Overall, the research model has satisfactorily explained the ultimate dependent variable, ‘INT_INV’ with 20% variance being explained. For hypothesized perceptual antecedents of attitude towards brand, only the perceived returns construct has a significant path effect on the attitudinal variable, whereas the relationship between perceived risk and attitude towards brand was found to be positive. Although the relationship between risk and attitude is not in line with the stated hypothesis, its t-statistic is just above the significance level and that the path effect may include the indirect effect from ‘trust’ on ‘attitude’ via the ‘risk’ variable. In addition, the brand familiarity construct is positively significant in affecting the attitude towards brand. ‘Trust’, on the other hand failed to predict the investors’ attitude towards a brand.
The findings of this study affirm that investors are users having specific informational needs including the need to adequately evaluate companies’ risks and returns. Such evaluation may precede their overall perception of companies’ performance and respective attitude towards the company tend to be formed before they can decide to invest in the company’s share. Although the 20% variance explained of the dependent variable seems moderate, this finding still support the claim in extant literature that investor behaviours may be emotionally biased (Aspara and Tikkanen, 2008). In conclusion, the present study has shown that in courting individual investors, companies may engage in marketing strategies that may enhance their image as viewed by investors, but at the same time need to remember that these investors still do their homework on evaluating the ‘worth’ of companies with regard to their financial implications and not entirely emotionally driven.
In utilizing a PLS path modeling technique, the similar two-step procedure normally conducted in structural equation modelling (SEM) was followed (Anderson and Gerbing, 1988). Through this technique, results of both confirmatory factor analysis of the model and path effect were obtained. In completing this procedure, a model validation analysis was also performed.
Results of the measurement model using a PLS algorithm (300 maximum iteration, standardized values and centroid weighting scheme) suggest that all constructs that were made up of reflective indicators are reliable with loadings all above the desired level of 0.70 (see Table 2). In SEM, a research model is said to be valid when both convergent and dicriminant validity have been achieved. Table 3 and Table 4 provide the results of these validity tests. The research model demonstrates a strong convergent validity as the latent constructs with reflective items have high composite reliability (CR) and communality. Similarly, as can be seen in Table 4, the square roots of all average variance extracted (AVE) were greater than inter-construct correlations except for the constructs of FAM and AT_BR. As the difference between the square root of AVE for FAM is less than the correlation between the two constructs merely by 0.003, the present study contends that the research model has achieved desirable discriminant validity. Using a bootstrapping technique (500 re-samples), a test on the structural model was conducted to assess the effect of each causal path, thus testing the stipulated hypotheses. As can be seen in Figure 4, except for the TRS^AT_BR path, all other causal paths are significant at 5% level of significance. Therefore, majority of the hypotheses were supported suggesting that attitude plays a mediating role for investors to decide in investing in shares of a particular company. As can be seen in Figure 4, majority of the stipulated hypotheses were supported, except for the relationship between TRS and AT_BR, while that of RISK and AT_BR turned out to be positive relationship, albeit just significant at 5% confidence level. In summary, only H2a and H3a were not supported.
The questionnaire used in this study can be found in Table 1. Attempts to use existing measurement related to each construct were taken, however measures of some constructs especially those of the brand antecedents were specifically developed for the study. A cautious approach was taken in the measurement of these brand evaluative responses, so that specific constructs explaining such responses that are relevant to the context of share investments, rather than product purchase decisions, can be identified. Although specifically developed, the measures of RISK, RTN and TRS have been mapped to the measures used in behavioural finance literature including Bryne, Delgado-Ballester and Munuera-Aleman, Ganzach, Ellis, Pazy and Ricci-siag and Nilsson. Similarly, the measures of FAM construct were developed based on ideas proposed by Aspara and Tikkanen. 7-point Likert scale items were used to measure these exogenous constructs. On the other hand, measures of endogenous variables (INT_INV and AT_BR) were based on existing measures used in earlier studies in related fields (Karson and Fisher, 2005; MacKenzie, Lutz and Belch, 1986). To be consistent with the measures of exogenous variables, both 7-point Likert scale items and 7-bipolar points semantic differential items were used to represent the endogenous variables. Note however that the questions directed at the construct of INT_INV were adapted from the questions commonly used in product-purchase situation to suit the investing context of the present study. All of the measures for exogenous and endogenous variables have been adequately piloted and found to be reliable and unambiguous.
Although a brand has been normally associated with a name and/or symbol-like logo, the trademark and package design that differentiate it from its competitor, its name is believed to be the primary brand factor. In this study, it is contended that a company name is important for investors’ evaluations of its brand benefits and hence conceptualized as an antecedent of consumers’ attitudes towards a brand. In the context of investment, investors have been found to incline towards investing in the companies that they are familiar with. For instance, when given an option to invest in one of many commercial banks, investors would tend to favour the bank with whom they have accounts.
Familiarity towards a company can also influence consumers’ perceived risk of the company because they use company-specific facts to arrive at their expectation as to risk and returns. Therefore, knowing the name of an investment becomes crucial, as it indicates the type, market and other specific characteristics of that particular share. For example, participants in the study of Kilka and Weber underestimated the riskiness of domestic shares relative to those of foreign shares.
Risks are normally measured by earnings volatility (e.g. standard deviations and Betas), whereas returns can be measured by historical earnings (e.g. dividends and capital appreciation). If, on average, investors can reasonably measure a company’s risks and returns, and subsequently make their investment decisions, they are called rational investors. Accordingly, a rational, risk-averse investor requires an increase in the expected future returns from any more risky investment in order to compensate for any potential volatility. Nevertheless, the present study adopts the subjective measures of risks and returns rather than their traditional objective measures (e.g. betas and capital appreciation). In making investment decisions, these subjective measures of risks and returns are commonly used by novice investors who own relatively small investment portfolios as compared to professional investors. Furthermore, the behavioural finance literature suggests that the relationship between perceived risks and perceived returns is inverse rather than positive.
According to the Thoery of Planned Behaviour (TPB, see Figure 1), people act in accordance with their intentions and perceptions of control over a particular behaviour, while intentions in turn are influenced by attitudes towards the behaviour, subjective norm and perceptions of behavioural controls. In mapping the TPB to the context of the current study, individual investors’ attitudes towards share trading may be strong as they are making decisions to achieve a desired level of financial stability, whereas family and peers’ recommendations and behaviours in share trading may form the ‘subjective norm’ variable. In addition, the ‘perceived behavioural control’ conceptualized as an antecedent to ‘intention’ within the TPB is defined as an individual’s perception of the easiness of performing a particular behaviour. Continue reading
Behavioural finance encompasses research that is not based on the traditional assumptions of expected utility maximization by rational investors in efficient markets. Instead, it relies on two strong arguments: that the ways people think tend to differ from one another (cognitive psychology); and that there are limits to arbitrage (i.e. when markets are inefficient). Empirical support has been found for these two aspects making up behavioural finance in explaining investor behaviour. Due to cognitive psychology which endeavours to explain investor behaviours, some patterns of cognitive bias have been identified in related research. These include the biases of overconfidence, heuristics, mental accounting, disposition effect and conservatism which have been associated with gender, age, entrepreneurship, culture, excessive extrapolation, loyalty and familiarity.
The psychology literature is rich in references documenting that most people are overconfident most of the time – that is, they believe they are more skilful or knowledgeable than they really are. For example, many people think highly of their ability to make wise choices in investment. These people believe that they can time the market and pick the next hot shares that will yield the highest returns, though in most instances, most shares tend to do well when the market is rising. On the other hand, when their shares drop in price, they will generally blame it on circumstances over which they had no control, such as the general condition of the market and the economy. Such self-perceived competence has been found to play a role in investors’ willingness to act on their own judgement. For instance, Graham et al., have documented that perceived competence leads to overconfident investors who tend to trade too often.
Individual investors are increasingly being regarded as vital to companies in the management of share values. Relative to institutional and professional investors, these investors can easily and quickly participate in, or withdraw from, the market depending on their confidence in the prevailing market conditions. For example, total household ownership in the Australian share market has shown a declining trend, from a high of 55% in 2004, to 46% in 2006, and a low of 41% in 2008. Such losses of investors in a short period of time – corresponding to a bear market – can cost companies’ shares dearly. Similarly, failing to attract them when the economy recovers can restrict a company’s shares from reaching their highest possible value.
Research on behaviours of individual investors has shown that their trading decisions are often psychologically biased. Despite having evaluated the financial position of a company, many individual investors are still subject to certain emotional elements such as attitudes and brand familiarity. This study thus concerns itself with how companies can appreciate from having strong brand equity in their efforts to encourage individual investors’ trading in their shares. Therefore, this study is interested in examining the relationships between individual investors’ perceived financial performance of companies and their trading decisions, and the mediating effect of companies’ images on the relationships.