a study on the individual investor behavior with special referance

IRACST- International Journal of Research in Management & Technology (IJRMT), ISSN: 2249-9563 Vol. 2 No.2, April 2012

243

A Study on the Individual Investor Behavior with Special Referance to Geojit BNP Paribas

Financial Service Ltd, Coimbatore.

Gnani Dharmaja .V, Mechanical Engineering

Psg College of Technology, Coimbatore, India

Ganesh .J, Electrical and Electronics Engineering,

PSG College of Technology, Coimbatore, India

Dr. Santhi .V Department Of Humanities Psg College of Technology

Coimbatore, India

ABSTRACT Research in behavioral finance is relatively new. Within behavioral finance it is assumed that information structure and the characteristics of market participants systematically influence individuals’ investment decisions as well as market outcomes. According to behavioral finance, investor market behavior derives from psychological principles of decision making to explain why people buy or sell stocks. The research we have done was on the topic “Factors Influencing the Individual Investor Behavior”. The study aims at identifying the most and the least influencing factors of the individual investor behavior. The project is based on descriptive research design. The data was collected with the help of a questionnaire. The questionnaire included thirty items that belong to five categories: self-image/firm-image co-incidence, accounting information, neutral information, advocate recommendations and personal financial needs. The sample size considered for the study was 200 wherein all the samples were investors of GEOJIT BNP PARIBAS FINANCIAL SERVICE LTD, COIMBATORE. The tools used for the analysis include Chi-Square Test. The analysis was divided into 2 phases which are Personal Factors and Behavioral Factors. The study revealed that accounting information is the most influencing group of the individual investor behavior and neutral information is the least influencing group of the individual investor behavior. It was found that there are also some behavioral factors like the investor’s financial tolerance, emotional risk tolerance and financial literacy which influence the investor’s behavior. Based on the analysis Suggestions for improvement are provided. INTRODUCTION Factors influencing investor behavior:

Most financial theory is based on the idea that everyone takes careful account of all available information before making investment decisions. But there is much evidence that is not the case. Behavioral finance, a study of the markets that draws on psychology, is throwing more light on why people buy or sell the stocks they do - and even why they do not buy stocks at all. This research on investor behavior helps to explain the various 'market anomalies' that challenge standard theory. It is emerging from the academic world and beginning to be used in money management.

OBJECTIVES OF THE STUDY

Primary Objective To study the various factors influencing the

investment behavior of individual investors. Secondary Objective

To study the impact of the self-image/firm image co-incidence on the investor behavior.

To identify the influence of the accounting information on the investor behavior.

To find out the effect of the factors related to neutral information on the investor behavior.

To analyze the impact of the advocate recommendation on the investor behavior.

To interpret the effect of the factors related to personal financial needs on the investor behavior.

To study the investment pattern of the investors based on their risk taking abilities.

To study the investment time horizon of the investors based on their personal profile. SCOPE OF THE STUDY Research in behavioral finance has important applications. A better understanding of behavioral processes and outcomes is important for financial planners because an understanding of how investors generally respond to


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market movements should help investment advisors devise appropriate asset allocation strategies for their clients. For companies, identifying the most influencing factors on their investors’ behavior would affect their future policies and strategies would affect their future financial plans. For government, identifying the most influencing factors on investors’ behavior would affect the required legislations and the additional procedures needed in order to satisfy investors’ desires and also to give more support to market efficiency. The research can help guide portfolio allocation decisions, both by helping us to understand the kinds of errors that investors tend to make in managing their portfolios, and also by allowing us to understand better how to locate profit opportunities for investment managers. Beyond this, understanding the psychological foundation of human behavior in financial markets facilitates the formulation of macroeconomic policy and the devising of new financial institutions. RESEARCH DESIGN The research design that is adopted in this study is descriptive design. Descriptive research is used to obtain information concerning the current status of the phenomena to describe, "What exists" with respect to variables or conditions in a situation. The focus of this study was on revealing the various factors influencing the individual investor behavior.

Thus it involves Statement of the problem, Identification of information needed to solve the problem, Selection or development of instruments for gathering the information, Identification of target population and determination of sampling procedure, Design of procedure for information collection, Collection of information, Analysis of information and Generalizations and/or predictions. SAMPLING DESIGN

Population The population for this study is investors of

Geojit bnp paribas financial services limited in Coimbatore city. Sampling Technique

The sampling technique used is non probability convenience sampling. The sample frame for this study is the company’s database of Coimbatore city (finite universe)

Survey Method Research design includes selecting

appropriate data collection method. It can be obtained by primary data or secondary data. The primary data is the Questionnaire collected through Direct Personal Interview. Sample Size The sample size for this study is 200 investors of Geojit bnp paribas financial services limited of Coimbatore city out of entire population 2048 which consists of 10% of the population.

Sample Unit The individual investors of Geojit bnp paribas

financial services limited were the target respondent groups from which the data were collected.

Sources of Data

Data were collected through both primary and secondary data sources. Primary data was collected through questionnaires. Questionnaire Design

Proper care has been taken to ensure that the information needed match the objectives, which in turn match the data collected through the questionnaire. The basic cardinal rules of Questionnaire design like using simple and clear words, the logical and sequential arrangement of questions has been taken care of.

Secondary Data Secondary data consist of

information that already exists somewhere, have been collected. Secondary data is collected from company websites, other websites, company fact sheets, magazines and brochures. Statistical Tools

The statistical tools used for this analysis are:

Mean Score Values Mean score values has been calculated for the different scales used to find the perception and satisfaction level of investors.

Mean score value Analysis is calculated by No. of Respondents x Score value (1) Total No. of Respondents

Chi – Square Test Chi – Square test is a non-parametric test of statistical significance for bi-variant tabular analysis. A non-parametric test, like chi square, is a rough estimate of confidence. Chi-square is used most frequently to test the statistical significance of results reported in bi-variant tables and interpreting bi-variant tables is integral to interpreting the results of a chi-square test. Null Hypothesis ( H0 )

The hypothesis, or assumption, about a population parameter we wish to test, usually an assumption of the status quo. Alternative Hypothesis (H1)

The conclusion we accept when the data fail to support the null hypothesis. Statistical Test

Chi-Square test:- (2) Degrees of freedom = (R-1) (C-1) Where, O = Observed Frequency E = Expected Frequency R = Number of rows C = Number of columns To find E

Expected Frequency = (Row Total × Column Total) / Grand Total (3)


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Level of Significance A value indicating the percentage of

sample values that is outside certain limits, assuming the null hypothesis is correct, that is, the probability of rejecting the null hypothesis is correct, that is, the probability of rejecting the null hypothesis when it is true. ANALYSIS AND INTERPRETATION The factors are analyzed under the following broad phases: PHASE I : Personal Factors PHASE II: Behavioral Factors

PHASE I Personal Factors This phase includes the personal details of the investors. The factors considered are gender, qualification, work status, income and life stage.

PHASE II Behavioral Factors In this particular phase the responses for the various behavioral factors of the investors that have been considered in the questionnaire have been analysed. The investors’ financial resources, emotional risk tolerance, financial literacy level and various other factors have been analyzed in this phase. PHASE I: PERSONAL FACTORS GENDER DISTRIBUTION OF THE INVESTORS

TABLE I

Source: Primary Data The table1 indicates that out of the total

respondents, 90% were male and 10 % were female. Majority of the investors are male.

CHART 1

GENDER DISTRIBUTION OF THE INVESTORS

TABLE 2

Educational Qualification Standard of Investors S.NO

QUALIFICATION NO OF RESPONDENTS PERCENTAGE

1 School level 32 16 2 Under Graduate 84 42 3 Post Graduate 64 32 4 Others 20 10 Total 200 100

Source: Primary Data The table2 shows that out of the 200 respondents, nearly 16% of the investors have school level education whereas 42% are under graduates, 32% are postgraduates and 10% of them have completed other level of education like diploma and charted accountancy.

CHART 2 QUALIFICATION STANDARD OF THE

INVESTORS

WORK STATUS OF THE INVESTORS

TABLE 3 S.NO

WORK STATUS

NO OF RESPONDENTS

PERCENTAGE

1 Own Business 76 38 2 Pvt company

employee 28 14 3 Govt Servant 16 8 4 Student 10 5 5 Retired 56 28 6 Others 14 7 Total 200 100

Source: Primary Data

The table 3 shows that out of the 200 respondents, nearly 38% of the investors are doing their own business whereas 14% are private company employees, 8% are government servants, 5% are students, 28% are retired persons and 7% of the investors where included in others category which comprises house wives and full time investors.

S.NO

GENDER

NO OF INVESTORS

PERCENTAGE

1 Male 180 90

2 Female 20 10

Total 200 100


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CHART 3

WORK STATUS OF THE INVESTORS

LIFE STAGE OF THE INVESTORS

TABLE 4 S.NO

STAGES OF LIFE

NO OF RESPONDENTS

PERCENTAGE

1 Below 25yrs 20 10 2 Early adulthood(25-

34yrs) 44 22 3 Middle adulthood(35-

49yrs) 60 30 4 Empty Nesters

(50+yrs) 76 38 Total 200 100

Source: Primary Data From the table4 it is found that 10% of the investors are single, 20% are under early adulthood, another 20% of the respondents are under middle adulthood and 22% are empty nesters in 50+ years and 28% are retired persons. It shows that the majority of the respondents are retired persons.

CHART 4 LIFE STAGE OF THE INVESTORS

INVESTMENT TIME HORIZON OF THE

INVESTORS TABLE 5

Source: Primary Data From the table5 it is found that 22.5% of the investors are very short term investors with the investment time horizon less than 1 year, 27% of the investors are investing for the time period between 1 to 2 years, 19.5% of the respondents invest between 2 to 5 years, 20% of them invest between 5 to 10 years and only 11% of them are investing for more than 10 years.

CHART 5 INVESTMENT TIME HORIZON OF THE

INVESTORS

INCOME OF THE INVESTORS

TABLE 6

S.NO INCOME

NO OF

RESPONDENTS

PERCENTAGE

1 < Rs.10000 80 40 2 Rs.10000 – Rs.20000 80 40 3 >Rs.20000 40 20 Total 200 100

S.NO

INVESTMENT TIME

HORIZON

NO OF RESPONDENTS

PERCENTAGE

1 Less than 1/2 year 45 22.5 2 Between ½ to 1 years 54 27 3 Between 1 to 2 years 39 19.5 4 Between 2 to 3 years 40 20 5 More than 3 years 22 11 Total 200 100


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Source: Primary Data From the table6 it is understood that 40% of investor’s have income < Rs 10000 per month, 40% of investor’s have a income between Rs.10000 – Rs.20000 per month, 20% have a income of above 20000 per month.

CHART 6

INCOME OF THE INVESTORS

FINANCIAL TOLERANCE LEVEL OF THE INVESTORS

TABLE 7

S.NO

FINANCIAL TOLERANCE

NO OF RESPONDENTS PERCENTAGE

1 Pessimist 36 18 2 Neutral 120 60 3 Optimist 44 22 Total 200 100

Source: Primary Data

18% of investor’s are pessimist in their attitude towards their financial resource, 60% are neutral and 22% are optimist in their attitude.

CHART 7 FINANCIAL TOLERANCE LEVEL OF THE INVESTORS EMOTIONAL TOLERANCE LEVEL OF THE INVESTORS

TABLE 8

S.NO EMOTIONAL RISK TOLERANCE


1 Very conservative 36 18 2 Moderately conservative 78 39 3 Moderate 48 24 4 Moderately Aggressive 38 19 5 Very aggressive 0 0 Total 200 100

Source: Primary Data 18% of investor’s are very conservative in their investments, 39% of the respondents are moderately conservative, 24% of the respondents are moderate risk takers, 19% are moderately aggressive and no respondents are very aggressive towards their investments. CHART 8 EMOTIONAL TOLERANCE LEVEL OF THE INVESTORS RANKING OF THE RISKS OR EVENTS THAT THE INVESTOR FEAR OR REGRET THE MOST TABLE 9

S.NO RISKS OR EVENTS MSV RANK

1 A loss of principal over a period of 1 year or less 2.56 IV

2 A rate of inflation that exceeds the rate of return over the long term

2.64 V 3 Portfolio performance that is insufficient

to meet the goals 3.64 I 4 Portfolio performance that is consistently

less than industry benchmarks 3.36 II 5 A missed investment opportunity that

could have yielded higher returns over the long term 2.8 III

Source: Primary Data The risks or events that the investor fear or regret the most is for the Portfolio performance that is insufficient to meet their goals. The other risks or


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events includes portfolio performance that is consistently less than industry benchmarks, a missed investment opportunity that could have yielded higher returns over the long term, a loss of principal over a period of 1 year or less, a rate of inflation that exceeds the rate of return over the long term. CHART 9 RANKING OF THE RISKS OR EVENTS THAT THE INVESTOR FEAR OR REGRET THE MOST

2.56

2.64

3.64

3.36

2.8

0 1 2 3 4

A loss of principal over a period of 1 year orless

A rate of inflation that exceeds the rate ofreturn over the long term

Portfolio performance that is insufficient tomeet the goals

Portfolio performance that is consistently lessthan industry benchmarks

A missed investment opportunity that couldhave yielded higher returns over the long term

Ris

ks o

r Eve

nts

MSV

FINANCIAL LITERACY LEVEL OF THE INVESTORS TABLE 10

S.NO

FINANCIAL LITERACY LEVEL


1 Low 19 9.5 2 Medium 122 61 3 High 59 29.5 Total 200 100

Source: Primary Data 9.5% of investor’s are low in their financial

literacy score, 61% of the respondents are under medium literacy level and 29.5% of the respondents are having high financial literacy score. CHART 10 FINANCIAL LITERACY LEVEL OF THE INVESTORS

ANALYSIS OF FACTORS UNDER NEUTRAL INFORMATION TABLE 11

NEUTRAL INFORMATION MSV RANK Recent price movement in a firm’s stock 3.98 1

Current economic indicators 3.7 2 Fluctuation/developments in the stock index 3.68 3

Statements from government officials 3.36 4

Information obtained from the internet 3.34 5

Coverage in the press 3.14 6 Government holdings 3.12 7

OVERALL MSV = 3.474

Source: Primary Data The most influencing factors under neutral

information is the recent price movement in a firm’s stock (MSV 3.98) whereas the least influencing factors include Coverage in the press (MSV 3.14) and Government holdings (MSV 3.12) in the company. CHART 11 ANALYSIS OF FACTORS UNDER NEUTRAL INFORMATION ANALYSIS OF FACTORS UNDER ADVOCATE RECOMMENDATION TABLE 12

ADVOCATE RECOMMENDATION MSV RANK

Friend or coworker recommendations 3 1

Opinions of the firm’s majority stockholders 2.96 2

Broker recommendation 2.92 3

Family member opinions 2.88 4

Source: Primary Data OVERALL MSV = 2.94

The most influencing factor under

advocate recommendation is the Friend or


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coworker recommendations (MSV 3) whereas broker recommendation (MSV 2.92) and family member opinions (MSV 2.88) are the least influencing factors.

CHART 12 ANALYSIS OF FACTORS UNDER

ADVOCATE RECOMMENDATION ANALYSIS OF FACTORS WITHIN THE GROUPS ANALYSIS OF FACTORS UNDER SELF-IMAGE/FIRM-IMAGE COINCIDENCE TABLE 13 SELF-IMAGE/FIRM-IMAGE COINCIDENCE MSV RANK

Organized financial markets 3.98 1 Perceived ethics of firm 3.98 2 Reputation of the firm 3.84 3 Feelings for a firm’s products and services 3.7 4

Gut feeling on the economy 3.68 5 Firm status in industry 3.58 6 Reputation of the firm’s shareholders 3.32 7

“Get rich quick” 3.08 8 Increase of the firm’s involvement in solving community problems

2.92 9

Religious reasons 2.26 10 Source: Primary Data OVERALL MSV = 3.43

Organized financial markets (MSV 3.98) is being considered as the most influencing factors on the investor behavior under the factor self-image/firm-image coincidence whereas Increase of the firm’s involvement in solving community problems (MSV 2.92)and Religious reasons (MSV 2.26) are the least influencing factors.

CHART 13

ANALYSIS OF FACTORS UNDER SELF-IMAGE/FIRM-IMAGE COINCIDENCE

ANALYSIS OF FACTORS UNDER ACCOUNTING INFORMATION TABLE 14 ACCOUNTING INFORMATION

MSV RANK

Condition of financial statements

4.1 1

Dividends paid

4.08 2

Past performance of the firm’s stock

4.06 3

Expected Dividends

3.98 4

Expected corporate earnings

3.88 5

Stock Marketability

3.65 6

Affordable share price

3.62 7

Source: Primary Data OVERALL MSV = 3.912

Condition of financial statements (MSV 4.1) is being considered as the most influencing attribute under the factor accounting information whereas Stock Marketability (MSV 3.65) and Affordable share price (MSV 3.62) are the least influencing factors. Source: Primary Data OVERALL MSV = 3.912

Condition of financial statements (MSV 4.1) is being considered as the most influencing attribute under the factor accounting information


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whereas Stock Marketability (MSV 3.65) and Affordable share price (MSV 3.62) are the least influencing factors. CHART 14 ANALYSIS OF FACTORS UNDER ACCOUNTING INFORMATION

1.Chi- square calculation for education and relation between employee and management.

Source: Primary Data Ho : there is no relationship between the job satisfaction and age. H1 : there is a relationship between the job satisfaction and age. ( Oi – Ei ) Chi-square ∑ = Ei Level of significant = 5% Degree of freedom = (r-1) (c-1) = 9

Source: Primary Data Calculated value = 13.186 Table value = 16.919 Therefore by using the chi-square for the above given table, it is found that the calculated value is less than the tabulated value. So, Ho is accepted. FINDINGS

Majority of the investors (39%) are moderately conservative and 18% of investor’s are very conservative in their investment, and no respondents are very aggressive towards their investments.

Majority of the investors (27%) are short term investors with the investment time horizon between 1 to 2 years.

There is no significant relationship between Emotional Risk Tolerance and Gender of the investor.

There is a significant relationship between Emotional Risk Tolerance and Work Status of the investor.

There is a significant relationship between Emotional Risk Tolerance and Life stage of the investor.

There is no significant relationship between Emotional Risk Tolerance and Income of the investors.

There is no significant relationship between Emotional Risk Tolerance and Financial resource tolerance of the investors.

There is no significant relationship between Financial Literacy Level and Emotional risk tolerance of the investors.

There is no significant relationship between Investment Time Horizon and Gender of the investor.

There is a significant relationship between Investment Time Horizon and Qualification of the investor.

There is a significant relationship between


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Investment Time Horizon and Work Status of the investor.

There is a significant relationship between Investment Time Horizon and Life stage of the investor.

There is no significant relationship between Investment Time Horizon and Income of the investors.

There is a significant relationship between Investment Time Horizon and Financial resource tolerance of the investors.

There is no significant relationship between Investment Time Horizon and Financial Literacy Level of the investors.

The other findings of the study include the following: The respondents belong to different socio-economic

background in terms of age, sex marital status, occupation, literacy and annual income.

Majority of the investors (90%) are male. Majority of the investors (42%) are under graduates. Majority of the investors (38%) are doing their own

business. The respondents are under different stages of life and

the majority are under retired (28%) life stage. From the study it was revealed that 40% of the

investors have income of <10000 per month and another 40% of the investors have the income of Rs.10000 – Rs.20000 per month.

From the study it was found that majority of the investors (60%) are neutral in their financial tolerance and 18% are pessimist in their attitude towards their financial resource and 22% are optimist in their attitude.

It was found that the risks or events that the investor fear or regret the most is for the Portfolio performance that is insufficient to meet their goals followed by portfolio performance that is consistently less than industry benchmarks, a missed investment opportunity that could have yielded higher returns over the long term.

Majority of the investors (61%) are having medium literacy score and 9.5% are low in their financial literacy score, and 29.5% of the respondents are having high financial literacy score.

SUGGESTIONS After analyzing the various factors

influencing the individual investor behaviour the following suggestions are made for better understanding of the investor behavior.

Since the brokers’ recommendation is one among the least influencing factors, the company should go for in-depth research to find out the reasons for it.

They should get constant feedback from the investors and have to provide sound advisory facilities to make the brokers recommendation as the most influencing factor.

They should give analysis about the latest stock market trends and have to take a close look at the various investment options, and products available in the market to their

clients. They can provide specific industry reports

which gives comprehensive information on various industries.

They should devise appropriate asset allocation strategies for successful portfolio management of their clients based on their life stage, financial and emotional risk tolerance and their financial literacy level.

They have to provide customized advisory services to help investors make the right financial moves that are specifically suited to their portfolio.

The most influencing factors were belong to the accounting information group so the market are required to give more attention to these factors in order to satisfy the desires of their investors and also to attract more investors to deal with their stocks.

The listed companies should provide proper accounting information to the public since it is the most influencing factor and they have to maintain good financial position.

The companies have to declare expected dividends to their stakeholders since it is one among the most influencing attribute.

To increase their stock marketability, they need to review the relationship between the price and demand on their stocks frequently.

If the stock price is too high, this might make it difficult to sell, and one of the policies that can be adopted by companies to make it more marketable is a stock split.

The companies have to build brand image and should maintain their status in the industry to get good reputation from its stakeholders.

They have to follow business ethics which is also an important influencing factor.

CONCLUSION The study entitled “Factors Influencing the Individual Investor Behavior” would help the share brokerage firms to take care of the factors influencing their investors and can give proper asset allocation strategy to their investors. The listed companies can also look at the most influencing factors and can focus much on these factors to attract the investors to invest in them. The study was conducted for a period of 50 days. The study aimed at identifying the most and the least influencing factors of the individual investors. Convenience sampling method was used in the study and a sample size of 200 investors was taken for the study. The primary data was collected through structured questionnaire. The questionnaire included thirty-four items that belong to five categories, namely self-image/firm-image coincidence, accounting information, neutral information, advocate recommendation and personal financial needs. The research design that is adopted in this study is


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descriptive design. The data collected through questionnaire has been analyzed using mean score value and chi-square test. Pie charts and bar diagrams were used in the study for better understanding.

Through this, the researcher helped the company to know more about the factors influencing their investors and also helped to focus on those factors to provide better customer Service. Majority of the respondents are influenced by the accounting information of the companies and advocate recommendation is the least influencing group. Suggestions were also made for further understanding of the investor behavior.

BIBILIOGRAPHY 1. Nagy,R.A.and Obenberger,R.W., “Factors influencing investor behavior”, Financial Analysts Journal, Vol.50, 1994, pp.63-68. 2. Shanthikumar,D. and Malmendier, Are small investors naive?, Stanford University Working Paper, 2003. 3. Shleifer, A, Inefficient Markets: An Introduction to Behavioral Finance (Oxford University Press, 1999). 4. Taffler,R.J., “What can we learn from behavioral finance?”, Credit Control, Vol.23,2002, 5. Blume, M.E., and I. Friend. “The Changing Role of the Individual Investor”, John Wiley & Sons, New York, New York, 1978 6. LeBaron, D., G. Farrelly and S. Gula, “Facilitating a Dialogue on Risk: A Questionnaire Approach,” Financial Analysts Journal, Vol. 45, No. 3, pp. 19-24, 1989. 7. Baker, H.K., and J.A. Haslem, “Toward the Development of Client-Specified Valuation Models,” Journal of Finance, Vol. 29, No. 4, pp. 1255-1263, 1974. 8. Benartzi, Shlomo and Richard H. Thaler (2001), “Naïve Diversification Strategies in Defined Contribution Saving Plans”, American Economic Review, Vol. 91, No. 1, March. 9. Sehgal, S. (2002), “Survey Study of Investors Behaviour in The Indian Capital Market”, Review of Commerce Studies, Vol. 20-21, No. 1, January-June, p. 123.

a study on the individual investor behavior with special referance

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