Factors Influencing Individual Investor Behavior

Top level executives are the individuals that should be involved in making capital investment decisions. These executives would include the CEO, CFO, COO, as well as other top level managers. Most company's will usually have a group of executives to make these types of decisions. This is because these individuals will have backgrounds and associations with other companies unlike the others in the group. This will aide the management team in bringing a separate knowledge base to make the best possible decision (Ang & Trotman, 2015). Capital investment decisions are not for the faint of heart. These decisions tend to more critical than that of the day-to-day decisions made by the mid level managers. Capital investment decisions will effect

The internal and external factors of an organization can affect the stock prices, which leads to perceived valuation of the company. The valuation of an organization’s worth compared to its financial statements is useful to introduce company changes if necessary. There are various factors that can lead to the valuation of a company influenced by the external and internal factors. Proceedings are some internal and external factors that may influence the investor’s decisions to invest in any organization.

Groupthink is something that influences most things that people do on a daily basis. People use groupthink every single day to make decisions, to confirm their decisions, or even to compare to the decisions that they have already come to. Although groupthink has its distinct advantages in certain situations, there are without a doubt situations in which groupthink can be seen as a hindrance. How companies, and even individuals, invest their money is something that is undoubtedly being affected by groupthink every single day. Groupthink can give investors an extreme disadvantage and it can be shown by things throughout history. So, this paper is going to dive into the effects that groupthink has on investors and therefore the effects that it can even have on the economy.

Another way that young people may be influenced or educated about risk taking behaviours is through television programmes. Al-Sayed and Gunter (2012) found that television programmes over a 4 week period presented many opportunities for teenagers to learn lessons about sexual experiences through what is shown on television. Also, it has been found that male characters on television programmes are often proud of their sexual activity, with no conversation or regard for the risk of their behaviour or the consequences (Batchelor, Kitzinger and Burtney, 2004). This is important as Batchelor, Kitzinger and Burtney suggest that males are portrayed as more responsible for their sexual behaviour than women, who are not expected to be proud of their sexual behaviour. This may be influential at a time when young people are starting to become sexually active. It has been found that television is a key source for young people aged 14-18 to obtain their information about alcohol (Atkinson et al, 2011).

Fiduciary duty means to legally bind to one person and act on their best interest.

Three years ago my mother showed me the basics of the stock market. This intrigued me to run my own stock trading account, but I needed to be more knowledgeable of the market before I started using my own money. When I opened my account, the only advice I received was, “Read the Wall Street Journal everyday.” I produced small returns for a year but was excited I was making money. Junior year I decided to take AP Macroeconomics and AP Microeconomics. These classes both taught me how the market works using various graphs and formulas for maximizing profits. I used this valuable knowledge from my class and a lot of research on an assortment of companies to make sure I acquired the returns I sought. After taking the class I plugged more money into

The company embraces innovation to increase its financial performance and create new opprotunities for profitable growth. It produces a statemnet of financial positions which provides investors and analysts with information regarding the company’s resources and assets as well as the sources of its capital. It also shows the future earnings capacity and an indication of cash flows that may come from inventories and receivables. While catering to the needs of its customers, the company also strives to ensure the satisfaction of its investors. Maintaining attractive profits also serves as an attraction for more investors. Making its financial statemets public is one of the ways to attract potential investors. This is because the investors will be able to know if his/ her money will be well invested or whether it is worth taking the risk. The future projections of a business is one of the factors that potential investors consider before making an investment (Rowley, 2003). The investor also needs to consider his own financial situation and assess their risk tolerance levels. The mode of operation of the business should also be known in order to determine if the company observes organisational ethics in its operations. A company that is subject to public scandals related to its poor running, for example, harming the environment, is not a suitable target for investment.The company’s goals and ojectives should be in line with those of the potential investor to ensure full cooperation thereby achieving the set goals. The qualifications and skills of the people put in charge of the business should also be made public. The potential investor will therefore be able to know how qualified the workforce is. This will prevent the investor from placing his money in the hands of inexperienced and underqualified

The second major decision is deciding source of finance. Financial managers rely on two sources, owner’s fund and borrowed fund. A concern

It can fairly be said that an Investor considering an investment decision (whether to purchase, sell or hold stock) in publicly traded company acts on the basis of extensive information which is available by corporation to him until the last moment of his investing decision and try to determine the fair price of corporate stock. In the light of continuous creation of a particular impression of corporate affairs by the corporation, new information by corporate can vanish the importance of previous available information to investor. In the scenario only one kind of investors can get advantage over others, who is either very close to corporate operation (corporate officers) or can access nonpublic price-sensitive information to corporation

Table 1A provides an industry analysis of firms forming part of our subsamples. While the analysis reveals that a quarter of our sample is made of mining companies, this doesn’t mislead the interpretation of our results because the actual weights of all industries in our sample are consistent with what we observe in the index ASX 200. In general we observe that the key variables of the assembled data are skewed. According to Merhebi et al. (2006) the skewness of data variables is also found in distribution of data from USA, UK and Canada. Therefore logarithmic models are more appropriate to alleviate skewness in companies data variables or the effect of extreme values and to avoid any heteroscedasticity problem that might end contaminating our regressed models. To detect any multicollinearity problem in our independent variables, we need to establish correlation matrix table, thus avoiding the use of highly correlated independent variables in the same model. We have used a correlation matrix to verify the existence or non-existence of linear relationship among independent variables or between explanatory variables and independent variables. CEO remuneration and firm size do exhibit a somewhat moderate link. However there is little evidence of multicollinearity among the explanatory variables since the correlation among them is not strong hence all the variables can be incorporated into the subsequent regression analysis as stated in different hypothesis.

Werner F. M. De Bondt and Richard Thaler conducted a study to investigate the stock market. This study examined the impact the overreaction of market behaviour and the psychology of individual decision making has on stock prices. The main goal of this study was “to test whether the overreaction hypothesis is predictive” (pg. 795). They tested two hypotheses (pg. 795):

This essay will explain what rationality of investors and home bias are and then discuss to what extent the ‘home bias’ phenomenon challenges the view that investors are rational.

How well do individual investors perform? Is the average performance consistent with your personal experience or expectation?

So the investor will invest 32.58860806% of the investment budget in the risky asset and 67.41139194% in the risk-free asset.

According to Kay (2013), there are three reasons why investors fail. Firstly, they fail because they are too easily convinced by what they hear or read. Secondly, they are strongly attached to their beliefs. Lastly, investors fail to make a good decision due to the lack of knowledge and experience. Ideally, investors should use their judgment and contemplate all relevant information in an impartial manner without being influenced by any desire outcome. Still, it is easier to say than done because prior researches in psychology indicate that preferences can definitely sway the way people process information and make judgement in order for it to be consistent with what they believe (Ditto and Lopez, 1992; Ditto et al., 1998; Kunda, 1990). Investors tend to have some initial beliefs or preferences on their mind before making judgments thereby creating a strong motivation to reach a particular conclusion. If investors have set their minds into something, those preferences may affect their logical thinking. Investors will keep a hold of their preferences, which may lead them to make judgment that are not in their own best interest, even though reliable evidences suggest otherwise. This is called motivated reasoning which refers to an active process of construction in which individuals unconsciously tend to fit their organising and processing of information to conclusions that they desire to see which suits their goals (Balcetis et al., 2014). Since we realised that