1 research topic: individual investors’ decision-making behavior: a theory of planned behavior –...

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Research Topic:

INDIVIDUAL INVESTORS’ DECISION-MAKING BEHAVIOR:

A THEORY OF PLANNED BEHAVIOR – BASED APPROACH

Postgraduate Degree Thesis Opening Report

Reporter: PHAN KHOA CUONG (潘科钢 ) Supervisors: ZHOU JIAN (周建）

School of Management - Shanghai University

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Content

The purpose and significance of research

Literature review

The main research content

Research design and methods

The expected difficulties and solutions

The creation of research topic (innovation)

Expected results

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RESEARCH PURPOSE

Theories of traditional finance, especially the "efficient

market theory" is the foundation of basic financial theories

during four or five recent decades, assuming that investors

are always reason to optimize their useful expectations,

similarly, their behavior do not merely imply psychological

or emotional aspects. Efficient market theory bases on the

belief that there always exists a mechanism to adjust

efficiency market status calling “arbitrage trading

mechanism”.

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RESEARCH PURPOSE (cont.)

The theory of behavioral finance with its basis is that "the

market is not always right", considering a person under the

practical perspective. Individuals participating in the market

are ordinary people, and they are partly or entirely governed

by sentiment and emotion. Therefore, behavioral finance

theory indicates that adjustment mechanism is not always

possibly taken place, meaning that there will be cases when

“reasonable” investors can not win "unreasonable" ones, and

at that time, the market is inefficient, or "wrong" (ie, the

pricing of stock or other financial products is too high or too

low).

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The theory of behavioral finance is relatively late

developed, which has based the application of psychology

on finance. Therefore, behavioral finance has been a new

topic attracting more research interests by scholars in

recent years. Within behavioral finance, it is assumed that

information structure and the characteristics of market

participants will systematically influence individuals’

investment decisions as well as market outcomes.

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According to perspective of behavioral finance, investor

behavior derives from psychological principles of decision

making, which in turn, explains why people buy or sell the

stocks. Behavioral finance focuses on know how investors

interpret and act on information to make investment

decisions.

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To date, there have been many approaching ways to

research on investors’ behavior. Theory of reasonable

action (TRA) and theory of planned behavior (TPB) have

witnessed a relatively good result for forecasting the

difference of human behaviors (Sheppard et al., 1988).

Noticeably, TBP has been considered as a widely influence

theory developed from TRA (Ajzen, 1991) and applied on

various behavioral research fields (Ryu, et.al 2003),

assuming that a behavior can be predicted or explained by

the intention to perform that behavior.

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Even though the significance of its application on explaining

human behavior has been widely accepted, however, far

too little attention has been paid to official research on

investors’ behavior both in academic and empirical study in

the world as well as a specific nation for many recent years.

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Vietnam's stock market together with the relevant markets

have created Vietnam financial market with a quite

diversified development and international integration after

more than one recent decade. With the present of 105

active security companies, there are more than 1.2 million

trading accounts of investors in which, individual investors

are the main participation objects whose accounting for 2/3

of transactions in the whole of market.

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Individual investors do not always make their decisions and

actions basing on their reason, they are also affected by

psychological factors (emotion and cognitive) called

“behavioral biases”. It is said that psychology is a

complicated and multidimensional construct, its impact on

investors’ behavior always exist under many different types

such as herd behavior, overconfidence, over-optimistic,

overreaction or under-reaction and etc. Accordingly, research

on individual investors’ behavior in Vietnam security market

is very necessary and significant both in academic and

practice as well.

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The main purpose of the research is to determine factors

affecting to investors’ decision-making behavior basing on

TPB approach. More specifically, the research tends to

explore determinant factors in TPB possibly affecting to

investors’ decision-making behavior. Simultaneously, it

measures the affection degree of those factors to investors’

decision-making behavior.

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This leads to three following research questions:

1. What are the factors affecting to Vietnamese investors’

decision-making behavior in the security market?

2. How do the factors affect to Vietnamese investors’ decision-making behavior?

3. Are there existence difference of effects of the factors to investors’ decision-making behavior between different investors? (investors' knowledge level; sex; ages; less experience and experienced investors, investors' asset...).

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RESEARCH SIGNIFICANCE

Research significance to economics

1. The results of this research will be useful science basis for

policy maker, security companies to make some suitable

management strategies and supporting policies to the

current situation of individual investors’ in Vietnam security

market. Accordingly, it helps Vietnam security market act

efficiently and sustainably.

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RESEARCH SIGNIFICANCE

Research significance to economics

2. As for investment consultancy institution, the results of this

study will contribute to get a better understanding of

investors’ decision-making behavior. Through a coherent

understanding of how investors generally respond to

market movements should help investment advisors in

devising appropriate asset allocation strategies for their

clients.

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RESEARCH SIGNIFICANCE (cont.)

Research significance to academic

1. This study will partly contribute to clarify the application of

TPB in explaining individual investors’ decision-making

behavior.

2. This study also makes a significant contribution to the

literature by indicating the determinants affecting to

Vietnamese individual investors’ decision-making behavior in

the security market.

3. Specifically, a better understanding of the determinants

affecting individual investors' decision-making behavior will

offer valuable insight into why individual investors make

investment decision and why not?

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RESEARCH SIGNIFICANCE (cont.)

Research significance to academic

4. This study will yield practical insights into how do individual

investors make investment decisions in the security

market.

5. The results of this study should make a value contribution

to both researcher and practitioner community.

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LITERATURE REVIEW

1. The Theory of Planned Behavior (TPB)

Application of psychological theory on scientific research has

become increasingly popular in recent years. One of the most

widely used social psychology theories about the way in which

perceptions influence actions is Ajzen’s TPB (Ajzen, 1985, 1988),

which is an extension of the previously widely used Theory of

Reasoned Action – TRA (Fishbein and Ajzen, 1975).

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LITERATURE REVIEW (cont.)


The theory of planned behavior has been applied to a wide

range of behaviours in order to better understand which

individuals behave in which way. It is one of the best-supported

social psychological theories with respect to predicting human

behaviour. Central premise is that behavioural decisions are the

result of a reasoned process in which the behaviour is influenced

by Attitudes, Subjective norms and Perceived behaviour control

(Smith et al., 2007).

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These constructs influence the behaviour primarily through

the impact on behavioural intention. The relation between

intention and behaviour could be described as follows (Sheeran

2002): “People do what they intend to do and do not do what

they do not intend”.

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Attitude

Subjective norm

Perceived control

Intention Behavior

Figure 1: The theory of planned behavior (Ajzen, 1985)

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Figure 1 is an illustration of TPB and it can be explained as

follows:

The intention to perform an action is caused by three constructs:

Attitude towards the action is the valence of the action for

the potential actor, i.e. whether and to which extent the action is

regarded as positive or negative. Attitude is in turn determined

by outcome beliefs, i.e. a person’s beliefs about the expected

outcome of a given behavior.

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Subjective norm refers to how the potential actor believes

relevant others will react to performing the action, i.e. positively

or negatively. Subjective norm is determined by normative

beliefs that the individual holds about the behavior expected by

relevant referent individuals.

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Perceived behavioral control refers to a person’s ability to

perform a given behavior. Perceived behavioral control is

expected to have an effect on the formation of intentions, but

also on the behavior itself. Factors that may influence such

control include internal factors, such as personal skills,

knowledge, experience, and emotions, as well as external

factors, such as availability of financial resources, cooperation of

others, and availability of time.

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The theory of planned behavior has generally found strong

empirical support with hundreds of studies applying and testing

the theory. The theory of planned behavior has been used to

predict behavior in a wide-variety of situations, including

situations as varied as the prediction of unethical behavior

(Chang, 1998), entrepreneurial behavior (Kreuger and Carsrud,

1993), public service motivation (Perry et al., 2008), internet

usage (Hsieh et al., 2008), knowledge sharing behavior (So and

Bolloju, 2005), ethical information technology behavior (Leonard

et al., 2004) and information technology adoption in small

businesses (Harrison et al., 1997).

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Conceptual Framework

In short, the theory of planned behavior suggests “People

intend to perform a behavior when they evaluate it positively,

when they experience social pressure to perform it, and when

they believe that they have the means and opportunities to do

so” (Ajzen, 2005). This view of motivation likely accounts for

the critical factors that influence the behavior of individual

investor, and thus, will form the theoretical basis for examining

the factors that influence investor's decision making

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Hence, the conceptual framework depicted in Figure 2, which

is the theory of planned behavior applied to investor's decision

making, will provide the main theoretical lens for exploring the

factors that influence a individual investor behavior in security

market.

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Attitude

Subjective Norm

Perceived Control

IntentionTo decision-making

Decision makingBehavior

Figure 2: Conceptual Framework of the Determinants of individual investors’ behavior

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THE MAIN RESEARCH CONTENT

Reviewing literature of TPB and its application to

explain individual investors’ decision-making

behavior in the financial market in general and the

security market in practical.

This study will use mainly research on documents from the

plenty of journals’ article published with an aim to synthetic

literature related to find out the gap between theory and

practice. Besides, this study also tends to build its

conceptual framework to make the foundation for

approaching to solve this research question.

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Identifying the main constructs in the theoretical

framework of the research.

This research will conduct to collect qualitative data

(qualitative research) supporting to identify some main

constructs in research model and building scale items

(indicators) to measure these constructs by using focus

group interview with Vietnamese individual investors and in

- depth interview with some experts involved in this

research field.

THE MAIN RESEARCH CONTENT (cont.)

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Measuring the affection degree of determinants to

Vietnamese individual investors’ decision-making

behavior in the security market.

Through a survey with the large scale of individual investors

in Vietnam, this research will apply AMOS software to

analyze data collected. By using structural equation

modeling (SEM), this study will test the conceptual model

and measure the affection degree of each construct in the

theoretical model to individual investors’ decision-making

behavior in the security market.


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Clarifying the differentiation of the effects of

determinants to individual investors’ decision-making

behavior such as investors' knowledge level; sex; ages;

less experience and experienced investors, investors'

asset...

It is expected that there is difference of the effects of

determinants to individual investors’ decision-making

behavior such as investors' knowledge level; sex; ages; less

experience and experienced investors, investors' asset...

Therefore, this research tends to make these hypotheses clear

by applying Independent sample t-test and One-way or two

way Anova analysis technique as well.


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RESEARCH OBJECT

The main research object of this study is Vietnamese

individual investors’ decision-making behavior in the security

market. We want to clarify the determinants in TPB affecting

to Vietnamese individual investors’ decision-making behavior

in the security market.

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This study divides two phases: preliminary study (first phase) and

official study (second phase).

1. In the preliminary study phase (qualitative research)

Research on desk (documents research) is the main technique

using to synthetic theories of TPB aiming to develop a conceptual

model that explains individual investors’ decision-making

behavior.

Focus group interviews with individual investors are conducted

to identify the main constructs (determinants) affecting to

Vietnamese individual invetstors’ decision-making behavior and

build the theoretical framework of the research.

RESEARCH DESIGN

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1. In the preliminary study phase (qualitative research)

Operationalization of the constructs into scale items

(indicators) should have been done by using in-depth interview

with some experts and individual investors to fit to respondents’

knowledge in the research field.

A pilot test is performed with a convenience sampling

technique in order to investigate the reliability of the scales and

to check the scales’ face validity.

RESEARCH DESIGN (cont.)

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2. In the official study phase (quantitative research)

A survey with a large scale of individual investors will be

conducted in Vietnam to fill questionnaire offered.

The research boundaries in this study are stock investment

environment; so individual investors who had made

transactions in the security market is regarded as our

research objects.

RESEARCH DESIGN (cont.)

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RESEARCH METHODS

Based on the database of individual investors supplied by the security companies in Vietnam, a survey with a large scale is mainly used in this research by using individual face- to -face interview.

All of data collected will be analyzed through applying AMOS software.

The objective of this phase is to test empirically the conceptual model mentioned in the first phase by using Structural Equation Modeling (SEM).

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THE EXPECTED DIFFICULTIES AND SOLUTIONS

Far too little attention has been paid to official research on

investors’ behavior both in academic and empirical study is

regarded as one of the most difficulties of our research. It

will limit our ability of make a literature review perfect for

conducting this study.

it is expected that the operationalization of the constructs

to measure the effects of determinants to Vietnamese

individual investors’ decision-making behavior be

considered as the second difficulty to do this study.

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The reason is that human behavior is an abstract concept,

rich in nature and cannot easily be defined as well.

Individual investors’ decision-making behavior differs

among characteristic of persons and situations. As a result,

they cannot be directly observed. They can only be

measured through observable measures (items) that vary

in their degree of observational meaningfulness and

validity. A single indicator is not likely to capture the full

theoretical meaning of each underlying construct and

consequently, multiple indicators are necessary.

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The reason is that human behavior is an abstract concept,

rich in nature and cannot easily be defined as well.

Individual investors’ decision-making behavior differs

among characteristic of persons and situations. As a result,

they cannot be directly observed. They can only be

measured through observable measures (items) that vary

in their degree of observational meaningfulness and

validity. A single indicator is not likely to capture the full

theoretical meaning of each underlying construct and

consequently, multiple indicators are necessary.

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Therefore, the solution for this is that this study will use in-

depth interview with some experts and key individual

investors with an aim to build a system of scale items how

to fit with the Vietnamese interviewees’ perception and

knowledge.

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The creation of research topic

Research on investors’ behavior by approaching TPB is an

outstanding and a quite new topic in academic and

empirical study as well. Therefore, the application of TPB in

explaining individual investors’ decision-making behavior is

considered as a creative point of this study.

The second creative point is that this study uses the

combination of both qualitative and quantitative research.

We want to emphasize on the role of qualitative research

and its significance in the whole of research.

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The creation of research topic (cont.)

Through qualitative research, we can identify exactly the

research question; explore some main constructs in

theoretical framework and build scale items (indicators) of

constructs with an aim to fit interviewers’ knowledge in

quantitative research. The use of qualitative research in the

design, data collection, and analysis stages of survey

research as well as in experimental designs can

considerably benefit quantitative research methods.

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The expected results

We expect that the outcomes of this research will make a

contribution to the literature of TPB and its application in

explaining individual investors’ decision-making behavior in

the security market.

Firstly, the research will gain an extended model of TPB to

apply on explaining individual investors’ decision-making

behavior in the financial market in general and in the

security market in practical.

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The expected results (cont.)

Secondly, this study will develop a series of scale items

measuring constructs (determinants) in TPB to explain

individual investors’ decision-making behavior.

At the same time, this study also indicates which are

determinants affecting Vietnamese individual investors’

decision-making behavior through analyzing affection

degree of determinants to their behavior to make

investment decisions.

1 research topic: individual investors’ decision-making behavior: a theory of planned behavior –...

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