Psychology Factors Influencing Investment Decision and Investment Performance: A Study on Individual Investors in Vietnam

ABSTRACT The aim of this thesis is to investigate and determine the relationship between psychology factors including overconfidence, excessive optimism, herding behavior and risk attitu

Psychology Factors Influencing Investment Decision and Investment Performance: A Study

on Individual Investors in Vietnam

Ho Minh Phuc Mbus 3.2

Supervisor: Dr Thao P.Tran

First of all, this thesis appears in its current form due to the assistance and guidance of several people I would therefore like to offer my sincere thanks to all of them who made this thesis possible and an unforgettable experience for my studying

Furthermore, I want to express my deep thanks to my supervisor, Dr Tran Phuong Thao for the trust, the insightful discussion, offering valuable advice, for her support during the whole period of the study, and especially for her patience and guidance during the time of researching and writing of the thesis process

Besides my supervisor, I would also like to thank the ISB research committee for their encouragement, insightful comments in my study

Last but not the least, I would like to thank my family for their material and spiritual support in all aspects of my study

Ho Chi Minh City, December 1st, 2014

HO MINH PHUC

December, 2014

TABLE OF CONTENTS

ACKNOWLEDGEMENT iii

ABSTRACT iii

LIST OF FIGURE iv

LIST OF TABLE iv

CHAPTER 1: INTRODUCTION 1

1.1 Background of the research 1

1.2 Problem Statement 3

1.3 Research Objectives and Questions 5

1.4 Research Scope 5

1.5 Research Structure 6

CHAPTER 2: LITERATURE REVIEW, HYPOTHESES AND CONCEPTUAL MODEL 7

2.1 Theoretical background on psychology factors 7

2.2 An overview of psychology factors on the stock market 11

2.2.1 Overconfidence 12

2.2.2 Excessive Optimism 15

2.2.3 Herding Behavior 17

2.2.4 Risk attitude 19

2.3 Hypotheses development 20

2.3.1 Psychology factors and investment decisions 20

2.3.2 Investment decision and investment performance 23

2.4 Conceptual model 25

2.5 Chapter summary 26

CHAPTER 3: RESEARCH METHODOLOGY 27

3.1 Research Process 27

3.2 Research design 28

3.2.1 Questionnaire design: 28

3.2.2 Measurement of variables 29

3.3 Pilot Study 31

3.4 Main survey 32

3.4.1 Sampling 32

3.4.2 Data analysis method 32

3.5 Chapter summary 35

CHAPTER 4: EMPIRICAL RESULTS 36

4.1 Data analysis 36

4.2 Reliability Test using Cronbach’s Alpha 39

4.3 Factor analysis 41

4.4 Testing for regression assumptions 43

4.4.1 Influences of Psychology Factors on the Individual Investment Decision 45

4.4.2 Influences of the investment decision on the Individual Investment Performance .47

4.5 Chapter summary 49

CHAPTER 5: CONCLUSION, IMPLICATIONS AND DIRECTION FOR FURTHER STUDIES 51

5 1 Key findings of the thesis 51

5.2 Managerial Implication of the study 55

5.3 Limitation and direction for further studies 56

Reference 58

Apendix 4.1 Questionnaire ( English version) 65

Apendix 4.2 Questionnaire ( Vietnamese version) 70

Apendix 4.3: Cronbach’s Alpha Test for items of factors 75

Apendix 4.4: Factor analysis for psychology variables and investment performance 79

Apendix 4.5: Testing for regression assumptions 81

ABSTRACT

The aim of this thesis is to investigate and determine the relationship between psychology factors including overconfidence, excessive optimism, herding behavior and risk attitude which influence investment decision and investment performance of the individual investors in Vietnam This research model was developed by different author who suggested various behavioral factors which may affect the investors‟ decision-making process and the investment performance such as Bondt (1985), Odean (1999), Bikhchandani and Sharma (2001)…

Specifically, the thesis employs a survey approach by distributing questionnaire in Ho Chi Minh City stock exchange Sample size of this research is 200 respondents The 7-point measurements are tested for their consistency and reliability by Factor Analysis and Cronbach‟s Alpha, which prove that behavioral finance can be used for Vietnam stock market The findings indicated that, three of four factors have direct effects on investment decisions,

in which they explained 63.1% of the variance of investment performance of respondents With the method analysis of exploratory factor analysis, the research shows that the strong relationship between psychology factors Future researches are encouraged to improve the financial knowledge scale to get better and accurate results Despite of some limitations, this study also has some significations for individual investors, financial education institutions or government agency Discussion and implications of the findings are delineated at the end of the study

LIST OF FIGURE

Firgure 1.1 The movement of VN Index from 2000 to 6/2014 ……… ………4

Firgure 2.1: Prospect Theory………11

Firgure 2.2: Conceptual model……… 26

Firgure 3.1: Conceptual model……… 28

LIST OF TABLE Table 3.3: Cronbach‟s Alpha Reliability Coefficient……… 34

Table 4.0: Number of questionnaires of 8 securities companies in Ho Chi Minh City.37 Table 4.1: Data description ……… 38-39 Table 4.2: Cronbach‟s Alpha Test for items of factors 41

Table 4.3: KMO and Bartlett‟s Test 43

Table 4.4: Factor loadings 44

Table 4.5: Correlations ………45

Table 4.6: Regression testing of psychology factor and the investment decisions… 46

Table 4.7: Summary of the relationship between psychological factors and investment decisions 47 Table 4.8: Regression testing of investment decisions and investment performance 49

Table 4.9: Summary of the relationship between investment decision and investment performance………50

CHAPTER 1: INTRODUCTION

This chapter introduces the background of the behavior finance as well as the status of psychology factors After that, problem statement is discussed in Vietnamese stock market to have the general picture about the stock market The research questions and objectives are proposed to explore the factors determining investment decision and investment performance Based on these, research scope is proposed and thesis structure is presented

1.1 Background of the research

Theories of human behavior from psychology, sociology, and anthropology have motivated much recent empirical research on the behavior of financial markets They attempts to explain human behaviors‟ in markets, importing theories of human behavior from the social sciences (Shiller, 1999) to explain why and how financial markets might be inefficient (Sewell, 2007)

It could be seen that the term “behavioral finance” has been emerged since 1896 when le Bon (1896) wrote a book “The Crowd: A Study of the Popular Mind” It is one of the greatest and most influential books of social psychology ever written Later, the second-most cited paper ever to appear in Econometrical in 1979, the prestigious academic journal of economics, was written by two psychologists Kahneman and Tversky who proposed the prospect theory (Kahneman and Tversky 1979) Then, Plous (1993) wrote The Psychology of Judgment and Decision Making which gives a comprehensive introduction to the field with a strong focus on the social aspects of decision making processes

A wide range of behavior is taken into account when investigating investor psychology in finance Tversky and Kahneman (1994) confirmed a distinctive fourfold pattern of risk attitudes: risk aversion for gains and risk seeking for losses of high probability; risk seeking for gains and risk aversion for losses of low probability Later, Odean (1999) demonstrated that overall trading volume in equity markets is excessive, and one possible explanation is overconfidence He also found evidence of the disposition effect which leads to profitable stocks being sold too soon and losing stocks being held for too long Psychological research has established that men are more prone to overconfidence than women (especially in male-

dominated areas such as finance) whilst theoretical models predict that overconfident investors trade excessively Barber and Odean (2001) found that men trade 45 percent more than women and thereby reduce their returns more so than do women and conclude that this is due to overconfidence

In recent years, behavioral finance issues are widely studying Under the light of behavioral finance, investors can be affected by psychological factors (emotional and cognitive factors) which are the so-called behavioral biases in their decision-making process Behavioral biases are abstractly defined the same way as systematic errors in judgment (Pompian, 2006)

In fact, many phenomenon and individual investor‟s behaviors in the Vietnamese stock market cannot be explained by standard finance, which based on the efficient market hypothesis Through the studies, it is found that there are a great number of psychological factors having a significant influence on the behavior of investors Among them, four common psychological factors that exist in almost every human being are (1) overconfidence, (2) excessive optimism, (3) attitude towards risk and (4) herd behavior Up to now, there have been numerous studies related to these above psychological forms of individual investors in the world such as as Debond (1985), Odean (1999); Bikhchandani and Sharma (2001)

A study by Lakonishok, Shleifer and Vishny (1994) postulate that value strategies produce superior returns because of investors consistently overestimate future growth rates of glamour stocks relative to value stocks The essence of this argument is that investors are excessively optimistic about value (glamour) stocks because they tie their expectations of future growth in earnings to past bad (good) earnings

Prior studies shows that behavioral finance studies have been carried out popularly in developed markets of Europe and the United States (Caparrelli, Arcangelis & Cassuto, 2004, p.222–230) as well as in emerging and frontier markets (Lai, 2001, p.210–215 ; Waweru et al.,

2008, p.24-41) Among these studies, Odean (2001) indicates behavior factors existing in developed markets while using behavioral finance for frontier and emerging markets is much fewer than for developed markets (Waweru et al., 2008) As such, understanding behavioral factors particularly psychology factors are important in emerging markets like Vietnam

With the development of the science, technology and the economy, it is possible to consider stock market as the yardstick for economic strength and development Therefore, the movement of stock market trend represents the economic health of an economy The development of theories and models is try to attempt and explain the way how stock price goes

up and down From the developed stock markets such as the USA, the UK, Japan which have strong impacts on global security markets (Reza, Zamri & Tajul, 2009) to the emerging and the frontier or pre emerging such as Vietnam, Kenya, the psychology of human being is complicated and cannot be predicted From that, researchers and investors show that to understand people‟ activities and behavior or psychology factors is necessary

1.2 Problem Statement

In Vietnam, there are two stock exchanges The first Vietnamese stock exchange, known as the Ho Chi Minh Stock Trading Center (HOSTC) has been launched since 2000 and the second, known as the Ha Noi Stock Trading Center (HASTC) has been established since 2005

At the beginning, the market size was quite small and thin with only 2 listed companies and 4 security companies; however, the market has been developed significantly in recent years By December 2013, there were more than 300 listed companies on the Ho Chi Minh Stock Exchange (HOSE), the later name of the HOSTC, with market value was 949,000 billion VND, increased 184,000 billion VND in comparison with 2012, accounting for approximately 31% GDP In addition, the second stock Exchange also had significant growth as given in Huong (2014)

Between the two markets, the Ho Chi Minh stock market has been developed significantly

in the number of listed stocks and transaction value for 14 years (Mieu, 2014), the price

movement seems to fluctuate unpredictably over different periods (Graph 1.1) However, this

market index is often used for doing research and studying in Vietnam such as Ly (2010), Chi (2007)

Firgure 1.1 The movement of VN Index from 2000 to 6/2014

It is commonly known that a stock market is efficient when price of the stocks is reflected by information of the economy and the enterprises However, the story in Vietnamese stock market is different In fact, in some the periods of time, the aggregate market index of HOSE, VNIndex, increased significantly although no good information had been informed In contract, VNIndex went down dramatically in spite of no bad information Some author used behavior finance to explain behavior of the investors such as Chi (2007), Tho and Tuan (2007), and Ly (2010), etc These studies, however, have mainly focused on explaining the market behavior Additionally, different investment environment may affect the psychology of investors unalike In fact, the Vietnamese stock market widely differs from that of other countries in the region as well as in over the world According to Yates et al., (1997), cultural difference, more specifically, life experiences and education, can affect behaviors when they found some evidences that Asian people exhibit more behavioral biases than people raised in Western countries or the United States Similarly, when comparing between Western cultures and Asian ones, Kim & Nofsinger (2008) show that the existence of culture differences can affect the behaviors and decisions on investment Thus, psychology factors of individual investors in Vietnam may also differ from those of other markets

In the literature, research associated with investors in Vietnam may be considered as in the initial stages of development in research; therefore, there is a need to study and understand the behavioral factors in order to identify the biases affecting their investment and effects on the investment performance of individual investors On the other hand, previous researches for this

topic in Vietnam are so limited and narrow (Ly, 2010) As such, this study aims to investigate factors affecting the investment decision and investment performance of the individual investors Findings of this study can help the investors in the securities business sector can understand clearly about the problems of psychology and improve their profits in the future

1.3 Research Objectives and Questions

The research aims to examine psychological factors of individual investors influencing investment decision and investment performance in the Vietnamese stock market In the thesis, several factors, including overconfident, excessive optimism, attitude towards risk and herding, will be taken into consideration to understand how they affect the investment decision as well

as the relationship between that factor and investment performance of individual investors More specifically, two research questions are given as follow:

- Question 1: Do psychological factors namely overconfident, excessive optimism, attitude towards risk and herding and affect investment decisions of individual investors

This study is conduct in Ho Chi Minh City, one of the biggest economic centers of Vietnam It is because HOSE is also known as the largest market in the country HOSE is also the selected market of many studies conducted in Vietnam recently such as Chi (2007), Tho and Tuan (2007), and Ly (2010), etc… Thus, a study will be conducted in the context of the Ho

Chi Minh City with as sample size about 200 investors who has many experienced years in the stock market, investigated in many securities companies The result of research in this city, in some levels can represented for Viet Nam in general and can be use as a reference

1.5 Research Structure

This thesis will include five chapters as follows:

Chapter 1: is an introduction chapter Furthermore, this chapter describes the overview of

research background, research problem, and objective Hence, the scope of research, implications, and structure of thesis are also present The chapter discusses the background, the research objectives as well as the scope of the thesis

Chapter 2: demonstrates a Literature Review to present theories of psychology factors This

chapter explains the history and development of Behavior factors And then, the Hypotheses and Research model to be given to test psychology factors in Vietnamese stock market This chapter is concentrated on explaining each variable in the model, and reasons for choosing them to be include in the research model

Chapter 3: is Research Methodology It presents the research design, development of survey

questionnaire, qualitative study, and main survey This chapter also defines how to collect data and analyze the data collected to test the research hypotheses proposed in chapter 2

Chapter 4: is Findings and Discussion to summarize the research results, provide the findings

and recommendations This chapter explains the empirical part of the study This part discusses the method for collecting data used to test the hypothesis, and it analyses the data received, its reliability and multiple regression

Chapter 5: discusses about Conclusion, Implication and Further Studies from this research

CHAPTER 2: LITERATURE REVIEW, HYPOTHESES AND

CONCEPTUAL MODEL

This chapter aims at reviewing the related literatures of psychology finance Firstly, some backgrounds of psychology factors are presented such as a comparison between traditional finance and behavioral finance Secondly, the important theories of psychology finance (Overconfidence, Excessive optimism, Herding behavior, Risk Attitude) are included to have an overall picture of this field and its impacts on the investment decisions as well as the impact of the investment decisions on investment performance Finally, a research model with hypotheses is proposed in conceptual model

2.1 Theoretical background on psychology factors

In the financial market, investor behavior is often known as an interesting topic for a number of researchers (Waweru et al., 2008; Odean, 2001; Ly, 2010) It could be seen that human behavior in the financial world is a fairly new research discipline Thus, behavioral finance theories which are based on psychology, trying to understand how emotions and cognitive errors influence behavior of individual investors have been discussed recently According to Ritter (2003), behavioral finance is based on psychology which suggests that human decision processes are subject to several cognitive illusions In the stock market, investors do not always make the decisions and actions based on reason, but they are driven by psychological factors When they have good mentality, they become more optimistic in assessment process (Waweru et al., 2008) Nevertheless they become more pessimistic if their mentality is not good A such finance fails to explain determinants of investment performance The reason for this failure can be found with the assumption which is usually taken by traditionalists: investors‟ rationality in decision-making process (Suto and Toshino, 2005) Unfortunately, in real life, investors do not always make their decision rationally Empirical

research has shown that, when selecting a portfolio, investors not only consider statistical measures such as risk and return, but also psychological factors such as sentiment, overconfidence and overreaction

The behavioral finance ideas started emerging in the early 1990s opposing the Efficient Market Hypothesis (EMH) with research based on the judgment and decision makes process of the participants of the financial markets The efficient market hypothesis has been the key proposition of traditional (neoclassical) finance for almost forty years In his classic paper, Fama (1970) defined an efficient market as one in which “security prices always fully reflect the available information” In other words, if the EMH holds, the market always truly knows best In the traditional framework where agents are rational and there are no frictions, a security‟s price equals its “fundamental value” (Harris and Stulz, 2003) This is the discounted sum of expected future cash flows, where in forming expectations, investors correctly process all available information, and where the discount rate is consistent with a normatively acceptable preference specification The hypothesis that actual prices reflect fundamental values is the EMH Put simply, under this hypothesis, “prices are right”, in that they are set by agents who understand Bayes‟ law and have sensible preferences (Bekaert and Urias, 1997) In

an efficient market, there is “no free lunch”: no investment strategy can earn excess adjusted average returns, or average returns greater than are warranted for its risk

risk-Behavioral finance is a new approach to financial markets that has emerged, at least in part, in response to the difficulties faced by the traditional paradigm In broad terms, it argues that some financial phenomena can be better understood using models in which some agents are not fully rational Thaler (1999) called behavioral finance as “simply open-minded finance" What makes behavioral finance theory different from the classical finance is that it is not only based only on mathematical calculus, but it applies all other social sciences as psychology, sociology, anthropology, political science or, since recently, neuroscience Behavioral Finance is the application of psychology to financial behavior; i.e it is the behavior

of practitioners According to Behavioral finance, investors are rational, but not in the linear and mathematical sense based on the mean and variance of returns Instead, investors respond

to natural psychological factors such as fear, hope, optimism and pessimism As a result, asset values may deviate from their fundamental value and the theory of market efficiency suffers ( Shiller and Pound, 1989)

Due to the fact that people are not always rational, their financial decisions may be driven by behavioral preconceptions Thus, studying behavioral finance plays an important role

in finance, in which cognitive psychology is employed to understand human behaviors In case the decisions of people do not follow rational thinking, effects of behavioral biases should be identified It will be more important if their cognitive errors affect prices and are not arbitraged away easily (Kim and Nofsinger, 2008, p.2) The mid-1980s is considered as the beginning of this research area Stock market is proved to overreact to information by DeBondt and Thaler (1985, p.392-393) Moreover, Shefrin and Statman (1985, p.777) assert that stockholders tend

to be more willing to sell their winning stocks rather than loosing ones even when putting these losers on sale is the best choice If these studies are the genesis of behavioral finance, this area has over two decade‟s development It‟s clear that investors are not rational, and they don‟t make consistent and independent decisions Empirical research has shown that these behavioral factors do exist and that they are, in fact, considered by the market Thus, this may imply that the market goes beyond the traditional theory of finance

One of the foundational theories used to explain irrational behavior of investors is known

as the Prospect theory suggested by Tversky and Kahneman (1974) According to the theory, people tend to be risk aversion in gain area or when things are going well and be risk-seeking

in loss The theory describes some states of mind affecting an individual‟s decision-making processes including regret aversion, loss aversion and mental accounting (Waweru et al., 2003, p.28) More specifically, the theory demonstrates that risk aversion is the relatively steep slope

of the value function for losses compared to gains The steeper slope of the value function for losses means that the value curve is essentially concave downwards in the neighborhood of the origin This means that for mixed prospects, involving potential gains and losses simultaneously, risk aversion should be observed

Firgure 2.1: Prospect Theory

In fact, human beings and financial markets do not posses all of these capabilities and characteristics For example, people fail to update beliefs correctly (Tversky and Kahneman, 1974) and have preferences that differ from rational agents (Kahneman and Tversky, 1979) People have limitations on their capacity to process information, and have bounds on capabilities to solve complex problems (Simon, 1957) Moreover, people have limitations in their attention capabilities (Kahneman, 1973), and care about social considerations (e.g by deciding not to invest in tobacco companies) In addition, rational traders are bounded in their possibilities such that markets will not always correct “non-rational” behavior (Barberis and Thaler, 2003) Barberis and Thaler (2003, p.1063) are considered as one of the famous writers who provide an excellent study about various types of behavioral biases that affect decision making as well as financial markets

Behavioral finance papers are mainly based on the data of stocks that do not match well with the theories of market efficiency and asset pricing model Many researchers consider behavioral finance as good theory to explain psychology factors affecting investment decision making (Waweru et al., 2008, p.25) The author believes that the study of social sciences such

as psychology can help to reveal the behaviors of stock market (Gao and Schmidt, 2005)

There are two reasons why behavioral finance is important and interesting to be applied for Vietnam stock market Firstly, behavioral finance is still a new topic for study Until recently, it is accepted as a model to explain how investors of financial markets make decisions and then these decisions influence the investment performance (Kim and Nofsinger, 2008) Secondly, it is concluded that Asian investors, included Vietnamese, usually suffer from cognitive biases more than people from other cultures (Kim and Nofsinger, 2008, p.1) Kim and Nofsinger (2008, p.2-5) explains the differences among cultures through an individualism-collectivism continuum Asian cultures are supposed to belong to socially collective paradigm, which has been argued for causing investors‟ overconfident resulting in behavioral bias Cultural difference, more specifically, life experiences and education can affect behaviors, thus,

it is believed that behavioral inclinations can differ among different cultures Some evidences have been found to prove that Asian people exhibit more behavioral biases than people raised

in Western countries or the United States (Yates et al., 1997) When comparing between Western cultures and Asian ones, evidence shows that the existance of culture differences which affect the behaviors and decisions on investment such as e (Kim and Nofsinger, 2008)

According to Weber and Hsee (2000, p.34), the bottom line is that the topic of culture and decision making has not received much attention from either decision researchers or cross-cultural psychologists In addition, a systematic literature about behaviors of Asian people and their effects on investment decision making is provided by Chen, Kim, Nofsinger and Rui (2007) Vietnam is an emerging economy in Asian with many cultural characteristics similar to other Asian countries Therefore, to understand clearly about the characteristics and behaviors

of human being to apply them into stock market is very important With the development of the stock market, this article will find out the psychology factors, which affect the investment decisions and the performance when trading stocks in Vietnamese market

2.2 An overview of psychology factors on the stock market

Behavioral finance is a new paradigm of finance and still is a controversial topic, seeking to supplement the mordern finance by introducing aspects to the decision-making

process Behavioral finance applies psychology, sociology, anthropology theories to understand the behaviors of financial market According to Ritter (2003, p.429), behavioral finance is based on psychology which suggests that human decision processes are subject to several cognitive illusions Many authors suggested various behavioral factors which may affect the investors‟ decision-making process and the investment performance such as Bondt (1985), Odean (1999), Bikhchandani and Sharma (2001)… Among the studies, four factors that are commonly discussed namely overconfidence, excessive optimism, risk attitude, and herding

2.2.1 Overconfidence

There are a lot of studies showing that people are so confident in their skills ability, they often think they know more than they do Overconfidence is the belief that one‟s personal qualities are better than they really are An overconfident individual also does not fully recognize and adjust for his own limitations Overconfidence is just a matter of the serious issue of an investor, not only involves in setting up a too high proportion for private information and overconfidence in personal skills but also makes damage the investment method in the long term (Bondt, 1985) Overconfidence helps explain excessive activism in regulatory strategies, just as it has been found to explain excessively active trading strategies (Odean 1999) From the beginning of the stage, overconfidence comes from hueristic, Waweru

et al list two factors named Gambler‟s fallacy and Overconfidence into heuristic theory (Waweru et al., 2008, p.27)

Investors are usually overconfident about their abilities to complete difficult tasks successfully They believe that their knowledge is more accurate than others and their forecasts are more precise than their experience validated Overconfidence is believed to improve persistence and determination, mental facility, and risk tolerance In other words, overconfidence can help to promote professional performance It is also noted that overconfidence can enhance other‟s perception of one‟s abilities, which may help to achieve faster promotion and greater investment duration (Oberlechner & Osler, 2004) Belsky and Gilovich (1999) referred to overconfidence as the ego trap and note that overconfidence is

pervasive When people overestimate the reliability of their knowledge and skills, it is the manifestation of overconfidence (DeBondt & Thaler, 1995, p 389, Hvide, 2002, p 15) Many studies show that excessive trading is one effect of investors For example, investors and analysts are often overconfident in areas that they have knowledge (Evans, 2006, p 20) It also

to note that overconfidence can enhance other‟s perception of one‟s abilities, which may help

to achieve faster promotion and greater investment duration (Oberlechner & Osler, 2004)

According to Odean (1998) overconfidence is a characteristic of people, not of markets, and some measures of the market, such as trading volume, are affected similarly by the overconfidence of different market participants However, other measures, such as market efficiency, are affected in different ways but different market participants One of the most important factors that determine how financial markets are affected by overconfidence is how information is distributed in a market and who is overconfident It makes investors more overconfident about themselves understanding about clearly the market (Waweru et al., 2008) Barber and Odean (1999) describe how investors overestimate the precision of their information and exhibit biases in their interpretation of that information

Psychological studies have found that people tend to overestimate the precision of their knowledge (Lichtenstein, Fischhoff and Philips, 1980), and this can be found in many professional fields They also found that people overestimate their ability to do well on tasks and these overestimates increase with the personal importance of the task (Frank, 1935) Additionally, most people see themselves as better than the average person and most individuals see themselves better than others see them (Taylor and Brown,1988) Odean (1998) examined how markets were affected by studying overconfidence in three types of traders: (i) price-taking traders in markets where information was broadly disseminated; (ii) strategic-trading insider in markets with concentrated information; and (iii) risk-averse market makers

As a consequence, overconfidence increased market depth When an individual investor was overconfident, he traded more aggressively for any given signal The market maker adjusted for this additional trading by increasing market depth Furthermore, Barber and Odean (1999) also believe that high levels of trading in financial markets are due to overconfidence They sustain

that overconfidence increases trading activity because it causes investors to be too certain about their own opinions and to not consider sufficiently the opinion of others Overconfident investors also perceive their actions to be less risky than generally proves to be the case

Besides, overconfident investors believe more strongly in their valuation of stocks and concern themselves less about their belief Several studies analyzing the effect of gender on overconfident level proved that both female and male showed their overconfidence, but this level of male was higher than that of female Barber and Odean (2001) found that men will be more confident than women in investing, leading to higher trading Barber and Odean report that single men have higher risk porforlios followed by married men, married women and single women Besides, female seem to create investment achievements of separated shares better than that of male (Wu, Jonhson and Sung, 2008)

The role of overconfidence in the trading tendency of stock has been studied by Grinblatt, Keloharju and Linnainmaa (2012) They analyzed and found that overconfident investors tend to trade more frequently In regards to financial markets, when people are overconfident, they set overly narrow confidence bands Research of Gervais and Odean (2001) which get conclusion that a trader‟s expected level of overconfidence increases in the early stages of his career Then, with more experience, he comes to better recognize his own ability

An overconfident trader trades too aggressively, thereby increasing trading volume and market volatility while lowering his own expected profits Overconfidence can lead to more transactions but can damage the investment achievements because of costs, taxes… As the result, overconfidence make individual investors more optimism about the future of the stocks

in up trend market, however in the down trend one, it make people get loses in trading because they are absolutely believe in their abilities in investing but nothing is exception in stock market especially in the emerging market like Vietnam where psychological factors affect strongly the investment decisions The excessive confidence has led to the wrong decision when they focus too much on good news of companies and ignore negative information, which makes them think that stocks being invested are good stocks And thus, they tend to invest

much in a familiar stock or securities of the company they work, and become less diversified their portfolio

2.2.2 Excessive Optimism

Another psychology factor that may affect the investment decision is optimism A related branch of the self-enhancement literature documents the tendency of individuals to be too optimistic about their own future prospects (Weinstein et al., 1980; Kunda, 1987; Weinstein and Klein, 2002) After the crisis of 2008, many investors fail in the stock market but individuals are the most optimistic about outcomes which they believe are under their control (Langer, 1975) Furthermore, excessive optimism stems from overconfidence; and trust related

to the events happening in the future will be more beautiful and positive than those of in the reality

Optimism is measured using analyst forecasts Analysts are important for several reasons: they are professional market watchers, and their judgments of stock and earnings performance are followed closely by investors (Givoly and Lakonishok, 1979) Optimism is determined concurrently with returns Although the measure cannot predict returns ex ante, it does indicate the extent to which optimism is impounded in stock prices Behavioral models of tock returns allow for optimistic expectations (Barberis, Shleifer, and Vishny, 1998; and Daniel, Hirshleifer and Subrahmanyam, 1998) Investors are thought to sometimes overestimate growth prospects, thus inflating stock prices As the optimistic expectations are not fulfilled, the returns of these stocks are low

Another evidence is given by Gervais, Heaton and Odean (2002) showed that excessive optimism usually results in positive impact because it encourages to do the investment This effect seems to be positive because the fear of risk may have a negative impact on the value of the companies However, it can cause more harm than good, especially excessive optimism can cause a negative effect because this may lead the companies or investors to accept the opportunities to invest in the negative net present value or in the highly risky assets such as debt, low return rate but high price by Ly (2010)

Previous studies do not use a direct measure of optimism For example, Ackert and Athanassakos (1997) and Dieter, Malloy, and Scherbina (2002) relate forecast optimism to the dispersion of analyst forecasts and show that the dispersion is related to stock returns Other studies use either time series earnings estimates or analysts‟ forecasts of earnings growth rates (e.g., Lakonishok, Shleifer, and Vishny, 1994; Chan, Jegadeesh, and Lakonishok, 1996; LaPorta and Remiddi, 1996)

Investors finally realized that there had been excessive optimism make the crashes and bubbles The wave turned into one of excessive pessimism (De Grauwe, 2008) Fundamentals like productivity growth increased at their normal rate The only reasonable answer is that there was excessive optimism about the future not only of the one country‟s economy but also the world Investors were caught by a wave of optimism that made them believe that the economy was on a new and permanent growth path for the indefinite future Such beliefs of future wonders can be found in almost all bubbles in history

According to Johnsson et al (2002), a research investigates factors influencing investment decision making of individual and institutional investors in Sweden Author finds that optimism stands for 39% behavioral biases of individual Miller (1977) argues that optimism enters into stock prices because pessimistic investors are reluctant to sell short Highly dispersed analyst earnings forecasts characterize firms having large differences in future expectations Thus, these firms have some investors who believe that future prospects are good, the optimists, and some investors who believe that future prospects are poor, the pessimists Consistent with Miller (1977), pessimistic investors avoid such firms due to the risks or difficulties of short selling Thus, optimistic investors drive the stock prices of firms with highly dispersed forecasts Ackert and Athanasakkos (1997) and Dieter, Malloy, and Scherbina (2002) provide support for this theory when they find that high earnings forecast dispersion is associated with lower stock returns

As a consequence, Vietnamese investors sometimes have exvessive optimism about the the economy and the future growth market although Vietnam is developing to become one of the most attractive countries in Asia, however it is too optimic if consider Vietnamese stock

market is a destination Obviously, with difficulty of infrastruction and capital, Vietnam need more than that to attract the investors, so that understand the optimism in Vietnamese stock market also plays an important role in investment

2.2.3 Herding Behavior

Herding effect in financial market is identified as tendency of investors‟ behaviors to follow the others‟ actions (Bikhchandani and Sharma, 2001; Banerjee, 1992) Based on the observed actions of others, the individuals create the behavior; or in other words that are imitative actions of others (Hwang and Salmon, 2004) In the perspective of behavior, herding can cause some emotional biases, including conformity, congruity and cognitive conflict etc…

Many researchers also pay their attention to herding; because its impacts on stock price changes can influence the attributes of risk and return models and this has impacts on the viewpoints of asset pricing theories (Tan, Chiang, Mason & Nelling, 2008) Herding investors base their investment decisions on the masses decisions of buying or selling stocks Waweru et

al (2008) report that investment decisions that investors can be affected by the others: buying, selling, stock choices, length of time to hold stock, and volume of stock traded In contrast, informed and rational investors usually ignore following the flow of masses, and this makes the market efficient Waweru et al.(2008) conclude that buying and selling decisions of an investor are significantly impacted by others‟ decisions, and herding behavior helps investors to have a sense of regret aversion for their decisions In the security market, herding investors base their investment decisions on the masses‟ decisions of buying or selling stocks In contrast, informed and rational investors usually ignore following the flow of masses, and this makes the market efficient Herding in the opposite causes a state of inefficient market, which is usually recognized by speculative bubbles

Generally, herding investors act the same ways as prehistoric men who had a little knowledge and information of the surrounding environment and gathered in groups to support each other and get safety (Caparrelli et al., 2004, p 223) The more confident the investors are, the more they rely on their private information for the investment decisions In this case,

investors seem to be less interested in herding behaviors When the investors put a large amount of capital into their investment, they tend to follow the others‟ actions to reduce the risks, at least in the way they feel Besides, the preference of herding also depends on types of investors, for example, individual investors have tendency to follow the crowds in making investment decision more than institutional investors (Goodfellow, Bohl & Gebka, 2009, p.213)

On the one hand, Waweru et al (2008, p.31) propose that herding can drive stock trading and create the momentum for stock trading However, the impact of herding can break down when it reaches a certain level because the cost to follow the herd may increase to get the increasing abnormal returns Waweru et al (2008, p.37) identify stock investment decisions that an investor can be impacted by the others: buying, selling, choice of stock, length of time

to hold stock, and volume of stock to trade Waweru et al conclude that buying and selling decisions of an investor are significantly impacted by others‟ decisions, and herding behavior helps investors to have a sense of regret aversion for their decisions For other decisions: choice

of stock, length of time to hold stock, and volume of stock to trade, investors seem to be less impacted by herding behavior

On the other hand, herd behavior can also be generated from the rational views Devenow and Welch (1996) find that herd behavior may be caused by the wise consideration,

if that behavior was based on the information of results of other individuals This considering can happen in 4 cases: (a) individuals do not own any particular information, (b) have the private information, but the information is uncertain due to the low quality of information, (c) not confident in the ability of processing their information, (d) believe others to possess better information This comes from the asymmetric information in the market The more disproportional information the markets have, the more popular herd mentality is

However, these conclusions are given to the case of institutional investors; thus, the result can be different in the case of individual investors because, as mentioned above, individuals tend to herd in their investment more than institutional investors Therefore, this

research will explore the influences of herding on individual investment decision making at the Vietnamese Stock Exchange to assess the impact level of this factor on their decisions

2.2.4 Risk attitude

Nowadays, researchers not only concern about the stock fundamental and technical analysis but also focus on the risk attitude of individual investors to investigate how they trade stocks in the market exchange In the financial sector, risk is still a controversial concept The risk associated with decision alternatives and attitude of the decision-maker toward risk are two important factors that should be considered in forest planning One important open question concerns the determinants of individual differences in risk attitudes Risk and uncertainty play

a role in almost every important economic decision As a consequence, understanding individual attitudes towards risk is intimately linked to the goal of understanding and predicting economic behavior A growing literature has made progress on developing empirical measures

of individual risk attitudes, with the aim of capturing this important component of individual heterogeneity (see, e.g., Bruhin et al., 2007), but many questions remain unresolved

There are many different measure methods of risk due to the existence of numerous definitions of risk while stocks have historically performed well over the long term, there's no guarantee that make money on a stock at any given point in time Previous studies measure risk attitudes using survey questions, and found mixed evidence on determinants, for example gender (Barsky et al., 1997) Although a number of factors can help investors make decision on

a stock, no one can predict exactly how a stock will perform in the future There's no guarantee prices will go up or that the company will pay dividends (Alhakam & Slovic, 1994) Or that a company will even stay in business However, most of arguments stated that risk is an unexpected result and closely connect with uncertainty Nowadays, there are always ups and downs in the stock market This makes a stock more risky, volatility is measured in very precise ways (such as variance, standard deviation, and beta (Ly, 2010) The hypothesis of instrinsic risk attitude states that an individual‟s preference for risk choice alternatives is a combination of: the strength of preference the individual feels for the outcomes and his attitude towards risk by Bell and Raiffia (1982)

One theoretical issue relevant to defining and measuring investment risk tolerance is the generality of attitudes towards risk Traditionally, some have researchers argue that people show general traits of risk-seeking or risk-avoidance (Eysenck & Eysenck, 1978; Zuckerman, 1983; Horvath & Zuckerman, 1993) But others have argued that risk tolerance is situation specific, with little consistency shown across tasks and domains (e.g., Slovic, 1964; Kogan & Wallach, 1964) Weber, Blais & Betz (2002) argue that risk preferences show consistency across application domains, but that people‟s perceptions of risk vary considerably across domains Risk attitudes and perceptions are shown to vary cross-culturally (e.g., Weber & Hsee, 1998; Hsee & Weber, 1999)

In behavioral decision making research, an important distinction has been made between decision behavior under risk and under uncertainty In the present and prior papers, the term

“risk” is used to denote situations in which the probabilities of outcomes are known or at least made explicit, and “uncertainty” to denote situations in which the probabilities of outcome are unknown It is also presented by Knight (1921) is one of the first researchers to point out that risk and uncertainty are different The Ellsberg paradox (Ellsberg, 1961) is a compelling demonstration of one source of risk aversion in investment decision making: the fact that people show what can be described as uncertainty aversion which cannot be known in the future with risk

The Prospect theory is often used to explain the risk attitude of investors Weber, Blais, and Betz (2002), who support for the Prospect Theory, show that people are fond of risk when facing the losses Specifically, they usually keep the stocks when getting losses and rarely keep those stocks too much in the portfolios when price is going up

2.3 Hypotheses development

2.3.1 Psychology factors and investment decisions

Investment decision is a complex process which includes analysis of several factors and following various steps It could be defined as the process of choosing a particular alternative from a number of alternatives It is an activity that follows after proper evaluation of all the

alternatives by Kengatharan and Kengatharan (2014) Investors‟ decisions are derived from complex models of finance based on the relationship between expected risk and return But nowadays, investment decision is not only based on the personal resources and complex modelsKengatharan and Kengatharan (2014) states that to make appropriate decision, one needs to analyze the variables of the problem by mediating them applying cognitive psychology As mentioned in previous sections, there are several psychological factors affecting investment decisions such as overconfidence, excessive optimism, herd behavior, and risk attitude

Overconfidence and investment decision

To begin with people overestimate the reliability of their knowledge and skills; it is the manifestation of overconfidence (DeBondt & Thaler, 1995, p 389, Hvide, 2002) Many studies show that excessive trading is one effect of investors overconfidence can lead to more transactions but can damage the investment achievements Overconfidence causes investors trade too much and take too much risk As a consequence, investors pay too much in commissions, pay too much in taxes, and are susceptible to big loses It could be seen in study

by Waweru et al (2008), Debondt (1985), Odean (2001) Overconfidence makes damage the investment method in the long term (Debond, 1985) In Vietnam, Ly (2010) also find out the effect of overconfidence in behavior finance, however that is not strong enough with the significant meaning nearly 10% Therefore, the thesis suggests the first hypothesis in the Vietnamese stock market:

Hypothesis 1(H1): There is a significant negative relationship between overconfidence and investment decisions of individual investors in Vietnam

Excessive optimism and the investment decisions

Gervais, Heaton and Odean (2002) show that excessive optimism usually results in positive impact because it encourages the investors to do the investment Investors finally realized that there had been excessive optimism make the crashes and bubbles The wave turned into one of excessive pessimism (De Grauwe, 2008) Fundamentals like productivity growth increased at their normal rate According to Johnsson et al (2002), a research

investigates factors influencing investment decision making of individual and institutional investors in Sweden Miller (1977) argues that optimism enters into stock prices because pessimistic investors are reluctant to sell short Highly dispersed analyst earnings forecasts characterize firms having large differences in future expectations

In fact, excessive optimism can lead investors believe in the economy better in the future like Vietnam economy next many years, expected to develop to one of the most developing in the Asia (Ly, 2010) Ly (2010) also find the impact of optimism in Vietnam but it is not significant Hence, this paper tests again that factor by suggesting the hypothesis 2 as follow:

Hypothesis 2 (H2): There is a significant positive relationship between excessive optimism and investment decision of individual investors in Vietnam

Herd behavior and investment decisions

In the security market, herding investors base their investment decisions on the masses‟ decisions of buying or selling stocks In this case, herding can contribute to the evaluation of professional performance because low-ability ones may mimic the behavior of their high-ability peers in order to develop their professional reputation (Kallinterakis, Munir & Markovic, 2010, p.306) Another study by Waweru et al (2008, p.31) indicates that herding can drive stock trading and create the momentum for stock trading In the movement of Vietnamese stock market, there is several evidence showing that the market was influenced by the herding behavior in previous researches such as Ly (2010), Chi (2007), Farber, Nguyen and Vuong (2006, p.17) and Tran (2007, p.23-25), which suggest that the herding effect in Vietnam stock market is very strong, especially toward positive return of the market Based on the above arguments, one hypothesis is given as follow:

Hypothesis 3(H3): There is a significant positive relationship between herd behavior and the investment decisions of individual investors in Vietnam

Risk attitude and the investment decisions

According to Theory of Prospect by Tversky and Kahneman (1974), risk attitude of individual investors is totally different There is great need for a scale that assesses individual

differences in attitude towards risk It is obvious that people differ in the way they resolve work-related or personal decisions that involve risk and uncertainty Such differences are often described or explained by differences in risk attitude In many situations people are selected based on their purported risk attitudes by Weber, Blais, Betz (2002), Alhakam & Slovic (1994)

or Slovic (1964) Risk attitudes and perceptions have also been shown to vary cross-culturally (e.g., Weber & Hsee, 1998; Hsee & Weber, 1999) In Vietnamese market, people tend to take more risk to get higher benefit (Ly, 2010) However, that factor is not popular in Vietnamese stock market and needs to do research more There are two types of risk attitude: risk seeking and risk avoidance Thus, while the risk avoidance is reversed, the risk seeking can be mentioned to be a fourth factor for the hypothesis is suggested that:

Hypothesis 4(H4): There is a significant positive relationship between risk attitude and the investment decisions of individual investors in Vietnam

2.3.2 Investment decision and investment performance

Some researchers believe that overconfident investors who have the extreme trading behavior could benefit with elevated results in comparision to the bad performance of irrational investors can remove them from the security market (Anderson, Henker and Owen, 2005, p.72) In the balanced condition, the overconfident investors trade much higher than their rational opponent, and expect a higher investment profit over the long term Wang (2001, p.138) recognizes that under-confidence and high overconfidence are not likely to exist in the long term, but moderate overconfidence can endure and dominate the rational behavior Kim and Nofsinger (2003, p.2) claim that stocks experiencing the greatest increase in individual possession can earn a negative abnormal return during the year; whereas, stocks that experience the most decrease in individual ownership may earn a positive abnormal return Besides, they are also surprised to explore that investors to be pre-disposed to selling their winners and holding their losers It is reasonable to understand that rate of return of investors requirement is recently equal to or higher than the average return rate of the market but the fact does not like that by Kengatharan and Kengatharan (2014) People rarely take profits too much because they

are afraid of losing that profit, they are willing to sell stocks easily meanwhile they will take stocks which make them loose for a long time even price will go down

Besides, Oberlechner and Osler (2004, p.1-33) identify level impacts of overconfidence

of the investment decision‟s effect on the investment performance which is measured by investment return rate and trading experience Oberlechner and Osler also believe that investment return rate (or profit) presents the investment performance objectively The return rate is evaluated by the investors in comparison to their peers‟ profit rates The prior author mainly use the secondary data of investors‟ results in the security markets to measure the stock investment performance such as Lin and Swanson (2003), Kim and Nofsinger (2003) However, this research asks the investors to evaluate their own investment performance, so that the measurements of investment performance follow the research of Oberlechner and Osler (2004) for the investment return rate Therefore, the return rate of their recent stock investment meets their expectation, for example, to repay the interest payment if they make a loan by Waweru et al (2008) and Qureshi (2013) As a matter of fact, many individual investors in Vietnamese stock market make a loan from the bank to invest in stock market, it means that they expect the investment performance or the investment return rate with the optimism about the future of the economy as well as the stock market make them more confident or optimism

in the investment decision

In more details, the return rate of stock investment is evaluated by objective and subjective viewpoints of individual investors The subjective assessment of investors is made

by asking them to compare their currently real return rates to their expected return rates while the objective evaluation is done by the comparison between the real return rates and the average return rate of the security market by Kengatharan and Kengatharan (2014) Besides, the satisfaction level of investment decisions is proposed in this research as a criterion to measure the investment performance In reality, there are investors felling satisfied with their own investment performance even if their investment profits are not high; in contrast, other investors do not feel satisfied with their investments even when their profits are relative high Therefore, the satisfaction levels of investment decisions together with investment return rate

are proposed as measurements for the investment performance in this research, followed by Kengatharan and Kengatharan (2014)

Based on previous theories and researches such as Kengatharan and Kengatharan (2014) and Waweru et al (2008), there is existence strongly between investment decision and investment performance, therefore, this research is suggested to test the relationship Vietnamese stock market as mentioned in the following hypothesis

Hypothesis 5(H5): Investment decisions have positive impacts on the investment performance of individual investors in Vietnam

2.4 Conceptual model

Based on the literature review and the above arguments, this research proposes the research model indicated, including the four factors that have impact on intention to the investors‟ decision and investment performance These behavior biases namely Overconfidence, Excessive optimism, Herd behavior and Risk attitude are presented in the following research model

Firgure 2.2: Conceptual model

Hypothesis 1(H1): There is a significant negative relationship between overconfidence and investment decisions of individual investors in Vietnam

Hypothesis 2(H2): There is a significant positive relationship between excessive optimism and investment decisions of individual investors in Vietnam

Hypothesis 3(H3): There is a significant positive relationship between herd behavior and the investment decisions of individual investors in Vietnam

Hypothesis 4(H4): There is a significant positive relationship between risk attitude and investment decisions of individual investors in Vietnam

Hypothesis 5(H5): Investment decisions have positive impacts on investment performance of individual investors in Vietnam

2.5 Chapter summary

In this chapter, with the theoretical background of psychology factors, this chapter illustrates the overview of those factors in prior researches not only in the world but also in Vietnam with some papers researched with different results however, those factors are not investigated in Vietnam too much and it is also fresh in some papers This chapter also shows the relationships between psychology factors and investment decisions as well as the investment decision and investment performance Then, this chapter shows the conceptual model and hypotheses which need to be analyzed in the next chapters Furthermore, articles of Vietnamese authors are often not cited accurately and lack of supportive empirical evidences or deep analysis, which makes us difficult to find credible information In addition, it is important

to note that although this research aims at finding the correlation between behavioral factors and investment performance, there are very few studies about this relationship can be found

CHAPTER 3: RESEARCH METHODOLOGY

This chapter introduces research methodology that is used to test the Research framework developed in previous session It will present research process, research design, how to generate surveyed questionnaires, how to survey for research data, how to access this data set

to know if it is reliable and analyze the data from pilot survey by reliability and factor analysis and how to conduct the final survey to collect the data for analysis

3.1 Research Process

This study used two research methods The first phase, pilot test build models, factors, suitable measurement variables for research in HCMC Specifically, through the previous relevant researches, the questionnaire built then running the pilot test for checking the efficiency and the meaning of the questions The pilot test is purposed to explore and define the relevant items and building a completed questionnaire

With the initial goal of identifying which psychological aspects of investors in Vietnam stock market affect the behavioral factors on their investment, the main survey of research approach was employed for this study Firstly, based on the theories and previous studies, document research technique is conducted to build main psychological factors which influence the investment decision of individual investors The second phase, main survey is the main approach of this study The goal is to identify the factors affecting investment decisions and investment performance Research process includes the steps as illustrated in:

Figure 3.1: Research process

3.2 Research design

3.2.1 Questionnaire design:

Based on the literature given in the Chapter 2, the thesis designs a questionnaire to investigate psychological factors affecting investment decisions and the impact of the investment decision on investment performance More specifically, the questionnaire consists

of two main parts:

- Part 1: General information to get information about the respondent‟s stock transaction This information helps select the decision respondent to study In this step, the official questionnaire is finalized following the findings from the pilot survey The official questionnaire is made in both English and Vietnamese version given the targeted respondents are all investors‟ levels who should have a deep view on the questions asked

- Part 2: The main information includes statements (questions) are based on a scale of measurement was proposed for the research The items were measured on the Likert 7-point scale from 1 to 7 (strongly disagree, disagree, neutral, agree, and strongly agree)

Construct

Coding of Variables Items Source

EO2 Investors will add more capitals in the market EO3

Investors believes that the market trend will go

up next year EO4

If Vn Index goes down 4%, investors believe that the market will recover

Herd Behavior

(HB) HB1

Other investors' decisions of choosing stock types have impact on your investment decisions

Construct

Coding of Variables Items Source

Herd Behavior

(HB)

HB2

If investors have their own information which

is different to the market, you will make the decisions or follow the market

(Bikhchandani and Sharma, 2001), Waweru

et al (2008), Ly (2010), Olsen (1998), Kengatharan and Kengatharan (2014)

Investment performance is the factor combination between the satisfaction levels of investment decisions together and investment return rate are proposed as measurements by Kengatharan and Kengatharan (2014) The questionnaire is suggested by Waweru et al (2008), Kengatharan and Kengatharan (2014), Oberlechner and Osler (2004)

Construct

Coding of Variables Items Source

3.3 Pilot Study

Due to the scale of research are adopt from the scales of the previous researches These researches were conduct in different culture, the level of economic development and selected respondents Therefore, a pilot study was conduct through qualitative research method The purpose is to gather information, and adjust variables in these scales The wording Vietnamese language for these scales is also doing to study so that, respondents can understand the question, to avoid confusion

To begin with, questionnaires are sent to brokers working in Securities Companies in Vietnam, specific in Ho Chi Minh City and they are responsible for sending to individual investors Because brokers have strong relationship with investors, the response rate is expected to be high Although questionnaire distributions done by intermediate people may result some biases due to the lack control over the respondent selection process, some actions are done to minize the negative impact on the data quality Firstly, brokers are explained clearly

what is random sampling and how to choose respondent randomly Secondly, they commit following instructions completely

After collecting and analyzing the data collected through questionnaires, semi-structured interviews are employed to expand the scope of the research Interviews with experts in security field provide deeper understanding about the results as well as their experiences about financial behaviors of Vietnamese individual investors in stock market With 30 individual investors for pilot study is investigated first After draft questionnaires, pilot study is proceed and do reliability analysis and factor analysis to make the final questionaire

3.4 Main survey

3.4.1 Sampling

In factor analysis, the sample size should be as large as possible with the minimum should be at least five times as many observations as the number of factors to be analyzed and preferably not less than 100 As there are 22 variables used for the factors analysis, the minimum sample size should be 110 (20x5) In addition, for the multi regression model, minimum sample size should be equal to n=50+8m, which m are number of independent variables (Tabachnick and Fidell, 1996) With the initial research model, there are 5 independent variables; minimum sample size for this should be 200 (50+8x19) In light of the above two requirements, this research choose the biggest sample size Therefore, sample size used for this research should be 200

3.4.2 Data analysis method

In the data analysis, the reliability and exploratory factor analysis will be applied Specifically:

Reliability test using Cronbach’s Alpha

Reliability frequently refers to the consistency of a measure of concept, that is to say, if the research is carried out in the other similar context and the similar results can be obtained, the research is highly reliable (Saunders et al, 2007, p.149) Reliability is considered through three prominent factors namely stability, internal reliability and inter-observer consistency

(Bryman & Bell, 2011, p.158) According to George and Malley (2003), “Cronbach‟s alpha is used as only one criterion for judging instruments or scales It only indicates if the items “hang together”; it does not determine if they are measuring attribute Therefore, scales also should be judged on their content and construct validity” As Cronbach‟s Alpha calculates the average of all split-half reliability coefficients, it can totally answer the question of internal reliability that whether or not the indicators that make up the scale or index are consistent (Bryman & Bell,

2011, p.159) As many writers suggest the acceptable factor loading is 0.6 and above (Shelby,

2010, p.143), so that all achieved scores for this study need to be more than 0.6 shows high level of internal reliability

Table 3.3 Cronbach’s Alpha Reliability Coefficient

Source: George and Malley (2003)

Exploratory Factor Analysis (EFA)

Norris and Lecavalier (2010, p.9) supposed that “EFA is based upon a testable model and can be evaluated in terms of its fit to the hypothesized population model; fit indices can be generated to help with model interpretation” EFA helps to analyze the structure of correlations among many variables by identifying a set of core dimensions, called factors (Ghauri, Gronhaug and Kristinslund, 2010, p.189) In this study, EFA is used to explore the factors that the variables of behavioral finance and investment performance of the questionnaire belong to EFA is used to reduce the number of items in the questionnaire that do not meet the criteria of the analysis (O‟brien, 2007)

In this research, the following criteria of the EFA analysis are applied: Factor loadings, Kaiser-Meyer Olkin Measure of Sampling Adequacy (KMO), Total variance explained In