The Impact of Perceived Portfolio Returns on Investor Decisions - The underlying psychological mechanism

Subject Areas : Journal of Investment Knowledge

Mohammadreza zolghadrnasab ¹ (Department of Accounting, Qazvin Branch, Islamic Azad University, Qazvin, Iran.)
sina kherdyar ² (Department of Accounting, Rasht Branch, Islamic Azad University, Rasht, Iran)
Fazel Mohammadi Noodeh ³ (Department of Management, Lahijan Branch, Islamic Azad University, Lahijan, Iran)
aiyuob ahmadi ⁴ (Department of Management, Lahijan Branch, Islamic Azad University, Lahijan, Iran)

Received: 2020-07-15 Accepted : 2020-10-07 Published : 2023-03-21

Keywords: Key words: Perceived portfolio returns, psychological mechanism, investor decision,

Abstract :

The purpose of this study is to test psychological mechanisms on how perceived portfolio returns affect investors and risk-taking, and whether these psychological mechanisms play a moderating role. Past portfolio behavior is important for investors in investment decisions. The statistical population of this research is active investors in Tehran Stock Exchange, the sample was selected by available sampling method. Using a closed questionnaire, collected information to analysis the research hypotheses using structural equations and path analysis with Phoenix software. The results show that expected returns of a portfolio formed in the past make investors more risk-averse and thus show a higher attitude towards risk. From the other side the interaction of psychological characteristics (overconfidence, optimism and willingness of risk taking) has a moderating effect on the relationship between the expected return of the past portfolio and the portfolio turnover, portfolio trading volume and portfolio risk sharing of investors. The results lead to the conclusion that the presence of underlying biases deteriorates financial behaviors.

References:

• جمشیدی, ناصر, قالیباف اصل, حسن. (1397). بررسی تأثیر شخصیت سرمایه‎گذاران بر رفتار معاملاتی و عملکرد سرمایه‎گذاری آنان؛ شواهدی از بورس اوراق بهادار تهران. تحقیقات مالی


• حیدریان, مریم, فلاحتی, علی, کریمی, محمدشریف. (1398). محاسبه شاخص استرس مالی و تحلیل تأثیرهای آن بر رشد اقتصادی ایران؛ کاربردی از مدل خودرگرسیون مارکف ـ سوئیچینگ. تحقیقات مالی


• حیدرعلی هومن(1395) "مدل‌یابی معادلات ساختاری با کاربرد نرم‌افزار لیزرل (با اصلاحات)" . چاپ هفتم . انتشارات سمت


• مهربان پور, محمدرضا, علوی نسب, سید محمد, عباسیان, عزت اله, پرکاوش, طاهر. (1398). تأثیر انعطاف‌ناپذیری مالی بر ناهنجاری ارزشی. تحقیقات مالی


• Balasuriya, J., Muradoglu, G. and Ayton, P. (2010), “Optimism and portfolio choice”, European Financial Management Association, Aarhus, Denmark, Available at:http://dx.doi.org/10.2139/ssrn.1568908.


• De Bondt, W.P.M. (1993), “Betting on trends: intuitive forecasts of financial risk and return”, International Journal of Forecasting, Vol. 9 No. 3, pp. 355-371.


• De Bondt, W.P.M. and thaler (1985), “Betting on trends: intuitive forecasts of financial risk and return”, International Journal of Forecasting, Vol. 9 No. 3, pp. 355-371.


• Felton, J., Gibson, B. and Sanbonmatsu, D.M. (2003), “Preference for risk in investing as a function of trait optimism and gender”, Journal of Behavioral Finance, Vol. 4 No. 1, pp. 33-40.


• Gefen, D., Straub, D. and Boudreau, M. (2000) Structural Equation Modeling and Regression: Guidelines for Research Practice. Communications of the Association of Information Systems, 4, Article 7.


• Gervais, S. and Odean, T. (2001), “Learning to be overconfident”, Review of Financial Studies, Vol. 14 No. 1, pp. 1–27.


• Gilovich, T., Vallone, R. and Tversky, A. (1985), “The hot hand in basketball: on the misperception of random sequences”, Cognitive Psychology, Vol. 17 No. 3, pp. 295-314.


• Hoffmann, A.O.I and Post, T. (2016), “How does investor confidence lead to trading? Linking investor return experiences, confidence, and investment beliefs”, Journal of Behavioral and Experimental Finance, Vol. 12, pp. 65-78.


• Hanoch, Y., Johnson, J.G., & Wilke, A. (2006). Domain specificity in experimental measures and participant recruitment. Psychological Science, 17, 300-304.


• Kahneman, A. and Tversky, D. (1974), “Judgment under uncertainty: heuristics and biases”,Science, Vol. 185 No. 4157, pp. 1124-1131.


• Jia, J., Dyer, J.S. and Butler, J.C. (1999), “Measures of perceived risk”, Management Science, Vol. 45 No. 4, pp. 519–532.


• Karademas, E.C. (2006), “Self-efficacy, social support and well-being: the mediating role of optimism”, Personality and Individual Differences, Vol. 40, pp. 1281-1290.


• Khan, Mohammad Tariqul Islam, Tan, Siow-Hooi, Chong, Lee-Lee, How past perceived portfolio returns affect financial behaviors—The underlying psychological mechanism.Research in International Business and Finance http://dx.doi.org/10.1016/j.ribaf.2017.07.088

*       Kuo-HwaChang, MichaelNayat Young(2019) " Behavioral stock portfolio optimization considering holding periods of B-stocks with short-selling" Computers & Operations Research, Volume 112, December 2019, 104773

• MacCallum, R. C., Roznowski, M., & Necowitz, L. B. (1992). Model modifications in covariance structure analysis: The problem of capitalization on chance. Psychological Bulletin, 111,490-504.


• Malmendier, U. and Nagel, S. (2011), “Depression babies: do macroeconomic experiences affect risk taking?” Quarterly Journal of Economics, Vol. 126 No. 1, pp. 373-416.


• Merkle, C. (2013), “Financial overconfidence over time- foresight, hindsight, and insight of investors”, Available at SSRN: http://dx.doi.org/10.2139/ssrn.2001513.

*       Mohammad Tariqul Islam Khan, Siow-Hooi Tan & Lee-Lee Chong(2019) " Overconfidence Mediates How Perception of past Portfolio Returns Affects Investment Behaviors" Journal of Asia-Pacific Business Volume 20, 2019 - Issue 2 "

• Nosic, A. and Weber, M. (2010), “How riskily do I invest? The role of risk attitudes, risk perceptions, and overconfidence”, Decision Analysis, Vol. 7 No. 3, pp. 282-301.


• Odean, T. (1998), “Are investors reluctant to realize their losses?” Journal of Finance, Vol. 53 No. 5, pp. 1775-1798.


• R Ferrer, R Jammazi, VJ Bolós, R Benítez - (2018) " Interactions between financial stress and economic activity for the US: A time-and frequency-varying analysis using wavelets" Physica A: Statistical Mechanics and its Applications


• Raut, R.K. (2020), "Past behaviour, financial literacy and investment decision-making process of individual investors", International Journal of Emerging Markets, Vol. 15 No. 6, pp. 1243-1263. https://doi.org/10.1108/IJOEM-07-2018-0379


• Roth, A.E. and Erev, I. (1995), “Learning in extensive-form games: experimental data and simple dynamic models in the internet term”, Games and Economic Behavior, Vol. 8 No. 1, pp. 164-212.


• Sarin, R.K. and Weber, M. (1993), “Risk-value models”, European Journal of Operational Research, Vol. 70 No. 2, pp. 135-149.


• Weber, E. U. and Milliman, R. A. (1997), “Perceived risk attitudes: Relating risk perception to risky choice”, Management Science, Vol. 43, pp. 122-143.


• Weinstock, E. and Sonsino, D. (2014), “Are risk-seekers more optimistic? non-parametric approach”, Journal of Economic Behavior & Organization, Vol. 108, pp. 236-251.