Behavioural,Socio-economic Factors,Financial Literacy and Investment Decisions: Are Men More Rational and Women More Emotional?

Abstract

This study covers the gender-wise analysis of how behavioural factors and socio-economic factors along with the level of financial literacy influence investment decisions of Indian retail investors. Equally pertinent is to understand that will it have a different influence and bearing on males and females. Multivariate technique partial least squares-structural equation modelling (PLS-SEM) has been applied to develop the model and analyse the results. The study used a structured questionnaire for collecting data from retail investors. The findings of PLS-SEM show that in both genders, behavioural factors, socio-economic factors and financial literacy factors significantly affect investment decisions. However, the findings demonstrate that for women investors, the model is more effective. This study may be useful for prospective fund managers as, in many earlier studies, women are considered to be risk aversive. The results demonstrate that there is a need to target women, and the scenario today is not similar to the pre-existing ones.

JEL Classification: G110, G4

Keywords

Financial literacy behavioural factors socio-economic factor investment decisions gender differences

Get full access to this article

View all access options for this article.

References

Agarwal

Amromin

Ben-David

Chomsisengphet

Evanoff

D. D.

(2015). Financial literacy and financial planning: Evidence from India. Journal of Housing Economics , 27, 4–21. https://doi.org/10.1016/j.jhe.2015.02.003

Al-Ajmi

J. Y.

(2008). Risk tolerance of individual investors in an emerging market. International Research Journal of Finance and Economics , 17, 1–26.

Al-Tamimi

H. A. H.

Anood Bin Kalli

(2009). Financial literacy and investment decisions of UAE investors. The Journal of Risk Finance , 10(5), 500–516. https://doi.org/10.1108/15265940911001402

Almenberg

, & Dreber

(2015). Gender, stock market participation and financial literacy. Economics Letters , 137, 140–142. https://doi.org/10.1016/j.econlet.2015.10.009

Anderson

Baker

Robinson

D. T.

(2017). Precautionary savings, retirement planning and misperceptions of financial literacy. Journal of Financial Economics , 126(2), 383–398. https://doi.org/10.1016/j.jfineco.2017.07.008

Anderson

Henker

Owen

(2005). Limit order trading behavior and individual investor performance. The Journal of Behavioral Finance , 6(2), 71–89. https://doi.org/10.1207/s15427579jpfm0602_3

Arano

Parker

Terry

(2010). Gender-based risk aversion and retirement asset allocation. Economic Inquiry , 48(1), 147–155. https://doi.org/10.1111/j.1465-7295.2008.00201.x

Aren

Zengin

A. N.

(2016). Influence of financial literacy and risk perception on choice of investment. Procedia—Social and Behavioral Sciences , 235(10), 656–663. https://doi.org/10.1016/j.sbspro.2016.11.047

Asaad

C. T.

(2015). Financial literacy and financial behavior: Assessing knowledge and confidence. Financial Services Review , 24, 101–117.

10.

Awais

Laber

M. F.

Rasheed

Khursheed

(2016). Impact of financial literacy and investment experience on risk tolerance and investment decisions: Empirical evidence from Pakistan. International Journal of Economics and Financial Issues, 6(1), 73–79.

11.

Barber

B. M.

Odean

(2001). Boys will be boys: Gender, overconfidence, and common stock investment. Quarterly Journal of Economics , 116(1), 261–292. https://doi.org/10.1162/003355301556400

12.

Barberis

Thaler

(2003). A survey of behavioral finance. In Constantinides

, Harris

, & Stulz

(Eds.), Handbook of the economics of finance (pp. 1053–1128). North-Holland.

13.

Barberis

Huang

(2001). Mental accounting, loss aversion, and individual stock returns. The Journal of Finance , 56(4), 1247–1292. https://www.jstor.org/stable/2697796

14.

Beckmann

Menkhoff

(2008). Will women be women? Analyzing the gender difference among financial experts. Kyklos , 61(3), 364–384. https://doi.org/10.1111/j.1467-6435.2008.00406.x

15.

Bruce

(1995). Do women invest differently. ABA Banking Journal , 87(6), 84–86.

16.

Burton

(1995). Women and financial services: Some directions for future research. International Journal of Bank Marketing , 13(8), 21–28. https://doi.org/10.1108/02652329510098882

17.

Calcagno

Monticone

(2015). Financial literacy and the demand for financial advice. Journal of Banking and Finance , 50, 363–380. https://doi.org/10.1016/j.jbankfin.2014.03.013

18.

Caparrelli

F. D.

Arcangelis

A. M.

Cassuto

(2004). Herding in the Italian stock market: A case of behavioral finance. Journal of Behavioral Finance , 5(4), 222–230. DOI: 10.1207/s15427579jpfm0504_5

19.

Caroline

Potrich

Vieira

K. M.

Kirch

(2017 ). How well do women do when it comes to financial literacy? Proposition of an indicator and analysis of gender differences. Journal of Behavioral and Experimental Finance . https://doi.org/10.1016/j.jbef.2017.12.005

20.

Chandra

, & Kumar

(2012). Factors influencing Indian individual investor behaviour: Survey evidence. Decision, (0304-0941) , 39(3), 141–167. http://mpra.ub.uni-muenchen.de/29722/

21.

Charness

Gneezy

(2007, September 18). Strong evidence for gender differences in investment (Department Working Papers). University of California. http://dx.doi.org/10.2139/ssrn.648735

22.

Chijwani

Vidyapeeth

D. Y. P.

(2014). A study of financial literacy among working women in Pune. International Journal for Scientific Research and Development , 1(11), 20–22.

23.

Cutler

N. E.

(2013). Quantitative financial literacy: The signal and the noise. Journal of Financial Service Professionals , 67, 24–29.

24.

Dawar

Wadhwa

(2011). Factors influencing investor behaviour: An emperical study in Punjab. International Journal of Research in commerce, Economics and Management , 1(3), 125–130. https://doi.org/10.35940/ijitee.F1094.0486S419

25.

Dew

Xiao

J. J.

(2011). The financial management behavior scale: Development and validation. Journal of Financial Counseling and Planning , 22(1), 43. https://ssrn.com/abstract=2061265

26.

Dwyer

P. D.

Gilkeson

J. H.

List

J. A.

(2002). Gender differences in revealed risk taking: Evidence from mutual fund investors. Economic Letters , 76, 151–158. https://doi.org/10.1016/S0165-1765(02)00045-9

27.

Faff

Mulino

Chai

(2008). On the linkage between financial risk tolerance and risk aversion. Journal of Financial Research , 31, 1–23. https://doi.org/10.1111/j.1475-6803.2008.00229.x

28.

Farinha

Prego

(2013, May). Investment decisions and financial standing of Portuguese firms—Recent evidence (Financial Stability Report, pp. 109–130). Banco de Portugal.

29.

Faulkner

A. E.

(2015). A systematic review of financial literacy as a termed concept: More questions than answers. Journal of Business & Finance Librarianship , 20(1–2), 7. https://doi.org/10.1080/08963568.2015.982446

30.

Fazzari

S. M.

Hubbard

R. G.

Peterson

B. C.

(1998). Financing constraints and corporate investment. Brookings Papers on Economic Activity , 1, 141–195. http://people.stern.nyu.edu/eofek/PhD/papers/FHP_Financing_BPEA.pdf

31.

Fazzari

S. M.

Hubbard

R. G.

Petersen

B. C.

Blinder

A. S.

Poterba

J. M.

(1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity , 1, 141–206. https://doi.org/10.2307/2534426

32.

Fedorova

E. A.

Nekhaenko

V. V.

Dovzhenko

S. E.

(2015). Impact of financial literacy of the population of the Russian Federation on behavior on financial market: Empirical evaluation. Studies on Russian Economic Development , 26(4), 394–402. https://doi.org/10.1134/S1075700715040036

33.

Felton

Gibson

Sanbonmatsu

D. M.

(2003). Preference for risk in investing as a function of trait optimism and gender. The Journal of Behavioral Finance , 4(1), 33–40. https://doi.org/10.1207/S15427579JPFM0401_05

34.

Flegl

Vydrova

(2014, December). Is Pareto’s 80-20 rule applicable in research? A case of CULS Prague. Proceedings of the 11th international conference on Efficiency and Responsibility in Education (pp. 125–131). Czech University of Life Sciences Prague. https://www.researchgate.net/publication/269401213_Is_Pareto’s_80-20_rule_applicable_in_research_A_case_of_CULS_Prague

35.

Fogel

Berry

(2006). The disposition effect and individual investor decisions: The roles of regret and counterfactual alternatives. Journal of Behavioral Finance , 7(2), 107–116. https://doi.org/10.1207/s15427579jpfm0702_5

36.

Fornell

Larcker

D. F.

(1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research , 18(1), 39–50. https://doi.org/10.2307/3151312

37.

Gao

Schmidt

(2005). Self is never neutral: Why economic agents behave Irrationally. Journal of Behavioral Finance , 6(1), 27–37. https://doi.org/10.1207/s15427579jpfm0601_5

38.

Gathergood

Weber

(2017). Financial literacy, present bias and alternative mortgage products. Journal of Banking and Finance , 78, 58–83. https://doi.org/10.1016/j.jbankfin.2017.01.022

39.

Geetha

S. N.

Vimala

(2014). Perception of household individual investors towards selected financial investment avenues (With Reference to Investors in Chennai City). Procedia Economics and Finance , 11(14), 360–374. https://doi.org/10.1016/S2212-5671(14)00204-4

40.

Gertler

Gilchrist

(1994). Monetary policy, business cycles, and the behavior of small manufacturing firms. Quarterly Journal of Economics , 109(2), 309–340. https://doi.org/10.2307/2118465

41.

Gold

A. H.

Malhotra

Segars

A. H.

(2001). Knowledge management: An organizational capabilities perspective. Journal of Management Information Systems , 18(1), 185–214. https://doi.org/10.1080/07421222.2001.11045669

42.

Gupta

L. C.

(1991). Mutual funds and asset preference—The 2nd round of household investors’ Survey . Society for Capital Market Research and Development.

43.

Hair

J. F.

Anderson

R. E.

Tatham

R. L.

Black

W. C.

(1995). Multivariate data analysis (3rd edn.). Macmillan.

44.

Hamid

M. R. Ab

Sami

Sidek

M. H. M.

(2017). Discriminant validity assessment: Use of Fornell & Larcker criterion versus HTMT criterion. Journal of Physics: Conference Series , 890. https://doi.org/10.1088/1742-6596/890/1/012163

45.

Heshmat

N. A.

(2012). Non-professional investors’ behavior: An empirical study of women Saudi investors. International Journal of Commerce , 22(1), 75–90. http://dx.doi.org/10.1108/BIJ-10-2012-0068

46.

Hocking

R. R.

, & Pendleton

O. J.

(1983). The regression dilemma. Communications in Statistics - Theory and Methods , 12(5), 497–527. https://doi.org/10.1080/03610928308828477

47.

Hood

Nofsinger

J. R.

Varma

(2014). Conservation, discrimination, and salvation: Investors’ social concerns in the stock market. Journal of Financial Services Research , 45(1), 5–37. https://doi.org/10.1007/s10693-013-0162-6

48.

Islamoglu

Apan

Ayvali

(2015). Determination of factors affecting individual investor behaviours: A study on bankers. International Journal of Economics and Financial Issues , 5(2), 531–543.

49.

Jagongo

Mutswenje

V. S.

(2014). A survey of the factors influencing investment decisions: The case of individual investors at the NSE. International Journal of Humanities and Social Science , 4(4), 92–102

50.

Janor

Yakob

Hashim

N. A.

Aniza

C. W. C.

(2016). Financial literacy and investment decisions in Malaysia and United Kingdom: A comparative analysis. Malaysian Journal of Society and Space , 12(2), 106–118.

51.

Jappelli

Padula

(2013). Investment in financial literacy and saving decisions. Journal of Banking and Finance , 37(8), 2779–2792. https://doi.org/10.1016/j.jbankfin.2013.03.019

52.

Jayaraj

(2013). The factor model for determining the individual investment behavior in India. IOSR Journal of Economics and Finance (IOSR-JEF) , 11(4), 21–32. https://doi.org/10.9790/5933-0142132

53.

Jianakoplos

N. A.

Bernasek

(1998). Are women more risk averse. Economic Inquiry , 36, 620–630. https://doi.org/10.1111/j.1465-7295.1998.tb01740.x

54.

Kabra

Mishra

P. K.

Dash

M. K.

(2010). Factors influencing investment performance of generations in India: An econometric study. Asian Journal of Management Research , 1(1), 308–326. https://doi.org/10.1.1.207.2671

55.

Karsidi

Trinugroho

Nugroho L.

Prabowo

(2015). Why households borrow from informal predatory lenders: Evidence from Indonesia. Journal of Economics and Economic Education Research , 16(2), 173–185.

56.

Kaur

Vohra

(2012). Understanding individual investors’ behavior: A review of Empirical evidence. Pacific Business Review International , 5(6), 10–18.

57.

Kennedy

(1992). A guide to econometrics . Blackwell.

58.

Klapper

Lusardi

Panos

G. A.

(2013). Financial literacy and its consequences: Evidence from Russia during the financial crisis. Journal of Banking and Finance , 37(10), 3904–3923. https://doi.org/10.1016/j.jbankfin.2013.07.014

59.

Kline

R. B.

(2011). Principles and practice of structural equation modeling (3rd edn.). The Guilford Press.

60.

Lee

K. C.

Chung

Kang

(2008). Understanding individual investor’s behavior with financial information disclosed on the web sites. Behaviour & Information Technology , 27(3), 219–227. https://doi.org/10.1080/01449290601138146

61.

Lehenkari

Perttunen

(2004). Holding onto the losers: Finish evidence. The Journal of Behavioral Finance , 5(2), 116–126. https://doi.org/10.1207/s15427579jpfm0502_5

62.

Lewellen

, & Lewellen

(2016). Investment and cash flow: New evidence. Journal of Financial and Quantitative Analysis , 51(4), 1135–1164. https://doi.org/10.1017/S002210901600065X.

63.

Lewellen

W. G.

Lease

R.C.

Schlarbaum

G. C.

(1977). Patterns of investment strategy and behaviour among individual investors. Journal of Business , 50, 296–333.

64.

Lewellen

W. G.

, Lease

R. C.

, & Schlarbaum

G. G.

(1977). Patterns of investments strategy and behavior among individual investors. The Journal of Business , 50(3), 296–333. DOI: 0.1086/295947

65.

Lin

Hsiao

Yeh

(2017). Financial literacy, financial advisors, and information sources on demand for life insurance. Pacific-Basin Finance Journal , 43(3), 218–237. https://doi.org/10.1016/j.pacfin.2017.04.002

66.

Lodhi

(2014). Factors influencing individual investor behavior: An empirical study of city Karachi. IOSR Journal of Business and Management , 16(2), 68–76. https://doi.org/10.9790/487X-16236876

67.

Lusardi

(2015). Financial literacy skills for the 21st century: Evidence from PISA. Journal of Consumer Affairs , 49(3), 639–659. https://doi.org/10.1111/joca.12099

68.

Maditinos

D. I.

Zeljko

Theriou

N. G.

(2007). Investors’ behaviour in the Athens Stock Exchange (ASE). Studies in Economics and Finance , 24, 32–50. https://doi.org/10.1108/10867370710737373

69.

Mandell

Klein

L. S.

(2009). The impact of financial literacy education on subsequent financial behavior. Journal of Financial Counseling and Planning , 20(206), 15–24.

70.

Marinelli

Mazzoli

Palmucci

(2017). How does gender really affect investment behavior. Economics Letters , 151, 58–61. https://doi.org/10.1016/j.econlet.2016.12.006

71.

Marquardt

D. W.

(1970). Generalized inverses, ridge regression, biased linear estimation and nonlinear estimation. Technometrics , 12, 591–612. https://doi.org/10.2307/1267205

72.

Marsha

, & Zorn

(2005). Consumer Literacy and Credit Worthiness. Presented at Federal Reserve System Conference. Promises and Pitfalls: As Consumer Options Multiply, Who is Being Served and at What Cost?

Washington, DC.

73.

Marsis

A. S.

(2013). Rahasia Terbesar Investasi . Second Hope.

74.

Martenson

(2008). Are men better investors than women? Gender differences in mutual fund and pension investments. Journal of Financial Services Marketing , 13(1), 72–81. https://doi.org/10.1057/fsm.2008.7

75.

Merikas

A. A.

Merikas

A. G.

Vozikis

G. S.

Prasad

(2004). Economic factors and individual investor behavior: The case of the Greek stock exchange. Journal of Applied Business Research , 20(4), 93–98. https://doi.org/10.19030/jabr.v20i4.2227

76.

Musundi

K. M.

(2014). The effects of financial literacy on personal investment decisions in real estate in Nairobi county. http://hdl.handle.net/11295/76440

77.

Myers

S. C.

Majluf

N. S.

(1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics , 13(2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0

78.

Nagy

R. A.

Obenberger

R. W.

(1994). Factors influencing Individual investor Behaviour. Financial Analysts Journal , 50(4), 63–68. http://dx.doi.org/10.2469/faj.v50.n4.63

79.

Nataliya

Oleg

Dorothea

(2009). Risk attitudes and investment decisions across European countries—Are women more conservative investors than men ? (DIW Berlin Discussion Paper, 928). https://dx.doi.org/10.2139/ssrn.1342731

80.

Neelakantan

(2010). Estimation and impact of gender differences in risk tolerance. Economic Inquiry , 48(1), 228–233. http://dx.doi.org/10.1111/j.1465-7295.2009.00251.x

81.

Neter

Wasserman

Kutner

M. H.

(1989). Applied linear regression models (2nd edn.). Irwin. https://trove.nla.gov.au/version/21995192

82.

Northcott

(1995). Capital investment decision-making . The Dryden Press.

83.

Nunnally

J. C.

(1978). Psychometric theory . New York: McGraw-Hill.

84.

Odean

(1998). Volume, volatility, price and profit when all trades are above average. Journal of Finance , 53(6), 1887–1934. https://doi.org/10.1111/0022-1082.00078

85.

Olsen

R. A.

Cox

C. M.

(2001). The influence of gender on the perception and response to investment risk: The case of professional investors. The Journal of Psychology and Financial Markets , 2(1), 29–36. https://doi.org/10.1207/S15327760JPFM0201_3

86.

Oprean

(2014). Effects of behavioral factors on human financial decisions. Procedia Economics and Finance , 16(3), 458–463. https://doi.org/10.1016/S2212-5671(14)00825-9

87.

Parashar

(2010). An emperical study on personality variation and Investment choice of retail investors. Journal of Management Information Technology , 2(1), 33–41.

88.

Ranganathan

(2006). A study of fund selection behaviour of individual investors towards mutual funds—With reference to Mumbai City. SSRN Electronic Journal , 1–21. https://doi.org/10.2139/ssrn.876874

89.

Ritter

J. R.

(2003). Behavioral finance. Pacific-Basin Finance Journal , 11(4), 429–437. https://doi.org/10.1016/S0927-538X(03)00048-9

90.

Robb

C. A.

Woodyard

A. S.

(2011). Financial knowledge and ‘best practice’ behavior. Journal of Financial Counseling and Planning , 22, 36–46.

91.

Seay

M. C.

Tae Kim

Heckman

S. J.

(2016). Exploring the demand for retirement planning advice: The role of financial literacy. Financial Services Review Financial Services Review , 25, 331–350. http://hdl.handle.net/2097/36325

92.

Shafi

(2014). Determinants influencing individual investor behavior in stock market: A cross country research survey. Arabian Journal of Business and Management Review , 2(1), 60–71. https://doi.org/10.12816/0003720

93.

Shefrin

(2001). Beyond greed and fear: Understanding behavioral finance and psychology of investing . Harvard Business School Press. https://doi.org/10.1093/0195161211.001.0001

94.

Suman

D. P. W.

(2012). Stock market reforms and investors. Asia Pacific Journal of Research in Business Management , 3(5 and 8), 84–95.

95.

Tahira

K. H.

Ca¨zilia

(2008). Gender differences in investment behavior. In J. J.

Xiao

(Ed.), Handbook of consumer finance research (Vol. III, pp. 253–270). Springer.

96.

Takeda

Takemura

Kozu

(2013). Investment literacy and individual investor biases: Survey evidence in the Japanese stock market. The Review of Socionetwork Strategies , 7, 31–42. https://doi.org/10.1007/s12626-012-0031-z

97.

Van Rooij

Lusardi

Alessie

(2011). Financial literacy and stock market participation. Journal of Financial Economics , 101(2), 449–472. https://doi.org/10.1016/j.jfineco.2011.03.006

98.

Vuthalova

(2015). Pengaruh pengalaman berinvestasi terhadap literasi keuangan dan keputusan investasi. Jurnal Online Universitas Pertanian Bogor . http://repository.ipb.ac.id/handle/123456789/75940

99.

Waweru

N. M.

Munyoki

Uliana

(2008). The effects of behavioral factors in investment decision-making: A survey of institutional investors operating at the Page Nairobi Stock Exchange. International Journal of Business and Emerging Markets , 1(1), 24–41. https://doi.org/10.1504/IJBEM.2008.019243

100.

Wood

Zaichkowsky

J. L.

(2004). Attitudes and trading behavior of stock market investors: A segmentation approach. Journal of Behavioral Finance , 5(3), 170–179. https://doi.org/10.1207/s15427579jpfm0503_5

101.

Worthington

(2006). Predicting financial literacy in Australia. Financial Services Review , 15(1), 59–79. http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1124&context=commpapers