in stocks and financial risk attitude. 4. Result There are 500 questionnaires sent and 487 effective questionnaires retrieved, so effective response rate is 97.4% Population Of all interviewees, 56.67% are male and 43.33% are female. Average age of all interviewee is years old. The most interviewees (86.45%) invest less than 30,000 USD in stocks per year and the fewest interviewees (0.41%) invest more or equal 300,000 USD in stocks per year. Of these interviewees most are retired or unemployed (34.5%) and fewest are students (5.13%). Personal experience of stocks investment is more than or equal to 20years but less than 30years (49.49%) that is the most interviewees involved, the fewest interviewees (11.5%) have more or equal 50years experience of stocks investment Spending attitude vs. People willingness to invest in stocks There are four items involve in people willingness to invest in stocks which are w 1: Stock markets are predictable, which is why I would invest in stocks, w 2: I would invest a larger sum of money in stocks, w 3: The certainty of whether the markets will rise or fall keeps me from buying stocks and w 4: When I hear the word stocks, the term gain comes to mind immediately. 487

4 Discussion of willingness and financial risk attitude about stock investment After analysis of variance conducted, Table 1. shows result. There are eight dimensions under people spending attitude, first Achievement dimension has intense significant difference to all four items of people willingness to invest in stocks. Especial tendency has the est grades of all group that means tendency of Achievement dimension has degree of people willingness to invest in stocks. Secondly Power dimension has intense significant difference to three items of people willingness to invest in stocks also grades of tendency has er grades than others that means tendency of Power dimension has degree of people willingness to invest in stocks too. Then Evaluation dimension has intense significant difference to two items of people willingness to invest in stocks, and the outcome is identical prior that grades of tendency are er than others. So the work interprets this situation that tendency of Evaluation dimension has degree of people willingness to invest in stocks. Moreover Obsession, Budget, Anxiety and Retention dimensions have intense significant difference to one item of people willingness to invest in stocks, as well prior grades of tendency are er than others. Therefore the work call tendency of Obsession, Budget, Anxiety and Retention dimensions have degree of people willingness to invest in stocks. Table 1. Result of Spending attitude vs. People willingness to invest in stocks Obsession Power Budget Evaluation Retention ** * ** * * Achievement Anxiety Non-generous ** *** 0.871** 1.068* 1.571** 1.786** 1.489*** * Spending attitude vs. Financial risk attitude There are two items involve in financial risk attitude which are r 1: I am willing to take financial risks in order to substantially increase my assets, r 2: In money matters, I tend to be willing to take risks. Table 2. shows the outcome of analysis of variance. The work find out Obsession dimension has intense significant difference to all two items of financial risk attitude. Also tendency has er grades than others. So the work explains tendency of Obsession dimension has degree of financial risk attitude. Then Budget, Evaluation and Anxiety dimensions have intense significant difference to one item of financial risk attitude and all tendency have er grades than others. Hence the work describes tendency of Budget, Evaluation and Anxiety dimensions have degree of financial risk attitude. 488

5 Discussion of willingness and financial risk attitude about stock investment Table 2. Result of Spending attitude vs. Financial risk attitude Obsession Power Budget Evaluation Retention * 1.151** *** ** Achievement Anxiety Non-generous * Compare The work compares outcomes of 4.2 and 4.3 sections in this section. The work learn Obsession, Budget, Evaluation and Anxiety dimensions of people spending attitude are significant affect both people willingness to invest in stocks and financial risk attitude from section 4.2 and 4.3 compare. And Power, Achievement and Retention dimensions of people spending attitude are only significant affect people willingness to invest in stocks. Finally, Non-generous dimension of people spending attitude are significant affect neither people willingness to invest in stocks nor financial risk attitude. So the work according to these outcomes proposes advices for investment guide. Table 3. shows the compare outcome. Spending Attitude Obsession Power Budget Achievement Evaluation Anxiety Retention Non-generous Table 3. Compare table People Willingness To Invest In Stocks Financial Risk Attitude Conclusion Based on the compare result of this work, the work supplies stock researcher or stock dealer who deals with connected stock product like equity fund, derivative, equity-linked notes some promotion advices. Precondition must comprehend customer spending attitude before salesperson markets stock products. Then the work comes at the people who have tendency of Obsession, Budget, Evaluation and Anxiety dimensions of people spending attitude would invest in risk stocks than tendency. Moreover the people who are tendency of Power, Achievement and Retention dimensions of people spending attitude have more willingness to invest in stocks, but no evidence to prove how financial risk attitude is. At last the people who belong to what level of Anxiety dimensions of people spending attitude are have no information about willingness to invest in stocks and financial risk attitude. The work suggests researchers to apply this structure to analyze other financial products which involve financial risk. In the future, extended researches could compare different population to get 489

6 Discussion of willingness and financial risk attitude about stock investment more accurate information. Because there are a lot of various financial products in the market also mixed by funds, stocks, insurance or bonds. After this accurate information getting, designers based on population analysis result to gain well financial products sales volume. That is the contribution that the work would like to look forward to. This work extends and develops the author past researches [36, 37, 38], the base of these researches is a recycle method. The foundation of this method mix practice and academic for quality improvement, but the most important is the method could adopt overall industries. Mere this work is a part of this recycle method, however different object with past. To sum up, the result exhibits not only its exhibit but also prepare next survey to prove the effect of financial product fol this work designed. 6. References [1] James S. Dorana, David R. Petersonb, Colby Wright, Confidence, opinions of market efficiency, and investment behavior of finance professors, Journal of Financial Markets, vol. 13, pp , [2] Markowitz, H.M., Portfolio selection, Journal of Finance, vol. 7, no. 1, pp , [3] Fama, E.F., Random walks in stock market prices, Financial Analysts Journal, vol. 21, no. 5, pp , 1965a. [4] Fama, E.F., The behavior of stock market prices, The Journal of Business, vol. 38, no. 1, pp , 1965b. [5] Dimitrios Kourtidis, Željko Šević, Prodromos Chatzoglou, Investors trading activity: A behavioural perspective and empirical results, The Journal of Socio-Economics, vol. 40, pp , [6] Jayant R. Kale, Yee Cheng Loon, Product market power and stock market liquidity, Journal of Financial Markets, vol. 14, pp , [7] Tookes, H. E., Information, trading, and product market interactions: cross-sectional implications of informed trading, Journal of Finance, vol. 63, pp , [8] Vitt, L. A., Anderson, C., Kent, J., Lyter, D. M., Siegenthaler, J. K., Ward, J., Personal finance and the rush to competence: Financial literacy education in the U. S., Washington, DC: Fannie Mae Foundation, [9] Carmen Keller, Michael Siegrist, Investing in stocks: The influence of financial risk attitude and values-related money and stock market attitudes, Journal of Economic Psychology, vol. 27, pp , [10] Kazuo Ogawa, Kazuyuki Suzuki, Information, investment, and the stock market: A study of investment revision data of Japanese manufacturing industries, Journal of The Japanese and International Economies, vol. 22, pp , [11] Tadeusz Tyszka, Jerzy Cieślik, Artur Domurat, Anna Macko, Motivation, self-efficacy, and risk attitudes among entrepreneurs during transition to a market economy, The Journal of SocioEconomics, vol. 40, pp , [12] Anthony F. Herbst, Joseph S.K. Wu, Chi Pui Ho, Relationship between risk attitude and economic recovery in optimal growth theory, Global Finance Journal, vol. 23, pp , [13] Weber, E.U., Hsee, C.K., Cross-cultural differences in risk perception but cross-cultural similarities in attitudes towards risk, Management Science, vol. 44, no. 9, pp , [14] Weber, E.U., Blais, A., Betz, N.E., A domain-specific risk-attitude scale: measuring risk perceptions and risk behaviors, Journal of Behavioral Decision Making, vol. 15, pp , [15] Weber, E.U., Johnson, E.J., Decisions under uncertainty: psychological, economic and neuroeconomic explanations of risk preference, In: Glimcher, P., Camerer, C., Fehr, E., Poldrack, R.(Eds.), Neuroeconomics: Decision Making and the Brain. Elsevier, New York, pp , [16] Gneezy, U., Potters, J., An experiment on risk taking and evaluation periods, Quarterly Journal of Economics, vol. 102, pp , [17] Thaler, R., Tversky, A., Kahneman, D., Schwartz, A., The evect of myopia and loss aversion on risk taking: An experimental test, Quarterly Journal of Economics, vol. 102, pp ,

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