Luận văn thạc sĩ UEH the impacts of behavioral factors on individual investors decision making at

MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HOCHIMINH CITY

----------------

NGUYEN HAI NAM

THE IMPACTS OF BEHAVIORAL FACTORS ON INDIVIDUAL

INVESTORS’ DECISION MAKING AT THE HO CHI MINH

STOCK EXCHANGE

MASTER OF BUSINESS ADMINISTRATION THESIS

HoChiMinh City – 2012

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MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

----------------

NGUYEN HAI NAM

THE IMPACTS OF BEHAVIORAL FACTORS ON INDIVIDUAL

INVESTORS’ DECISION MAKING AT THE HO CHI MINH

STOCK EXCHANGE

Major: Business Administration

Major Code: 60.34.05

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: DR. TRAN HA MINH QUAN

HoChiMinh City – 2012

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Page i

ACKNOWLEDGEMENT

I would like to express my heartfelt gratitude and deepest appreciation to my

research Supervisor, Dr. Tran Ha Minh Quan for his intensive support, valuable

suggestions, guidance and encouragement during the course of my study.

I would like to express my sincere gratitude to all of my teachers at Faculty of

Business Administration and Postgraduate Faculty, University of Econimics Ho

Chi Minh City for their teaching and guidance during my MBA course.

I would like to express my gratefulness to my friends working at the Ho Chi

Minh Stock Exchange and securities companies, who help me to arrange

interviews and distribute questionnaires. I am also thankful to beneficiary

customers who participated in the interviews and the survey.

I would like to specially express my thanks to all of my classmates, my

friends from for their support and encouragement.

I would also like to avail this opportunity to express my appreciation to

Professor Nguyen Dong Phong, UEH Board of Directors for creating MBA

program in English and Dr. Tran Ha Minh Quan for his support during the

course.

Finally, I heartily dedicate this study to my beloved parents, my younger

brother Duc Vinh, and my wife, Doan Phuong who have encouraged and

supported me during my study.

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Page ii

ABSTRACT

This study investigates the impacts of behavioral factors on the investment

decisions of individual investors in stock market. It applies behavioral finance

theory to explore the possible behavioral factors influencing individual investors’

investment decisions then identify the impact levels of those factors using data

from respondents of 180 individual investors at the Ho Chi Minh Stock

Exchange (HOSE).

According to the findings of this study, there are four behavioral factors

affecting the investment decisions of individual investors at HOSE: Heuristic,

Market, Prospect, and Herding. The impacts of four behavioral factors on

individual investors’ decision making at HOSE are in varying degrees from high

impact to low impact: Market factor has highest impact; Heuristic and Prospect

have moderate impact; while Herding factor only has low impact.

Keywords: “Behavioral finance”, ”Behavioral factors”, “Individual investors’

decision-making”, “Ho Chi Minh Stock Exchange”, “HOSE”, “Vietnam”

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Page iii

CONTENTS

Acknowledgement....................................................................................................i

Abstract ...................................................................................................................ii

Contents..................................................................................................................iii

List of Tables...........................................................................................................v

List of Figures ........................................................................................................vi

CHAPTER1: INTRODUCTION.........................................................................1

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

1.2 Problem statement.............................................................................................4

1.3 Research objectives and research questions .....................................................5

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

1.5 Research structure .............................................................................................6

CHAPTER 2: LITERATURE REVIEW............................................................7

2.1 Traditional finance theory versus behavioral finance.......................................7

2.2 Behavioral factors impact the process of investors’ decision-making .............9

2.2.1 Heuristic theory.........................................................................................9

2.2.2 Prospect theory........................................................................................12

2.2.3 Market factors .........................................................................................13

2.2.4 Herding effect..........................................................................................15

2.3 Research model ...............................................................................................19

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

3.1 Introduction .....................................................................................................21

3.2 Research design...............................................................................................22

3.3 Data collection method ...................................................................................23

3.4 Design of Measurements and Questionnaire ..................................................25

3.5 Data process and analysis................................................................................27

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CHAPTER 4: RESEARCH RESULT AND FINDING DISSCUSSION ......30

4.1 Introduction .....................................................................................................30

4.2 Characteristic of sample..................................................................................30

4.3 Measurement Reliability Test using Cronbach’s Alpha .................................33

4.4 Factor analysis of behavioral variables influencing the individual investment

decisions ...............................................................................................................35

4.5 Impact Levels of Behavioral Factors on the Individual Investors’ Investment

Decisions...............................................................................................................37

4.6 Finding discussion...........................................................................................41

4.6.1 Impacts of Heuristic Variables.............................................................42

4.6.2 Impacts of Prospect Variables..............................................................43

4.6.3 Impacts of Market Variables................................................................45

4.6.4 Impacts of Herding Variables ..............................................................46

CHAPTER 5: CONCLUSION AND RECOMMENDATIONS.....................47

5.1 Introduction .....................................................................................................47

5.2 Conclusions.....................................................................................................47

5.3 Contributions of the study...............................................................................48

5.4 Recommendations for Individual Investors....................................................49

5.5 Limitations and further researches..................................................................50

References.............................................................................................................52

Appendix 1 ............................................................................................................55

Appendix 2 ............................................................................................................59

Appendix 3 ............................................................................................................61

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Page v

LIST OF TABLES

Table 2.1: Behavioral factors influencing the investment decision-making ........18

Table 3.1: Type of measurements for personal information.................................25

Table 3.2: Type of measurements for behavioral variables..................................26

Table 4.1: Sex of respondents...............................................................................30

Table 4.2: Age of respondents ..............................................................................31

Table 4.3: Time for attending stock market..........................................................31

Table 4.4: Attending course of stock exchange ....................................................32

Table 4.5: Amount of investment last year...........................................................32

Table 4.6: Cronbach’s Alpha Test for items of Factors........................................34

Table 4.7: Factor analysis (EFA) for behavioral variables...................................36

Table 4.8: Impacts of variables on investment decision at HOSE........................38

Table 4.9: Results of the hypotheses.....................................................................41

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