Qualitative research on the factors behind individuals' invstment decision-making in UK投资行为研究

Qualitative research on the factors behind individuals’ investment decision-making in UK1.IntroductionIt is not unusual to see that an increasing number of people have became the owner of investment products currently under the influence of booming financial industry. However, the changeable financial world can not only bring about a possible income but also a potential loss, what we called the “risk”, especially after the breakout of financial crisis in 2008, the capital holders, both organizations and individuals, have a tendency to be more prudential and rigorous in making their investment decisions, i.e. how, when, where and how much they put their money into different financial options (e.g. stocks, futures, securities, options, real asset etc.).1.1 Problem statementWhat this paper actually cares about is the process of individuals’ i nvestment decision-making, hence, the nature of this study is based on the research of questions below:(1)what factors have the prominent impact on people’s financi al performance?(2)What criteria people rely on in terms of choosing a certain financial asset?In order to find out a variety of determinants behind individuals’ investment behavior and therefore, make the financial market more effective and efficient (the relationship between investment behavior and financial market performance will be discussed below), this study has applied a mixed up method, including semi-structured and open-ended interviews, surveys and text-based study to conduct a investigation.1.2 Significance of this study“All the investors are rational” and “EMH” are two of the famous assumptions in economic market. Under these assumptions, scholars can analysis all the financial situations mathematically and predict the future market tendency in certain models ( e.g. CAMP, APT, SML). However, admittedly, not all the investors, both individually and in group, are rational, which means the predictability of their market behaviors cannot be relied on quantitative models completely. According to H. kent Baker and John Nofsinger, long-term biased irrational investors’ behavior will lead to disposition effect and market inefficiency and therefore, widen the wedge betweenmarket prices and fundamental values(H. Kent Baker 2010). While lasting systematic mispricing will bring about massive resource( e.g. capital, HR, time) misallocation(Daniel et al., 2002), which has a detrimental influence on capital market, so an increasing number of economists have put their focus on discovering the factors behind financial behavior, especially after John D. Watson produced the conception of “behaviorism” in 1913. It is no exaggeration to say that research on the leading factors of people’s financial behavior is the key point to realize market-efficiency and utility-maximization as much as possible.1.3 Essay structureThis essay is structured as follows. The first part introduces relevant studies on how people conduct their decision-making in financial issues and some scholars’ research method. Secondly, a comparison will be made between different qualitative method and present reasons why this paper choose interview and archival. The third part focuses on the specific research conduction. Finally, a conclusion and limitation of this study are included.2. Literature reviewStudies on individuals’ investment decision-making are not rare, but the majority of them focus on a narrow field in terms of influencing factors. Elisa Gambetti and Fiorella Giusberti aims to investigate the extent to which people make their financial decision only on the basis of trait anger and anxiety (Gambetti and Giusberti, 2012), which shows that anger is positively associated with the willingness to invest money in stocks while anxiety has the opposite effect. Hui-Chu Shu then expanded the study into the l inkage between investors’ mood, including anxiety, anger, happy, sad etc. and investing choice(Shu, 2010). Kent Daniel and his partners have conducted their study on how psychological biases affect investor behavior and prices without the consideration of external causes(Daniel et al., 2002). Jeffrey Wurgler also has done the similar research on psychological factors in terms of capital market choice(Wurgler, 2002). But as we all know, the cause of individuals’ financial choice covers a wide range of variables (e.g. personal physical characters, private special life experience, living and working environment…), so a partial analysis of leading factors is inevitably induce various negative biases.Apart from the limitation of determinants, the resting discoveries focus theirattention on one certain kind of investment, which have decreased their own applicability greatly. The study of Torsti Rantapuska’s and Outi Ihanainen’s identifies how the managers in SMEs use knowledge to make ICT investment decision(Rantapuska and Ihanainen, 2008). Xuejun ZHANG has conducted the research on rural householders’ decision-making on high education investment(Xuejun, 2010).Additionally, all the researchers’ studying methods vary from person to person. Some of them use quantitative methodologies (Gambetti and Giusberti, 2012, Barnea et al., 2010, Grinblatt and Keloharju, 2000, Dorn and Huberman, 2005), while some use qualitative methods(Rantapuska and Ihanainen, 2008, ANNA KOROMBEI, 2011, Kengatharan and Kengatharan, 2014, Bowyer and Davis, 2012). Naturally, there are also a part of them apply a mix up of both of them((Stieve and Schoen, 2006, Malina et al., 2011).As for the research outcome, the result of Kengatharan ’s investigation shows that four factors( herding, heuristic, propect and market) affecting investors’ financial performance (Kengatharan and Kengatharan, 2014)3. Comparison between different qualitative methodsMcKinley has ever pointed out that qualitative methodology is the most suitable and applicable one when the nature of research objects is associated with socio-political-economic relationship(McKinley, 1995). Indeed, sometimes simple characteristics based analysis is more effective and unbiased compared to complicated econometric models and quantitative software packages on condition that the research process is designed properly. Moreover, Thorpe identified that statistical generalization does not offer guidelines for case study research (Thorpe Richard, 2008). Hence, in order to choose the optimal research method for this paper’s topic, a comparison between four different qualitative methods is being made below to show their respective advantages, disadvantages as well as suitableness.T able 1: Comparison between four qualitative methods4567Obviously, in this paper, ethnography is not desirable for its infeasibility. On the one hand, our topic focus on the individuals who are defined as “investors”, which refers to almost all the capital holders, not a certain group of people. It is unrealistic to be a member of them due to the research objects’ university . On the other hand, capital issue is relative private and should not be disclosed to “invaders”, so the access is not easy to get. Therefore, what this study use is the combination of interview, survey and text based methodology.4. Methodology4.1 The text-based studyThrough the study of H. Kent Baker (2010) book Behavioral Finance : investors, corporations, and markets and som e other scholars’ study( listed below) there are four main factors behind individuals’ invest behavior: heuristics, biases, framing effect, emotion.Heuristics: it often refers to the rule of thumb, are means of reducing the research necessary to find a solution to a problem. It could be divided into four branches: representativeness, availability, anchoring and effect. Generally, it describes the decision-making process that people actually undertake, incorporating emotional factors as well as cognitive process(Ritter, 2003, Kahneman, 1974, Waweru, 2008). Bias:Lewis (1999)notes that reducing familiarity bias could lead to greater financial market integration. Pungulescu (2008)also finds that countries with lower rates of bias have higher rates of economic growth. So bias is a crucial item concerning behavioral finance, which can be divided into 5 categories: familiarity bias, limited attention, inertia, self-deception and affect.Framing effect: it is rooted in Prospect Theory, which is developed by Kahneman (1979)andTversky (1981), providing better descriptions of choice behavior than conventional models. It refers to the fact that people’s sensitivity to “loss” is higher than to “gain”.Emotion: many scholars’ researches in psychology document h ow emotions and moods affect behavior ( e.g.Schwarz (1996), Keynes (1936)).In my text-based study, it is generalized that weather, season and mood are the main determinants of individuals’ emotion.4.2 Data collectingThe collected data is supposed to include three parts: basic personal information, assumed scenarios selection and the factors influencing financial choice . The first two part will be finished in the interview and the third one will be conducted in the survey section。