The effect of psychological factors on individual investors' decisions in Vietnam - A study of Ho Chi Minh stock market
Abstract
Although finance is a field which has been studied for thousands years by many developed countries in the world, most perspective in the past basically focused on traditional finance regarding the fact that people are perfectly rational, self-interested and has access to perfect information. Behavioral finance theories, which are closely related to psychology, attempt to understand individual investors’ limits to their self-control due to their own biases. This affects how individual investors make decision during their investment performance.
The main objective of this study is to explore the effect of psychological factors on individual investors’ decision-making procedure in Vietnam stock market, by narrowing down as a study of Ho Chi Minh stock market. To be specific, 4 main psychological factors are studied: overconfidence, herding, conservatism and availability bias. Behavioral finance has been studied in Vietnam in recent years, however, there are some studies about stock market mostly relevant to overconfidence or herding in general, which stand still so abstract to understand and to apply in real investment by individual investors. Therefore, this study is about to give a significant contribution to development of behavioral finance in Vietnam.
Besides, difficulties are mostly analyzed in this research to show how hard it could be to conduct survey about behavioral finance in Vietnam stock market, especially in Ho Chi Minh stock market. Throughout the process of collecting data and running analysis, there are several limitations need to be improved further researches in the future.
Existing theories of behavioral finance and some other previous studies by Asian and Vietnamese researchers, based on hypotheses has been proposed and approved before, creates the initial content for this study. Then, the hypotheses are tested through a digital
survey form distributed to individual investors in Ho Chi Minh stock market. The collected data source is analyzed by means of SPSS software. Moreover, some in-depth interviews were made with some brokers of Ho Chi Minh stock market to have deeper understanding of individual investors’ behavior as well as Vietnam stock market before the survey form was distributed.
The results show that among those 4 psychological factors mentioned above, only overconfidence and conservatism have significantly impact on individual investors’ decision in Ho Chi Minh stock market. Meanwhile, availability bias and herding has no any significant effect on individual investors’ decision-making procedure. Due to the main objective of clarifying the correlation between these psychological factors and individual investors’ decision, the finding shows that overconfidence has the highest positive impact on the investors’ decision making, following is conservatism. This study also assumes that herding could be a significant factor regarding institutional investors instead of individual investors in Vietnam stock market.
Keywords: Behavioral finance, Psychological factors, Vietnam stock market, Ho Chi Minh stock exchange, overconfidence, conservatism, herding, availability bias.