Luận văn thạc sĩ UEH behavioral factors affecting investment decision making the case of ho chi

MINISTRY OF EDUCATION TRAINING

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

INTERNATIONAL SCHOOL OF BUSINESS

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MASTER THESIS

BEHAVIORAL FACTORS AFFECTING INVESTMENT DECISION- MAKING.

THE CASE OF HO CHI MINH STOCK EXCHANGE (HOSE), VIETNAM.

Student: Phung Thai Minh Trang

Course: MBUS 2.2

Instructor: Dr. Dinh Cong Khai

Ho Chi Minh City, 2013

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ACKNOWLEDGEMENTS

This research would not have been possible without the valuable contribution

of many people. I would like to take this opportunity to express my great gratitude for

their understanding, encouragement, and support.

First, I would like to extend my deepest appreciation to my thesis supervisor,

Doctor Dinh Cong Khai, for his numerous valuable comments and suggestions. I am

very fortunate to have his supervision and his continuous encouragement which has

motivated me and gave me confidence to complete this research.

In addition, I would like to thank all of the directors and lecturers of ISB for

providing me a solid foundation of knowledge, which has been not only useful for this

research work but also for my future development in my social life and my

professional career.

A special “thank you” to my classmates and friends for providing me with

their honest and candid comments on my questionnaire as well as instant support

regardless if day or night. All of this contributed to the succcess and the quality of the

research.

Furthermore, I want to express my appreciation to the managers and

employees working at the Ho Chi Minh Stock Exchange and various securities

companies, who helped me arrange the interviews and helped in the distribution of the

questionnaires. I am also thankful to the beneficiary investors who participated in the

interviews and the survey.

Finally, it would be impossible to say enough about my dear parents and

husband for all of their understanding, encouragement, and advice which helped me to

overcome the most difficult times in order to complete this research in time.

Phung Thai Minh Trang

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EXECUTIVE SUMMARY

Although finance has been studied for a long time, behavioral finance, which

encompasses human behaviors in finance, is a fairly new area. Behavioral finance

theories, which are based on human psychology, attempt to understand how emotions

and cognitive errors influence individual investors‟ behaviors (investors mentioned in

this study are referred to as individual investors).

The main objective of this study is the exploring of the behavioral factors

influencing individual investors‟ decisions at the Ho Chi Minh Stock Exchange.

Furthermore, it is related to relations between these factors and the results that they

achieve. Since there are limited studies about behavioral finance in Vietnam, this

study is expected to significantly contribute to the development of this type of

research in Vietnam.

The study begins with the existing theories in behavioral finance, based on

which, hypotheses are proposed. Then, these hypotheses are tested through the

questionnaires distributed to individual investors at the Ho Chi Minh Stock Exchange.

The collected data is then analyzed by using SPSS software. Questions of the

interviews with some managers of the Ho Chi Minh Stock Exchange are conducted to

achieve a deeper understanding of these behaviors. The results showed that there were

three behavioral factors affecting the investment decisions of individual investors at

the Ho Chi Minh Stock Exchange including representativeness, gambler‟s fallacy and

over-under reaction. Representativeness and over-under reaction had positive impacts

on investors‟ investment decision making, whereas gambler‟s fallacy had negative

impacts. Additionally, the behavioral factor of representativeness positively

influenced the investment decision at the highest level. The results also presented that

three behavioral factors did not affect investment decision including availability bias,

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mental accounting bias and herd behavior. In addition, the paper gave some

implications of study such as preference of investors for buying blue chip stocks,

midcap and penny stocks as well, avoiding buying stocks with poor performance in

the recent past or useful lessons of stock fluctuation, etc. Moreover, the paper also

gave recommendation for individual investors in using behavioral factors with an

acceptable level in order to bring good investment results. Finally, it mentions

limitation s, colclusion as well as further research.

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TABLE OF CONTENTS

ACKNOWLEDGEMENT .......................................................................................................i

EXECUTIVE SUMMARY ................................................................................................... ii

TABLE OF CONTENTS ......................................................................................................iv

LIST OF TABLES................................................................................................................ vii

LIST OF ABBREVIATION................................................................................................ viii

CHAPTER 1: INTRODUCTION………..................................................................................1

1.1. Research background...................................................................................................1

1.2 Problem of statement.....................................................................................................2

1.3 Research questions.........................................................................................................5

1.4 Research scope ...............................................................................................................5

1.5 Research method............................................................................................................6

1.6 Significance of the research...........................................................................................6

1.7 Structure of the study ....................................................................................................7

CHAPTER 2: LITERATURE REVIEW...............................................................................9

2.1 Classical finance theory versus behavioral finance.....................................................9

2.2 Review some behavioral factors impacting on the process of investors’ decision

making.................................................................................................................................10

2.2.1 Representativeness..................................................................................................11

2.2.2 Availability bias......................................................................................................11

2.2.3 Gambler’s fallacy....................................................................................................12

2.2.4 Herd behavior: buying and selling decisions .........................................................12

2.2.5 Mental accounting ..................................................................................................13

2.2.6 Over and under-reaction.........................................................................................13

2.4. Suggested research model ..........................................................................................16

2.5. Research model ...........................................................................................................20

CHAPTER 3: RESEARCH METHODOLOGY ................................................................21

3.1 Research design............................................................................................................21

3.1.1 Research methods ...................................................................................................21

3.1.2 Research process.....................................................................................................22

3.1.3 Sample size .............................................................................................................22

3.2 Adjusted research model.............................................................................................23

3.3 Scales measurement design .........................................................................................25

3.3.1 Scales measurement of Representative bias............................................................26

3.3.2 Scales measurement of mental accounting bias......................................................27

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3.3.3 Scales measurement of gambler‟s fallacy...............................................................27

3.3.4 Scales measurement of availability bias .................................................................28

3.3.5 Scales measurement of herd behavior.....................................................................29

3.3.6 Scales measurement of over-underreaction ............................................................30

3.3.7 Scales measurement of investment decision...........................................................31

3.4 Data analysis approach................................................................................................32

3.4.1 Test of scales measurement reliability ....................................................................32

3.4.2 Exploration factor analysis (EFA) ..........................................................................33

CHAPTER 4: DATA ANALYSIS AND FINDINGS ..........................................................35

4.1 Data description ...........................................................................................................35

4.2 Factor analysis of behavioral variables influencing the individual investment

decisions..............................................................................................................................36

4.2.1 Pilot survey (N=52).................................................................................................36

4.2.2 Results of Cronbach‟s alpha analysis of pilot survey (N=52).................................36

4.2.3 Results of Cronbach‟s alpha analysis of official survey (N=220) ..........................37

4.2.4 Factor analysis (EFA) .............................................................................................39

4.3 Regression analysis......................................................................................................42

4.3.1 Results of regression analysis.................................................................................43

4.3.2 Test of assumptions.................................................................................................46

CHAPTER 5: RECOMMENDATION AND CONCLUSION ..........................................48

5.1 Implications of the study .......................................................................................48

5.2 Recommendations for individual investors at the HOSE...................................52

5.3 Limitations of the study.........................................................................................53

5.4. Conclusion ...................................................................................................................54

5.5. Further research .........................................................................................................55

Appendix 5.1...........................................................................................................................63

Appendix 5.2...........................................................................................................................70

Appendix 5.3...........................................................................................................................73

Appendix 5.4...........................................................................................................................80

Appendix 5.5...........................................................................................................................81

Appendix 5.6...........................................................................................................................90

Appendix 5.7...........................................................................................................................91

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LIST OF TABLES

Table 1: The highest and lowest VN-index from 2000 to 2012...................................2

Table 2.1: Summarizing results of researches of behavioral factors .......................... 17

Table 3.1: Items of Representative............................................................................ 26

Table 3.2: Items of mental accounting bias.............................................................. 28

Table 3.3: Items of gambler‟s fallacy....................................................................... 29

Table 3.4: Items of availability bias......................................................................... 30

Table 3.5: Items of herd behavior ............................................................................ 32

Table 3.6: Items of over-underreaction .................................................................... 36

Table 3.7: Items of investment decision ................................................................... 33

Table 4.1: Idependent variables, dependent variables and items............................... 38

Table 4.2: Cronabach‟s alpha test of items (N=52)................................................... 39

Table 4.3: Cronbach‟s alpha test of items (N=220) .................................................. 40

Table 4.4: KMO and Bartlett‟s Test, total variance explained and rotated component

matrix. (EFA time 1)........................................................................................... 42

Table 4.5: Summary of KMO and Bartlett‟s Test, total variance explained and rotated

component matrix. (EFA time 2)......................................................................... 43

Table 4.6: Rotated component matrix. (EFA time 2)................................................ 44

Table 4.7: summary of grouped items...................................................................... 45

Table 4.8: Means, Standard Deviations, and Intercorrelations of RETURN and

Predictor Variables.............................................................................................. 46

Table 4.9: Simultaneous Multiple Regression Analysis Summary............................ 54

Table 4.10: Results of hypothesis test ...................................................................... 56

Table 2.2: Summarizing researchers studying behavioral factors that impacts

investment decision making ................................................................................ 95

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LIST OF ABBREVIATION

EFA : Exploratory Factor Analysis

HOSE : Ho Chi Minh Stock Exchange

HAS : Ha Noi Stock Exchange

SPSS : Statistical Package for the Social Sciences

VN-Index : Vietnam Index of Stock Price

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CHAPTER 1: INTRODUCTION

1.1. Research background

The Vietnamese stock market was established in 1998. It consists of the Ho

Chi Minh City stock exchange (HOSE) and the Ha Noi stock market (HAS). At the

first stage, in 2000, the Vietnam stock market had only 2 listed companies and 4

security companies. However, after more than ten years, there are currently 682

member securities companies. These mark the development of the Vietnamese stock

market in general and the HOSE specifically. Starting at 100 points in July 2000, after

one year in operation in June, 2001, the VN-Index had increased fivefold and reached

a peak at 571 points. Investors were overly excited and dreamed of earning quick

money as demand rose significantly even though there were only a few listed stocks

on the stock exchange. However, it was lack of knowledge and trading experience of

investors as well as the insufficient support from the authorities that made the VN￾Index to suddenly unceasingly fall until it reached the bottom at 139 points in March

2003 (Huy, 2010). Investors who joined the market during this period and who were

not able to jump out quickly had to face severe financial difficulties due to the huge

loss of assets. The stock market then seemed to go into a hibernative status until 2005

and finally “woke up” in 2006. The boom started in the second half of 2006 and the

stock market rocketed up to 1170 points by March 2007. It fluctuated around the 1000

point mark until October, 2007. The Ho Chi Minh stock market had never been

“hotter” than at that time. However, VN-Index went again into a decline stage after

being pushed up to the peak. The Ho Chi Minh stock market experienced a gloomy

year in 2008 and VN-Index only stopped decreasing in February 2009 at 245 points.

Economic experts and analysis explained the sharp decline of the VN-Index that was

affected by various factors such as the tightening of monetary policies, especially the

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lending for stock investment, high deposit interest rates, high inflation rates, and a

recession in the United States economy. Lack of timely intervention by the authorities

was also a reason why VN-Index fell so dramatically (Vo and Pham, 2008, p.15).

From 2009 to the first quarter of 2011, VN-Index continued to undergo many ups￾and-downs: reaching another peak at 542 points in May 2010, another bottom at 351

points in November, 2010. However, it seemed to fluctuate around 400-500 points

and no significant amplitude was found in 2012.

Table 1: The highest and lowest VN-index from 2000 to 2012

Year Highest prices Lowest prices

2000-2005 571.04 (2001) 132.7 (2004)

2006 591.4 439.6

2007 1170.67 883.9

2008-2009 921.07 (2008) 244.4 (2009)

2010-2011 542 (5/2010) 350.5 (2011)

2012 490 335

(Source: www.cafef.vn)

1.2 Problem of statement

During twelve years, the HOSE specifically and the Vietnamese Stock

exchange in general went through many different stages. Its prices fluctuated, up and

down, and it seemed to be difficult for investors to make sound investment decisions.

Especially, with the boom of VN-Index 2007, the Vietnam Stock Market was

negatively impacted by foreign newspapers. The Financial Times showed that the

HOSE was a „too hot place‟ and overstated its value. The AMCHAM (The American

Chamber of Commerce) declared that the Vietnam stock market‟s growth was

impractical, just another case of a „bubble market‟.

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