Market discipline in the behavioral finance perspective: a case of Sharia mutual funds in Indonesia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Umi Widyastuti ◽  
Erie Febrian ◽  
Sutisna Sutisna ◽  
Tettet Fitrijanti
Keyword(s):  
Mutual Funds ◽  
Behavioral Finance ◽  
Financial Literacy ◽  
Financial Risk ◽  
Market Discipline ◽  
Risk Tolerance ◽  
Exogenous Variables ◽  
Content Type ◽  
Withdrawal Behavior ◽  
Financial Risk Tolerance

Purpose This study aims to determine antecedents of market discipline. A model was constructed by extending the theory of planned behavior (TPB) to explore the cognitive, psychological and social factors that influence the market discipline in the form of withdrawal behavior. Design/methodology/approach This study applied a quantitative approach by surveying 181 Indonesian retail investors in Sharia mutual funds, which were represented by civil servants. The samples were collected using the purposive sampling technique. This study used the partial least square–structural equation model to analyze the data. Findings The results revealed that the Islamic financial literacy, the attitudes toward withdrawal, the subjective norms and the perceived behavioral control had a positive significant effect on the withdrawal intention, whereas financial risk tolerance had an insignificant impact. Then, all the exogenous variables and intention to withdraw had a significant contribution in explaining market discipline. Contrary to the proposed hypothesis, the attitude toward withdrawal had a negative impact on market discipline. The structural model indicated that the TPB could be extended by adding some exogenous variables (i.e. Islamic financial literacy and financial risk tolerance) in determining the intention to withdraw and withdrawal behavior, which indicated the market discipline in Sharia mutual funds. Research limitations/implications This study was limited to individual investors who work as civil servants. This study did not accommodate different demographic factors such as age and gender, which influence fund withdrawal behavior. Practical implications The government must focus on the inclusion of market discipline in Sharia mutual funds’ regulation to encourage the risk management disclosure, specifically that related to Sharia compliance. Originality/value Previous studies applied a traditional finance theory to predict market discipline, but this study contributes to filling the theoretical gap by explaining the market discipline from a behavioral finance perspective that was found in Sharia mutual funds.

scholarly journals A test of the association between the initial surge in COVID-19 cases and subsequent changes in financial risk tolerance

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Wookjae Heo ◽  
John E. Grable ◽  
Abed G. Rabbani
Keyword(s):  
Young People ◽  
Financial Literacy ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Service Firms ◽  
Significant Drop ◽  
Content Type ◽  
Health Situation ◽  
Financial Risk Tolerance ◽  
Practical Implications

PurposeThe purpose of this paper is to provide an estimate of the degree to which financial risk tolerance changed in relation to the initial surge of COVID-19 cases in the US.Design/methodology/approachData from a large sample of investors and other consumers covering the period beginning April 2019 and ending in early May 2020 were used to estimate aggregate levels of financial risk tolerance and to determine if the willingness to take financial risk changed across five distinct periods in relation to the spread of COVID-19.FindingsA general reduction in aggregate levels of financial risk tolerance was observed during the initial peak of COVID-19 period and the subsequent declaration of a pandemic, with the most significant drop in risk tolerance being exhibited by those who were 25 years of age or younger.Practical implicationsThe findings from this study – primarily that in terms of FRT, the COVID-19 pandemic impacted young people disproportionately – suggest that in addition to helping young people feel comfortable in terms of their personal health situation and access to employment and health insurance, policy makers, financial service firms and financial literacy educators should provide information and guidance to young people regarding why being willing to take financial risks is important and how FRT corresponds to the proper functioning of the investment markets.Originality/valueA data-drive methodology was utilized in this study to define the periods. This approach was taken due to the lack of defined and published pandemic interval periods specific to COVID19. However, the findings based on the data-driven methodology bring practical implications such as young people are sincerely considered in the catastrophic situation.

Personality, risk tolerance and social network use: an exploratory study

2016 ◽  
Vol 42 (6) ◽  
pp. 536-552 ◽  
Author(s):  
Shaista Wasiuzzaman ◽  
Siavash Edalat
Keyword(s):  
Social Networks ◽  
Social Network ◽  
Online Social Networks ◽  
Financial Risk ◽  
Ordinary Least Squares ◽  
Risk Tolerance ◽  
Network Activity ◽  
Least Squares Regression ◽  
Content Type ◽  
Financial Risk Tolerance

Purpose – The vast amount of information available via online social networks (OSN) makes it a very good avenue for understanding human behavior. One of the human characteristics of interest to financial practitioners is an individual’s financial risk tolerance. The purpose of this paper is to look at the relationship between an individual’s OSN behavior and his/her financial risk tolerance. Design/methodology/approach – The study uses data collected from a sample of 220 university students and the backward variables selection ordinary least squares regression analysis technique to achieve its objective. Findings – The results of the study find that the frequency of logging on to social network sites indicates an individual who has higher financial risk tolerance. Additionally, the increasing use of social networks for social connection is found to be associated with lower financial risk tolerance. The results are mostly consistent when the sample is split based on prior financial knowledge. Originality/value – To the authors’ knowledge this is the first study which documents the possibility of understanding an individual’s financial risk tolerance via his/her social network activity. This provides investment/financial consultants with more avenues for gathering information in order to understand their current or potential clients hence providing better services.

A qualitative phenomenological exploration of social mood and investors’ risk tolerance in an emerging economy

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Humaira Asad ◽  
Iqra Toqeer ◽  
Khalid Mahmood
Keyword(s):  
Theoretical Model ◽  
Thematic Analysis ◽  
Financial Literacy ◽  
Financial Risk ◽  
Theoretical Perspective ◽  
Emerging Economy ◽  
Risk Tolerance ◽  
Validity And Reliability ◽  
Content Type ◽  
Depth Analysis

Purpose The authors design a theoretical perspective that explores how different phases of social mood influence financial risk tolerance (FRT) among investors. Risk is involved in almost all financial decision-making. For a better understanding of risk tolerance behavior, the role played by social mood cannot be ignored. This study aims to explore the linkage between social mood and FRT of investors in Pakistan. Design/methodology/approach Using qualitative phenomenology as the guiding framework, 22 interviews were conducted to have a deeper understanding of the lived experiences of investors with at least 10 years of investment experience. Thematic analysis was done to analyze data. Audio-recording, bracketing, triangulation and member checking were done to ensure validity and reliability. Findings A theoretical model is developed using the six themes identified through thematic analysis. This model presents an in-depth analysis of the determinants of social mood, its multiple phases and its impact on risk tolerance behavior. Findings reveal that the level of financial literacy, experience and purpose of investment moderate the effect of social mood on FRT. Practical implications Investors can manage risk and increase their profits by controlling the effects of social mood. They can benefit from the market situation by taking more risk when the market is extremely low. The advisors can frame their advice in the light of the model. Originality/value According to the authors’ knowledge, this is the first study that explores investors’ risk tolerance in response to variations in social mood in the context of an emerging economy. The paper has contributed conceptually and methodologically. It uses phenomenology as the method and develops a theoretical model that describes how different types of investors adjust their risk tolerance in response to changes in their social mood.

Antecedents to responsible financial management behavior among young adults: moderating role of financial risk tolerance

2020 ◽  
Vol 38 (5) ◽  
pp. 1177-1194 ◽  
Author(s):  
Dhananjay Bapat
Keyword(s):  
Young Adults ◽  
Financial Management ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Financial Knowledge ◽  
Financial Behavior ◽  
Management Behavior ◽  
Content Type ◽  
Financial Risk Tolerance

PurposeThe study examines the antecedents of responsible financial management behavior among young adults in India and explores the role of financial risk tolerance as a moderating variable.Design/methodology/approachThe sample includes young adults in the age group of 18–35. The analysis uses a two-step approach via standard partial least squares structural modeling (PLS-SEM) and ordinary least square (OLS) regression.FindingsStructural modeling results show that financial attitude fully mediates the relationship between financial knowledge and responsible financial management behavior, and locus of control influences responsible financial management behavior. Financial risk tolerance moderates the relationship. Among demographic factors, age and occupation influence responsible financial management behavior.Research limitations/implicationsThe financial knowledge used in the survey are based on self-reported responses. The future study can include participants from both developed and emerging countries to assess similarities and differences.Practical implicationsDespite the growing focus on improving financial literacy, there are growing concerns regarding responsible financial behavior. Since financial services is related to fiduciary responsibility, managers and policymakers need to ensure that financial knowledge results in improving financial attitude, which further leads to responsible financial behavior.Originality/valueThe present study from an emerging country will add value to the literature.

Factors Associated With Financial Risk Tolerance Based on Proportional Odds Model: Evidence From Sweden

2017 ◽  
Vol 28 (1) ◽  
pp. 155-164 ◽  
Author(s):  
Manuchehr Irandoust
Keyword(s):  
Financial Literacy ◽  
Financial Stability ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Proportional Odds Model ◽  
Specific Information ◽  
Proportional Odds ◽  
Model Evidence ◽  
Portfolio Structure ◽  
Financial Risk Tolerance

Is the way that individuals make risky financial choices, or tradeoffs over time, related to demographic characteristics? This article attempts to examine whether there is a link between demographic variables, risk aversion, and impatience using a randomly drawn sample of the population in Sweden. Based on a proportional odds model, the findings show that willingness to take financial risk depends on portfolio structure, gender, age, educational attainment, income, financial stability, financial literacy, marital status, and family size. Financial counselors are encouraged to use the variables related to financial risk tolerance discussed in this article whenever developing portfolios or in calculations that require specific information about a person’s willingness to take financial risk.

Behavioural propensities and financial risk tolerance: the moderating effect of ethnicity

2019 ◽  
Vol 15 (4) ◽  
pp. 728-745 ◽  
Author(s):  
Mahfuzur Rahman ◽  
Mohamed Albaity ◽  
Che Ruhana Isa
Keyword(s):  
Social Interaction ◽  
Undergraduate Students ◽  
Financial Risk ◽  
Design Methodology ◽  
Risk Tolerance ◽  
Moderating Effect ◽  
Business Economics ◽  
Content Type ◽  
Financial Risk Tolerance ◽  
The Relationship

Purpose The purpose of this paper is to explore the influence of several core behavioural propensities on financial risk tolerance (FRT). Additionally, this paper examines the moderating effect of ethnicity on the relationship between behavioural propensities and FRT. Design/methodology/approach A sample of 1,204 completed and usable questionnaires were collected from undergraduate students majoring in business, economics and finance and analysed them using SmartPLS 2.0 software. Findings The findings reveal that propensity for trust has the highest impact on FRT followed by propensity for regret and happiness in life, while propensity for social interaction is not significantly associated with FRT. Ethnicity significantly moderates the relationship between three behavioural propensities (propensity for regret, propensity for trust and happiness in life) and FRT. Originality/value This study contributes to the assessment of individuals’ FRT incorporating behavioural propensities, which in turn contributes to the field of behavioural finance.

scholarly journals The Effect of Financial Literacy, Financial Risk Tolerance, and Financial Socialization Agents on Stock Investment Decision in The Millennial Generation

2021 ◽  
Vol 4 (1) ◽  
pp. 11-22
Author(s):  
Kevin Hendarto ◽  
Njo Anastasia ◽  
Sautma Ronni Basana
Keyword(s):  
Financial Literacy ◽  
Millennial Generation ◽  
Financial Risk ◽  
Investment Decisions ◽  
Risk Tolerance ◽  
Equation Modeling ◽  
Financial Socialization ◽  
Stock Investment ◽  
Socialization Agents ◽  
Financial Risk Tolerance

This study aim to determine financial literacy, financial risk tolerance, and financial socialization agents effect/influence on stock investment decisions in the millennial generation. The research was conducted by distributing questionnaires to 400 millennial generation stock investors in Indonesia. The data analysis method by Structural Equation Modeling (SEM) using the SmartPLS 3.2.7 program. The results show that financial literacy has a significant effect on investment decisions. Financial risk tolerance has significant effect on investment decisions, meanwhile financial socialization agents do not have a significant effect on investment decisions.

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