Investment Behavior and Trade Returns of Individual Investor: Mediating Role if Financial Literacy

The main objective of current study was to analyze the impact of representativeness and anchoring on the trade returns of individual investors with the mediating role of financial literacy. In this connection hypotheses were developed on the basis of behavioral finance literature. The data was collected on 5-point likert scale questionnaires which were adopted from various authors. The collected data was checked for reliability and correlation analysis and regression models were run. On the basis of results obtained from analysis the four hypotheses which were developed have been accepted. It was concluded that representativeness and anchoring has significant positive impact while the financial literacy has mediating impact on the trade returns of investors. It is recommended that more the financial literacy less risk of behavioral biases impact on investment thus investors should gain financial literacy for taking rational investment decision and good trade returns.

The importance of the role of financial analysis in making investment decisions in securities - Case Study: Khartoum Stock Exchange: أهمية دور التحليل المالي في اتخاذ القرارات الاستثمارية في الأوراق المالية دراسة حالة: سوق الخرطوم للأوراق المالية

This research aimed at the followings: Identifying the important role of financial analysis depending on information cited on financial statements and reports in making the right investment decision in Khartoum Stock Exchange. Adopting a reliable financial analysis that can assist to analyze and evaluate the financial and non-financial information to make decisions of buying، selling or reserving stocks with rational investment decisions at Khartoum Stock Exchange. In order to discuss the research problem، the researcher tests the hypotheses: The rational financial analysis is considered an effective tool in making a good investment decision, the accounting information helps investors in stock markets in making the right investment decision. The research adopts the deductive methodology to formulate the research problem and hypotheses; the inductive method to collect data from primary and secondary sources; the historical method to tackle the previous studies; whereas the analytical-descriptive method to test the validity of the hypotheses. The important results of the research could be summarized as Adopting modern financial analysis techniques provide information that help in making the right investment decisions Failure to make the rational investment decision is related to inefficiency of the information and financial reports depended upon in each stage of making investment decision and Whereas the most important recommendations are to adopt modern techniques in analyzing financial statements by using SPSS. Provide sufficient information about stock exchange rates and dealings regularly on the internet websites and workshop papers.

Using E-GARCH to Analyze the Impact of Investor Sentiment on Stock Returns Near Stock Market Crashes

Purpose: Investor sentiment, the willingness of market participants to invest, is a difficult concept to measure. Exploring the relationship between investor sentiment and stock returns can reveal how investor sentiment affects the operation of the stock market. Such an understanding can assist market participants in making more rational investment decisions based on market laws. Such an understanding can also assist regulators in their roles of supervision and policy making.Methodology: Although the E-GARCH model has the advantage of considering volatility clustering, it has not previously been used to investigate the impact of investor sentiment changes on the Shanghai Composite Index's market return. This research therefore applies the E-GARCH approach to data from 2015 to 2018, to explore the influence of investor sentiment on the return rate of the Shanghai Composite Index.Main Findings: There are three main findings. First, when the investor sentiment is increased by the same amount, the rate of return before a stock market crash will have a smaller increase than the rate of change after the crash, which is a new finding. Second, the rate of return on stocks is susceptible to emotional sentiment, rather than simply depending on stock price. Third, the tendency of retail investors to follow the crowd is less in periods of pessimism than it is in periods of optimism, which, in turn, can push up stock yields.Application: Based on these research results, this article can provide insights to understand how investors' subjective judgments on future earnings affect their investment behavior and how great the impact is on the market. At the same time, it can help investors make more rational investment decisions based on an understanding of market laws, and help regulators with guidance for their supervision and policy making.Originality/Value: This paper contributes to the theory of the investor sentiment index, improving the index construction method by adding two sentiment proxy indicators: investor activity ACT and stock market leverage level. After constructing the sentiment index and comparing it with the stock market index (Shanghai Composite Index), the fit is found to be improved.

Fundamentals-weighting vs. Capitalization-weighting: An Empirical Comparison

Following the criticism surrounding capitalization-weighting, both academic and practitioner communities have developed alternative approaches to portfolio construction. We analyze one of these approaches, fundamentals-based weighting, which identifies the weights of portfolio constituents on the basis of their market multiples and accounting ratios. Our analysis is carried out on four fundamentals-weighted portfolios (FW) based on four different weighting variants, the capitalization-weighted portfolio (CW), and the equally-weighted (EW) portfolio, from January 2004 to December 2020, and in two subperiods (2004–2011 and 2011–2020). We find that in the first subperiod, the EW portfolio shows the highest risk-adjusted performance, followed by the FW portfolios. In contrast, in the second subperiod and in the period as a whole, the CW portfolio outperforms the other portfolios in terms of risk-adjusted performance. Overall, we conclude that both FW portfolios and the EW portfolio do not exhibit superior results when compared with the classic CW portfolio. Therefore, we have shown that FW and EW techniques provide superior risk-adjusted performance only during a period of exceptional financial turmoil. However, under normal conditions, they cannot be recommended as a rational investment strategy. JEL classification numbers: G11, G14. Keywords: Fundamental weighting, Capitalization weighting, Equal weighting, Value investing, Indexed investing.

Pengambilan Keputusan Investasi Rasional: Suatu Tinjauan dari Dampak Perilaku Representativeness Bias dan Hearding Effect

The aim of this study was to determine the effect of representation bias and herding behavior towards rational investment decision making, which was detected using the Heuristic Theory perspective on the Investor Saham Pemula (ISP) community in East Java. This research uses a mixed-method by using a sequential explanatory strategy. This study uses primary data obtained by distributing online questionnaires in 10 cities in East Java and interviews with expert practitioners. The sample of this research is 111 active investors who trade independently. In relation, the data analysis was through multiple linear regression. This research succeeded in proving that representative bias behavior has a negative influence on decision-making on rational investment. On the other hand, no evidence showed the effect of herding behavior influencing investment decision making. The phenomenon indicates that investors rely more on information obtained through the results of their own reason rather than following the decisions of other investors.Keywords: Representativeness Bias, Herding-Effect Behavior, Heuristic Theory AbstrakPenelitian ini bertujuan untuk menganalisa pengaruh representativeness bias dan herding behavior terhadap pengambilan keputusan investasi yang rasional yang dideteksi dengan menggunakan perspektif Teori Heuristik pada komunitas Investor Saham Pemula (ISP) di Jawa Timur. Penelitian ini menggunakan metode campuran dilengkapi dengan strategi penjelas berurutan. Studi penelitian ini menggunakan data primer yang diperoleh dengan menyebarkan kuesioner online di 10 kota di Jawa Timur dan wawancara dengan praktisi ahli. Sampel penelitian ini adalah 111 investor aktif yang berdagang secara mandiri. Dalam kaitannya, analisis data dilakukan melalui regresi linier ganda. Penelitian ini berhasil membuktikan bahwa perilaku representativeness bias berpengaruh negatif terhadap pengambilan keputusan atas investasi rasional. Di sisi lain, tidak ada bukti yang menunjukkan pengaruh herding behavior mempengaruhi pengambilan keputusan investasi. Fenomena tersebut mengindikasikan bahwa investor lebih mengandalkan informasi yang diperoleh melalui hasil nalar pribadi dibandingkan mengikuti keputusan investor lain.Kata Kunci: Representativeness Bias, Perilaku Herding-Effect, Teori Heuristic

Market Efficiency and Nonlinear Analysis of Soybean Futures

In this paper, the multifractal detrended fluctuation analysis (MF-DFA) method is used to identify the multifractal structure of in the Chicago Board of Trade (CBOT) soybean futures and quantitatively describe the inefficiency and nonlinearity of the market. The data is the daily price of CBOT soybean futures from 3 January 2000 to 20 December 2019, with a total of 5025 trading days. The empirical results also show that the perspective based on MF-DFA can explain the market’s nonlinear, long-range correlation, predictability and other financial anomalies. At the same time, the prediction of price change direction and risk degree of the market are further studied. It is pointed out that multifractal characteristics are generated under the joint action of fat-tail distribution and long-range correlation. Investors can make use of these market characteristics to make arbitrage possible. Finally, based on the empirical results, some policy suggestions are put forward: strengthening rational investment education, strengthening supervision, reducing information asymmetry and other measures to improve market efficiency.

An Analysis of Cross-sectional Investment Portfolio with the Consideration of Risk and Return

Recently, investors are requiring diversified options on the security investment, while the sudden incidents, such as the trade war and the pandemic of COVID-19, make the investment market more volatile and turbulent. Thus, this article will discuss how investors can make rational investment decisions by using the Markowitz’s portfolio theory and its Mean-Variance Model in the U.S. investment market, in order to meet the requirement of diversification and to earn relatively stable profit. Therefore, the data spanning from 2016 to 2020 is used to provide investors with more reliable and comprehensive investment information. Meanwhile, a novel cross-section portfolio is given to fulfill the diversified and innovative investment needs of investors. The industries included are car industry, biopharmaceutical industry and financial service industry. Furthermore, the results reflect the actual situation to a large extent, including the weakness in the US market in December 2018 due to uncertain Fed policy and the impact of the COVID-19 in 2020. In this article, an Intra-Industry analysis based on the net asset values of the three targeted industries will be carried out first, then the Macro analysis will be conducted based on the optimal portfolio of the three industries. A conclusion of the findings is included at the end of the article.

Responsible Investing: A Study on Non-Economic Goals and Investors’ Characteristics

The notion of rational investment is not attuned with the idea of socially responsible investment. Incongruence with conventional investments, the SRI/sustainable investment/ethical investment is pertained to ethical, environmental and social criteria (Eccles and Viviers,2011). All investors are not single-minded for an objective of wealth creation. The welfare of society and the environment are among the other drivers of investment. In certain cases, investors do prefer sustainable development to personal financial aspects (Beal et al., 2005). The present study has primarily focused on assessing the relationship between individual investors’ attributes and their noneconomic goal in order to comprehend their socially responsible investment behaviour specifically in Indian scenario. The findings of study are useful for fund managers, regulators and researchers as study has provided useful insights regarding behaviour of Indian investors for responsible investments.

Financial Literacy Overconfidence and Consumer Financial Satisfaction: Evidence from the 2018 US National Financial Capability Study

An increasingly prevalent topic on the associations between financial literacy and consumer financial satisfaction has been highlighted in recent years. Utilizing the data from the 2018 US National Financial Capability Study, this study conducts ordered probit regressions to examine the effects of financial literacy on consumer financial satisfaction. To verify the robustness, this study performs a comprehensive check through replacing estimation methods, removing outliers by income, and performing regressions by various consumer cohorts. The results indicate that objective financial literacy has a significantly negative effect on consumer financial satisfaction, while subjective financial literacy has played a crucial role in improving consumer financial satisfaction. Thus, consumers are overconfident in their financial literacy. The results imply that policymakers should formulate policies to cultivate rational investment concepts and raise consumers’ risk awareness, as well as financial institutions should provide services of financial capability assessment to correct consumers’ self-perception bias.