INTRODUCTION:

Impact of Behavioural Factors on Investment Intention:

Behavioural finance deals with psychological influence on investors and the effects on the markets (Sewell, 2005; Shefrin, 2000). Researchers have analysedinvestor’s behaviour and have provided insights on why investors use different ways to manage their investments.

Many behavioural finance studies in the recent years have shown that investors do not behave rationally and tend to be carried away by certain behavioural factors that influence their investment intentions towards investments (Nagy and Obenberger, 1994; Odean, 1999; Barber and Odean, 2001; Arieley, 2008).These factors usually influence decisions related to certain risky assets.

A number of studies have been dont to identify the major behavioural factors that influence investment decision making. Studies have revealed that the heuristic behavioural variables and prospect variables have a major impact in decision making. Very few studies have considered Market factors as well as herding factors as behavioural factors and their influence on decision making. Moreover studies including all these behavioural factors and identifying their impact on the investment intention of investors are very rare. Hence this study has been carried forward to satisfy this gap, showing the impact of the behavioural factors on the investment intentions of investors. Moreover the study also highlights the impact of behavioural factors on short term and long term intentions.

Behavioural Factors:

Waweru et al., 2008 listed the behavioural variables that affect investment decisions derived from major behavioural theories.

Table 1 Behavioural factors influencing investors’ decision making

Factors	Behavioural Variables
Heuristic factors	- Representativeness - Overconfidence - Anchoring - Gamblers fallacy - Availability
Prospect factors	- Loss aversion - Regret aversion - Mental accounting
Market factors	- Price changes - Market information - Past trends of stocks - Fundamentals of underlying stocks - Customer preference - Over-reaction to price changes
Herding factors	- Buying and selling decisions of other investors. - Choice of stock to trade of other investors - Volume of stock to trade of other investors - Speed of herding

Source: Waweru et al., 2008

Heuristics:

The rule of thumb that help to make decisions easily especially in uncertain environments is called as heuristics. Kahneman and Tversky (1974) specify that the factors belonging to heuristics are representativeness, availability and anchoring. In addition to these heuristics, Waweru et al, 2008 included the factors Overconfidence and Gamblers fallacy. Representativeness deals with evaluations made by individuals mostly depending on the similarity of a case with another case (Goldstein 2013). Anchoring is shown when investors make estimations based on recent observations (Kahneman and Tversky, 1974).Investors tend to treat information as the bases for their decisions. Availability is a judgemental heuristics that depends on decisions over easily available information. Excessive information leads to ignore fundamentals and results in investors investing in local companies than foreign investments leading to diversified portfolio management (Waweru et al., 2003). When investors value their skills and knowledge excessively than evidences that are available publicly, is called as overconfidence (Kent Daniel, David Hirshleifer and Avanidhar Subramanian, 1998). Overconfidence leads to overtrading, helps to achieve faster promotion and greater investment duration (Oberlechner and Osler, 2004).

Prospect Factors:

The prospect factors derived from the prospect theory are factors that influence subjective decision making under risk (Kahneman and Travesky, 1979).People tend to evaluate the probable results of investments with previous and similar situations depending on the losses or gains of the investments (Kahneman and Travesky, 1979). The prospect factors are Regret Aversion, Loss Aversion and Mental accounting. Regret aversion is the expression that comes after making mistakes while decision making, especially by refusing to sell shares that are decreasing in value and sell shares with values that are increasing (Sudhir Singh (2012). The loss that is seen after prior gain is said to be less painful than usual while a loss arrived at after a loss seems to be more painful. This is because investors exhibit Loss Aversion (Barberis and Huang, 2001).This shows that investors are affected by unexpected losses than expected gains, proving that investors are loss averse (Barberis and Thaler, 2003). The value function for losses is worser than that of gains (Plous, 1993; Ranjit Singh, 2009).Mental Accounting refers to the process of evaluating the financial transactions while making investments, thus helping investors in organising their portfolio into separate accounts (Barberisand Huang, 2001).

Market Factors:

Market factors include Price changes, market information, past trends of stocks, customer preference, over-reaction to price changes, and fundamentals of underlying stocks (Waweru et al., 2008). These factors tend to make investors focus on popular stocks and other events that attract attention through stock market information even without knowing the outcome and performance of the investments (Barber and Odean, 2000). Market factors are external factors that influence investor’s behaviour and hence can be considered as behavioural factors that influence investment decisions (LuuThiBich Ngoc).

Herding Effect:

The decisions made by one investor that are influenced by the decisions of other investors is referred to as herding effect (Hott, 2009). This behaviour makes investors depend on the other for every decision like buy and sell decision of the investor. When investors invest large amounts of capital into their investments, they tend to follow others reactions and decisions in order to avoid risk. Individual investors often tend to follow others decisions while investing (Goodfellow, Bohl and Gebka, 2009). The effect of herding is felt on choice of stocks of investors, buying and selling decisions as well as the volume of purchase (Waweru et al., 2008).

Investment intentions:

Intentions are “assumed to capture motivational factors that influence a behaviour” (Ajzen, 1991). The intention to invest in any short term or long term asset is termed as investment intention. Investors tend to think of both risk and returns before taking such investment decisions. The intention of an investor to invest in short term investments is termed as short term investment intention and the intention to invest in long term investments is termed as long term investment intention.

Short term investment differs from long term investment on the basis of the liquidity of the investment, term of the investment, returns from the investment and risk attached to the investment. Hence considering this the investment intentions of investors differ. When investors want to have their investments locked up for a period of time and have better expected returns, they tend to choose long term investments, this intention is termed as long term investment intention. While investors who need easy disposal of assets or easily marketable assets and are willing to take a little risk as returns are unexpected, they tend to invest in short term investments, having short term investment intentions. Some of the Long term assets include stocks, bonds, real estate and cash, held for more than a year. Short term assets include shares, debentures, and cash that are usually held for a shorter time period, usually three months, but lesser than a year.

This theory of Planned Behaviour proposes that an individual’s attitude towards a behavior, subjective norms and perceived control can influence intentions (Ajzen, 1991). An attitude toward a behavior is considered as one’s assessment of the given behavior based on his/her beliefs; a subjective norm relates to one’s perception; perceived control concern the perceived difficulty to carry out the behavior (Ajzen, 1991). This theory provides a model which can predict one’s behavior via intentions defined as individual perception towards likelihood to conduct behavior (Ajzen and Fishbein, 1980). According to the theory of planned behaviour, the more favorable the attitude, the subjective norm, and the greater the perceived control, the greater the behavioural intentions will be.

Investment Intention and Behavioural Factors:

Financial behaviour of the individual is termed as investment intentions as short term and long term investment intentions that is intended to reflect behavioural intentions ranging from tangible discrete actions to less tangible and more global intended behaviours (Mayfield, Perdue and Wooten, 2008). Behavioral factors such as representativeness, over confidence, anchoring, gambler’s fallacy, availability, herding, over-under reaction, mental accounting, self-control and regret aversion affect investment intentions (Phung Thai Minh Trang and Nguyen HuuTho, 2017). Herd behavior, over confidence, risk aversion, cognitive dissonance, representativeness heuristic and reflection effect vary in investors who make short-term and long-term investment (Lakshmi et al., 2013).

Thebehavior such as overconfidence excessive optimism, herd behavior, and psychology of risk positively affected behavior intention to decision-making of individual investors (Cuong and Jian, 2014; Gervais et al. 2002 and Johnsson et al., 2002). Young investors have a tendency of anchoring when it concerns their long-term stock return expectations (Kaustia, Alho, Puttonen, 2008).

OBJECTIVE OF THE STUDY:

The major objective of the study is to identify the impact of behavioural factors on investment intention of individual investors.

METHODOLOGY:

Survey method was adopted to collect data with the help of a Questionnaire on five-point Likert scale. The questionnaire is constructed from the items adopted from Mayfield, Perdue and Wooten, 2008 and behavioural factors from Waweru et. al, 2008; Le Phuoc Luong et. al., 2011. Snowball sampling method was used for collecting responses. Questionnaires were distributed to 270equity investors in Coimbatore city through stock broking concerns from which 200 usable responses were taken into consideration for this study. The reliability of the instrument was tested using chronbach’s alpha. The study used descriptive statistics and regression for analysing the data. The same was interpreted and the results are discussed.

Reliability:

The reliability scores for the survey instrument was testedusing chronbach’s alpha as follows:

Table 2: Reliability Test

Variables

Reliability Scores

Behavioural Factors

Heuristics Factors

Prospect Factors

Market Factors

Herding Factors

.767

.769

.724

.701

Investment Intentions :

Short Term Investment Intentions

Long Term Investment Intentions

.783

.704

The reliability of the instrument were confirmed, as the reliability scores for behavioural factors were >.70. The scores for short term intention was 0.783 and long term investment intention was 0.704which was also >.70.Hence proving that the constructs are reliable and could produce consistent results (Hair et al., 2010).

Hypothesis developed for the study:

On the basis of the objectives the following hypothesis were developed for the study.

H1: There is an impact of behavioural factors on short term investment intention.

H2: There is an impact of behavioural factors on long term investment intention.

ANALYSIS AND DISCUSSION:

Equity investor constructs an impression for better and more efficient investment planning. Investment intentions are the outcome of their behaviour which could be affected by the behavioural factors.Descriptive statistics namely Mean and Standard Deviation (SD) were used to analyse the data. Regression analysis was performed to find the impact of behavioural factors on Short term as well as Long term Investment Intentions.

Descriptive Statistics:

The Mean and Standard Deviation for the behavioural factors and investment intentions of equity investors are as below:

Table 3: Mean and Standard Deviation

Variables	Mean	Standard Deviation
Heuristics Factors	3.79	.553
Prospect Factors	3.71	.526
Market Factors	3.78	.541
Herding Factors	3.58	.628
Short Term Intention	3.65	.665
Long Term Intention	3.83	.538

It is inferred from the above table that the sample respondents believe that investors make better judgements based on similar situations they have already faced and depend on information and their own skills and knowledge while take investment decisions. Heuristics factor has a mean of 3.79. It is evident from the mean value of prospect factors (3.71), thatInvestors are loss averse and do regret on their actions of investment decisions. Investors are affected by external factors like market factors to a larger extent showing a mean value of 3.78. Following the actions of other investors is yet another factor that influences investors, but has been comparatively lesser that the other factors (3.58). Intentions of investors towards long term and short term investments show a mean value of 3.79 and 3.59 respectively.

Impact of Behavioural Factors on Short term Investment Intention:

H1: There is an impact of behavioural factors on short term investment intention.

Table 4: Regression for Impact of Behavioural factors onShort term Investment Intention

	Short Term Investment Intention
	Beta	Sig
Constant	.422
Heuristics	.016	.852
Prospect	.380	.000
Market	.098	.216
Herding	.241	.001
R²	.606
Adjusted R²	.367
F value	28.319
Significance	.000**

*- highly significant at the 0.01 level **-significant at the 0.05 level

Table 4 shows the multiple regression values for Behavioural factors on Short term investment intention.The results show that, R square is .606 and is significant at 0.000. The regression findings indicate that 60% of short term investment intention are explained by the various behavioural factors together. The findings indicate that Prospect factors (beta 0.380, significant at 0.000) and Herding factors (beta is 0.241, significant at 0.001) are the strongest predictors of variations in short term investment intention. The other factors namely, heuristics and market factors do not have a significant effect on short term investment intentions. Thus the Hypothesis H1 is Accepted.

Impact of Behavioural Factors on Long term Investment Intention:

H2: There is an impact of behavioural factors on long term investment intention.

Table 5: Regression for Impact of Behavioural factorson Long Term Investment Intention

	Long Term Investment Intention
	Beta	Sig
Constant	1.346
Heuristics	.133	.133
Prospect	.263	.001
Market	.225	.007
Herding	.049	.490
R²	.559
Adjusted R²	.312
F value	22.123
Significance	.000**

*- highly significant at the 0.01 level **-significant at the 0.05 level

The multiple regression model for Behavioural factors on Long term investment intention shows a R square value of .559, which is significant at 0.000. The regression findings indicate that there is a significant and positive effect of the behavioural factors and long term investment intention. Table 5 shows that 55.9 percent of the variation in long term intention is explained by the independent variables together. The findings indicate that prospectfactors (beta 0.263, significant at 0.001) and market factors (beta 0.225, significant at 0.007) have a great impact on long term investment intention. Thus the Hypothesis H2 is accepted.

Managerial Implications:

Understanding the behavioural factors that would affect the investment decisions of investors will lead to better investment outcome (Shiller, 2000; Baker et al., 2002). Investors should carefully consider and select investments, but should not be too worried about prior losses for future investments (LuuThiBich Ngoc, 2004). Regretting and holding shares for a longer period of time also affect the investment outcomes (Le Phuoc Luong and Doan Thi Thu Ha, 2011). Herding, could to an extent reduce risk towards investments which can be considered for a better portfolio selection of investors (Le Phuoc Luong and Doan Thi Thu Ha, 2011). Market factors should also be considered as a behavioural factor as the changes in prices makes an investor to under react or over react to investments (Waweru et al., 2008), thus creating an urge to choose better investment options. Though these factors are called as biases in many cases, they have been found to be important factors influencing investors intentions.

This study could help financial advisors to design portfolios according to the investment intention of the investors especially considering these behavioural factors that influence their intentions and decisions. This could also help stock brokers to check on their current strategies and frame appropriate strategies with the view of such intentions of investors, thus enabling better services. Investors could also understand which factors influence their decisions as well as provide a better understanding on their intentions towards investments.

Behavioural finance also states that demographic and other psychological factors also affect investment decisions, which can be considered for future research work.

CONCLUSION:

The intention of the investors to invest in various instruments is known as investment intention. It is clear from the study that behavioural factors have an impact on the investment intentions of investors. This research was carried out to identify the impact of the behavioural factors (Heuristics factors, Prospect Factors, Market Factors and Herding Factors) on investment intention, both short term investment intention and long term investment intention. It was identified that prospect factors and herding factors had a greater impact on short term investment intention and prospect factors and market factors had a greater impact on long term investment intention. Heuristic factors did not have a significant impact on both long term and short term investment intention.

While considering the behavioural factors impact on investment intention, it is evident that behavioural factorsdo influence investor’s short term as well as long term intentions. Thus proving that equity investors intentions, whether short term or long term are highly influenced by these behavioural factors.

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Received on 22.08.2017 Modified on 20.10.2017

Asian Journal of Management. 2018; 9(1):183-188.

DOI: 10.5958/2321-5763.2018.00028.8