Financial analysts and investors play a crucial role in assessing markets to determine if they are profitable before undertaking an investment project. While they possess immense knowledge and understanding of financial markets, they are prone to making investment mistakes. The reason for this assertion lies with the field of behavioral finance that link psychology with the financial markets. This field implies that investors are irrational at times, making them unable to control their impulses and, in this way, become biased while making investment decisions. This forum will focus on investor data and behavior, a current trend in behavioral finance, by analyzing findings and recommendations from 5 articles related to the topic.
Literature Review
Investor data and behavior are a significant topic in behavioral science, focusing on how investors predict, judge, review, and analyze procedures before making decisions to invest in financial markets. Investors are required to engage in the market selection that considers the relationship between returns and risks to adopting targets with large company size, good credibility, and high dividends. Mak & Ip (2017) conducted an exploratory study to establish the differences in behavior between Hong Kong and Mainland China investors against the background of a financial crisis. The authors assert that Hong Kong is an international financial center offering various investment options ranging from stocks, mutual funds, and bonds tailored to individual investors.
Delegate your assignment to our experts and they will do the rest.
Lan et al. (2018) affirm that Mainland China is considered an offshore destination of choice by investors in Mainland China owing to low tax rates, proximity, and similarities in language. The authors use survey data on 9,000 individual investors to establish the impact of demographic characteristics on investor behavior. This study indicates that financial providers could rely on individual investors' characteristics to evaluate their investment preferences (Lan et al., 2018). These aspects have informed Hong Kong to review its strategies to tap into the investment opportunities that mainland China presents. Despite these positive factors, individual investors are wary of these opportunities, making it hard for providers to formulate effective marketing strategies.
Bortoli et al. (2019) assert that investors are guided by homo economicus, a modern financial theory that indicates that investors are rational agents who are keen on maximizing utility that presents more returns. The authors establish that individuals who are open to new investment options or extroverts are prone to higher risks than introverts. Such a mindset would contribute to investors' herding behavior where they follow the same pattern of buying and selling shares. Jokar & Daneshi (2018) warn that herding behavior has a tendency of making financial providers overconfident, which can adversely affect stock returns. This assessment is crucial since it provides crucial insights that improve understanding into investor behaviors to adopt effective strategies. Shantha et al. (2018) recommend the need to adopt a conceptual framework that could help financial providers to study the behaviors of individual investors to cushion the stock market. The framework would help the providers to track investment dynamics that are associated with shifting investors' behaviors.
Future Research Recommendations
The articles on investor behavior have provided crucial insights into the drivers of investment decisions in a dynamic financial market. Apart from these insights, the articles discuss areas of future research that would improve on current understanding. Lan et al. (2018) assert that there is a need to conduct additional research to establish the relationship between personal characteristics and investment behaviors. Bortoli et al. (2019) highlight the need to use a questionnaire from an international financial institution to capture investor's profiles to provide deeper insights. Jokar & Daneshi (2018) advise future researchers to examine the impact of overconfidence in investors on stock returns. Shantha et al. (2018) propose that future research adopt a case study approach to examine different market settings to enhance generalizability. On the other hand, Mak & Ip (2017) suggests an extension of regression to facilitate the building of a data mining model to help in marketing appropriate utilities to individual investors in Hong Kong and Mainland China.
References
Bortoli, D., Costa, N., Goulart, M., & Campara, J. (2019). Personality traits and investor profile analysis: A behavioral finance study. PLoS ONE 14 (3), 21-45. https://doi.org/10.1371/journal.pone.0214062
Jokar, H., & Daneshi, V. (2018). The impact of investors’ behavior and managers’ overconfidence on stock return: Evidence from Iran. Cogent Business & Management, 5 (1), 30-55. https://doi.org/10.1080/23311975.2018.1559716.
Lan, Q., Xiong, Q., He, L., & Ma, C. (2018). Individual investment decision behaviors based on demographic characteristics: Case from China. PloS ONE , 13(8), 20-42. https://doi.org/10.1371/journal.pone.0201916
Mak, M. K., & Ip, W. H. (2017). An exploratory study of investment behavior of investors. International Journal of Engineering Business Management, 9 (3), 1-12. https://doi.org/10.1177/1847979017711520
Shantha, K. V., Xiaofang, C., & Gamini, L. P. (2018). A conceptual framework on individual investors’ learning behavior in the context of stock trading: An integrated perspective. Cogent Economics & Finance, 6 (4), 24-43. DOI: 10.1080/23322039.2018.1544062
