Factors Affecting Individual Investors Decision Making In Turkey

Purpose of the study

The selected topic for this research is factors affecting individual investors decision making in Turkey. In the current dynamic environment, there exist a multidimensional alternative regarding investment. This has made decision making a difficult activity for many investors. It is not possible to make investment decision on a void depending on complex model and personal resources therefore investor must be very intelligent and up to date so as to attain the desired goal. The choice to carry out an investment can rely upon many information necessary for an individual to make a right decision. This information can be based upon several factors ranging from the ones with slight importance, those with moderate to great importance.

The main and purpose of this research is toward determination of the factors affecting individual investors decision making in Turkey. The study looks forward to critically reviewed to find out more facts about the topic. Additionally, data collection and analysis using appropriate method will be conducted to evaluate the study. A detailed research methodology with relevant research design and evaluated results will also be provided.

The major objectives of the study are;

To determine the factors affecting individual’s investors decision making in turkey
To investigate the impact of these factors on individual’s investors decision making
To investigate the relationship between behavioral factors and decision making on investment

This research will be facilitated by recognizing the use of financial tool for making decision concerning investment. The research will be helpful in understating and explaining the influence of behavioral and responsive factors to investors decision making. The study will be significantly use to help investors overcome the difficulty in investment decision according to behavioral factors therefore aiding to better market stability. The research results can also be used by regulatory sectors to make policies concerning market stock.

What are the factors affecting individual’s investors decision making in turkey?
What impact does these factors bring to individual’s investors decision making?
What is the association between behavioral factors and decision making on investment?

Financial markets are facing price fluctuation and becoming are becoming volatile each and every day. Price fluctuation cannot be solved by applying traditional financial tools. The major problem is that investors does not take into account the influence of behavioral factors in decision making on their investment. Therefor there is need to consider these factors and the impact it has on investment so as to eradicate errors in investment decision.

The below figure shows the theoretical framework for the independent and the dependent variable for the study. Investment decision making is the dependent variable while risk aversion, financial factors, heuristics, corporate governance and personal factors are the dependent variables.

The model was formerly developed by (Qureshi, Rehman, & Hunjra 2012). From the above framework, the following hypothesis was established:

H₁– Heuristic has a positive and significant effect on investment decision making

H_2-there exist a negative and significant impact of risk aversion on decision making concerning investment.

H_3- financial tool has a positive and significant effect on investment decision making

H_4-there exist a positive and significant effects of corporate governance on decision making concerning investment.

H_5-personal factors have a negative and significant impact on investment decision making

Existing empirical literature review on quantitative and qualitative factors affecting decision making in investment has been carried out to support the study boarded on this research thesis. In order to bridge the research gaps in the studies, a literature review which is more detailed was carried out and a general survey for more information about the topic. Literature review was conducted on the following factors.

Theoretical Framework

Heuristic factors is defined as a simple rule of thumb that can be used in making decision, most especially in uncertain environment and complex situation with inadequate necessary information. Additionally, where time constraint exist, heuristics are very critical and useful. Understanding heuristic based biases such as overconfidence, anchoring, and availability bias influencing investors decision making is essential in determining the appropriateness of the theory to study. In some circumstance, despite the success in the rule of thumb, the whole investment process can be faced systematic biases. (Yilmaz and Hazar, 2018.)

Through reduction of complex situation to a more judgmental tasks, heuristic proves it efficient in decision making strategies. These strategy is established through trial and error series of events, until they are refining simple rules essential to apply in various decision making environment. People are faced with loads of varying news on a daily basis, these news need to be analyzed and processed in order to evaluate their impact. As these happens regularly, people tend to form a general pattern of how things work under certain circumstance hence forming rules which are often been applied when faced with similar situations.

Often, people tend to think that they are knowledgeable and more smarter than they might actually be. However, most people are generally poor at estimating events and or probabilities of occurrence. Their prediction is often way less than 100% possibilities of happening. Overconfidence often lead to underestimation of underlying risks and exaggeration of abilities required to control extraneous situations. The study of Bakar, S. and Yi, (2016} show that the most active investors often make poor decision and low returns as compared to passive investors.

Anchoring bias is normally referred as representativeness. It can therefore be defined as the tendency of making decision on account of past experience. It is when one assumes that certain objects belong to certain class based on the past events. Investors tend to put so much weight on the current experience with the assumptions that the recent situation are the correct situation. Therefore, current results are representative of the future results (Farooq and Sajid, 2015)

It refers to mental conflict that people goes through when faced with situations that seems to challenge their assumptions and beliefs. After decision making, people are often face with conflicts due to negative consequences of their decision. Furthermore, investors face selective perception when they ignore contrary information. Mental discomfit occurs when new information exceeds understanding and beliefs. Instead of admitting that one has made a wrong decision in the beginning, investors might prefer to keep losing than undergoing the mental pain of admitting the wrong decision.

It can be defined as investors preference for a certain outcome over probability with a better expected results. It is the individual attempt and desire to avoid uncertainty. Risks aversion affects investors decision under uncertain circumstance. It has a negative influence on investment activities and portfolio size (Michailoya, 2010). By generally making a bad decision, risk aversion directly impact investors returns and wealth. Early studies showed that, under challenging alternative, individual tend to be risk averse, rational and try as much as they can to maximize their wealth. Contrary to the early studies, Karan (2004) suggests that individuals are irrational and are not careful enough when it comes to risky choices. Investors’ risk aversion and risk seeking changes in varying circumstance and investors only perceive risk after determining it. According to the above literature, in matters concerning financial decision making, investors are not steady towards risks aversion.

Existing Empirical Literature Review

Financial tools play an essential role in investment decision making. Investment professionals apply various methods and financial tool to achieve better investment outcomes. Financial tools that are commonly used include; technical, fundamental analysis and capital asset pricing model. These tools are used in measuring risks and returns in stock market. To evaluate economic environment, industry and company performances prior to making an investment decision, investors use fundamental analysis.

Different financial tools are used over various circumstances while making an investment choice. It is therefore imperative that investors use a necessary financial tool while making investment choice

Wrong choice of financial tool can lead to wrong investment decision hence low returns on investment. These financial tools need to be first determined, investigated and evaluated to establish it reliability and validity before making a decision to use it. Present study attempts to determine the probability of fundamental and technical analysis tool leading to financial market. Financial tool can have a positive and significant effect on investment when they are correctly analyzed and evaluated. Studies has shown that financial tool can greatly impact investment decision depending on the investors selection of the necessary tool.

Cooperate governance refer to a system used by organization to direct and control its activities. Recent studies show the board governance has been the most essential control in directing and controlling firms’ operation. Strong governance lead to successful and smooth operation while weak governance results in tremendous consequences which can lead to increased expenditure in the organization. Past studies describes the investors inclination at firm level on corporate finance. However recent studies provide insight on corporate governance at firm level by assessing aspects such as, discipline, fairness, transparency, responsibility, independent, social awareness and accountability. This is to say that, the value of an organization can be greatly be dependent on corporate governance

Personality is characterized by integrated pattern of behaviors, tendencies, interests, orientation and talents. From a behavioral view, personality traits can be very essential in making financial decision. For instant, some investors can choose to undertake risky projects to yield more returns and some can prefer low returns with less risky projects. Various factors can influence personality hence decision making. These factors include;

Age of the individual investor- one of the most commonly used criteria in determining and categorizing investors in terms of financial risk choices is age. Young investors are normally categorized as high risk takers whereas older investors are low risk taker.
Gender- there exists a perception that gender can play an essential role on investment decision. For instant, women are said to be high risk takers than men. However, men have a high tolerance when it comes to financial risks as compared to women
Level of education- it is obvious that investors with high education level tend to make better investment decision than individuals with low level of education.
Marital status- studies have shown that marital status has an impact in financial risk perception. Married people are found to have a lower risk tolerance than bachelors.

Author

Year

Research focus

Finding

Farooq, Aisha, and Mohammad Sajid

2015

Aims at investigating the impact of behavioral factors on investors decision making concerning investment

· The study investigates factors such as corporate governance, heuristics, risk aversion, and financial tools.

· The study results clinched that, risk aversion negatively and significant influence investors decision making while heuristic, financial tool and corporate governance positively and significantly impact decision making of investors.

· The results also suggested that all the mentioned factors are positively and significantly related to each other.

· The study are essential in increasing investors’ confidence.

Full Reference of Peer Reviewed Text:

Farooq, A. and Sajid, M., 2015. Factors affecting investment decision making: Evidence from equity fund managers and individual investors in Pakistan. Research Journal of Finance and Accounting, 6(9), pp.2222-1697.

1. What review question am I asking of this text?

What are the factors affecting individual’s investors decision making in turkey?

2. What type of literature is this?

Research

3. What sort of intellectual project for study is being undertaken?

a) How clear is it which project the authors are undertaking?

Knowledge for understanding

b) How does the sort of project being undertaken affect the research questions addressed?

Investigating what happens

c) How does the sort of project being undertaken affect the place of theory?

Is the investigation informed by theory

d) How does the authors’ target audience affect the reporting of research?

They assume academic knowledge of methods

4. What is being claimed?

a) What are the main kinds of knowledge claim that the authors are making?

Research knowledge

b) How clear are the authors’ claims and overall argument?

Stated in an abstract, introduction or conclusion

c) With what degree of certainty do the authors make their claims?

Acknowledge others’ counter-evidence

d) How generalized are the authors’ claims – to what range of phenomena are they claimed to apply?

other similar contexts?

5. To what extent is there backing for claims?

a) What, if any, range of sources is used to back the claims?

Literature about others’ practice knowledge or research

b) If claims are at least partly based on the authors’ own research, how robust is the evidence?

The range source is adequate

6. To what extent are claims consistent with my experience?

The claims are reliable and helpful

7. What is my summary evaluation of the text in relation to my review question or issue?

a) How convincing are the authors’ claims, and why?

The study are essential in increasing investors’ confidence

b) How, if at all, could the authors have provided stronger backing for their claims?

By acknowledging limitation

In the current dynamic environment, there exist a multidimensional alternative regarding investment. This has made decision making a difficult activity for many investors. It is not possible to make investment decision on a void depending on complex model and personal resources therefore investor must be very intelligent and up to date so as to attain the desired goal. The choice to carry out an investment can rely upon many information necessary for an individual to make a right decision. This information can be based upon several factors ranging from the ones with slight importance, those with moderate to great importance. Financial markets are facing price fluctuation and becoming are becoming volatile each and every day. Price fluctuation cannot be solved by applying traditional financial tools. The major problem is that investors does not take into account the impact that behavioral factors has on decision making on their investment. Therefor there is need to consider these factors and the impact it has on investment so as to eradicate errors in investment decision.

Research methodology is very essential in every project. Selecting an effecting and relevant methodology is imperative in realizing the project success. This chapter introduces a research approach used in the study after a critical analysis to select the method. This section of the report also includes important areas such as data and data collection, data analysis process, software for analyzing data, target population and validity and reliability test.

To ensure that research questions are effectively answered, a quantitative research was conducted. Quantitative research technique is an effective approach with the aim of quantifying collection and data analysis. According to Bryman, (2016), “The research method seeks to provide an insight to understanding relationship of observable phenomena through an objective empirical investigation. The strategy is associated with, social, natural and applied sciences.”

The choice to conduct a quantitative research instead of a qualitative research is because the main focus is to yield a general information on the concept and constructs, and identifying relationships and patterns (Watson, 2015). The essential advantage of quantitative research is the ability to reach a maximum sample size therefore allowing a better general conclusion. However, according to Scofield, (1993), “quantitative method normally does not take into account the bottomless perceptive for certain phenomena. Due to this reason, it is not capable of measuring a deeper conclusion. Instead, it shows a partial picture of a phenomena, a single moment with poor details and no dynamics.”

survey is the method used for data collection in this quantitative research. The survey consists of close ended questions. The researched factors are focused to bridging the literature gap and are based on literature review findings. The factors include; personal factors, financial factor, risk aversion, corporate governance and heuristics factors. Based on the needed information, the survey questions are combination of rating scale questions and multiple choice question.

To guarantee generality in the sample population, the selected sample should be able to perfectly represent the entire population. For this reason, a stratified random selection procedure was chosen. Literature review explained the factors that have been used to determine the stud’s variables. Moreover, the questions were formed in accordance to the investors’ views and goals and as by the performance of their respective organizations, their future plans and investment decisions.

This research aims at a sample size of 100 respondents. To ensure effective representation of the population, the study aimed to get to respondent of different age, spousal status, different education and all genders. The study specifically targeted investors in Turkey.

Data analysis contain the specification of hypothesis that requires to be accepted or rejected. Data concerning the investment decisions using a survey that gathers the views of different investors. The process is then tailed by an investigation of the assembled data by hypothesis testing and statistic procedures that provides frequencies, averages, correlation between variables and patters. The used software for the collected data analysis is SPSS.

To begin with, Cronbach alpha was conducted as an initial test. Cronbach alpha is usually used to for questionnaires’ internal consistency for those with multiple items and Likert scales. Variables are categorized into 3 major groups in order to measure the questions’ consistency within the questionnaire according to Likert scale. The general thumb rule is that a 0.7 results of a Cronbach Alpha indicate reliability in an acceptable level. For efficient achievement of reliability for this study, surveys questions send to all respondent are the same and were all reach out to have more clarification of the information. Additionally, the survey questions have to measure the projected construct. According to Heale and Twycross (2015), validity refers to an extent of accurately measuring a concept in a quantitative study.

Using a sample size of 10 respondents instead of the planned 100 respondents, a trial survey is carried out to determine the rationality of the questionnaires. Harman’s one-factor was also used to estimate a common method bias. It occurs when responses variations are due to instrument instead of the respondents’ actual tendencies that the instruments try to uncover. According to Chin, Thatcher, & Wright, (2012) “A 50% of more total variance extracted from one factor indicates the presents of common method bias” A 25.46% average variance from one factor was revealed from this research. This is an indication that there was no common method bias problem. In order to analyze rotated component matrix, varimax rotation was used

Dependent variable

Independent variables

Cronbach’s Alpha

· Personal factor

· Risk aversion

· Financial factors

· Corporate governance

· Heuristics

0.711

Criteria > 0.7

Additionally, a multiple linear regression model was conducted to examine the articulated hypotheses. According to Bryman, (2017), “The model is essential in identifying the variable with the most impact on the topic of interest therefore allowing a confident determination of factors which mater the most, those which can be ignored and the relationship between the two.” Additionally, Uyan?k & Güler, (2013) stated that “multiple regression model is an extension of linear regression model and can be used to determine the variable values based on two or more variables”

(β) std.error t sig R square F stat durbin watson

(Constant) .251	1.683	.099 .679 47.590 2.110
Heuristics .378	.117	3.643	.001
Risk Aversion -.153	.052	-2.043	.055
Use of Financial .387	.121	3.183	.012
Corporate .233	.126	2.083	.052

The chapter describes the results from the study after successfully testing the hypothesis and analyzing data. According to Chiheb, Boumahdi and Bouarfa, (2019). “The multiple regression analysis shows the overall fit statistics.” From the above analyzed data, it can be concluded that regression model is effective since all variables’ P values are less than 0.005. the Watson value of 2.110 which is less than 3 also shows that there are no correlation problems in the model. The results are as follows

Heuristic has a positive and significant influence of investors decision making
Financial tools also have a positive and significant impact on investors decision making
Risk aversion has a negative and significant effects of investors decision making
Corporate finance has a positive and significant impact on investors decision making
Personal factors have a negative and significant impact on investors decision making.

This research will be useful in making investment decision making and will greatly help financial professional, investment advisors and regulatory authorities understand these behavioral factors affecting investment. The study will help them understand and relate the impact and the relationship between the above discussed variable on investment as well as investors risk perception.

The current study focused on behavioral factors affecting investment decision making, however there is potential in future to conduct a research on other factors like issues of knowledge, mental accounting, under and over reaction as well herd behaviors. Additionally, the current study was based on individual investors as the main respondents, future research can be based upon wider range of respondent like equity investment companies, insurance companies and banks.

Furthermore, the research provides relevant education for investors to make improvement in their investment decision making activities. Through learning the factors and their impact on the investments, investors can decide the choice that best fits his or her investment. This could therefore help investors reduces loses due to risk and realize more returns.

DURATION

ACTIVITIES

Week 1

Week 2

Week 3

Week 4

Week 5

Week 6

Week 7

Week 8

Week 9

Week 10

Week 11

Week 12

Week 13

Week 14

Week 15

Refining research objective

Literature

Methodology

Research design

Primary data collection

Data analysis

Discussion

Final write up

References

Bakar, S. and Yi, A.N.C., 2016. The impact of psychological factors on investors’ decision making in Malaysian stock market: a case of Klang Valley and Pahang. Procedia Economics and Finance, 35, pp.319-328.

Bryman, A. (2016). Social research methods: Oxford university press.

Chiheb, F., Boumahdi, F., & Bouarfa, H. 2019. A New Model for Integrating Big Data into Phases of Decision-Making Process. Procedia Computer Science, 151, 636-642.

Chin, W. W., Thatcher, J. B., & Wright, R. T. 2012. Assessing common method bias: Problems with the ULMC technique. MIS quarterly, 1003-1019.

Heale, R., & Twycross, A. 2015, Validity and reliability in quantitative studies. Evidence-based nursing, 18(3), 66-67.

Mutswenje, V.S., 2009. A survey of the factors influencing investment decisions: the case of individual investors at the NSE (Doctoral dissertation, University of Nairobi).

Schofield, J. W. 199). Increasing the generalizability of qualitative research. Social research: Philosophy, politics and practice, 200- 225

Uyan?k, G. K., & Güler, N. 2013. A study on multiple linear regression analysis. Procedia-Social and Behavioral Sciences, 106, 234-240.

Watson, R. 2015. Quantitative research. Nursing Standard (2014+), 29(31), 44.

Yilmaz, N.K. and Hazar, H.B., 2018. DETERMINING THE FACTORS AFFECTING Investors’decision Making Process In Cryptocurrency Investments. PressAcademia Procedia, 8(1), pp.5-8.

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