A study on small investors’ sentiment, financial literacy and stock returns: evidence for emerging market

  • Authors

    • Amari Mouna Faculty of Economics and Management of Sfax, FINANCE and accounting
    • Jarboui Anis ISAAS Tunisia
    2015-02-01
    https://doi.org/10.14419/ijaes.v3i1.4098
  • Anchoring, Emerging Market, Experience, Financial Literacy, Portfolio Return.

  • Abstract

    Humans are constantly susceptible to cognitive errors and these create biases in their judgments. The main purpose of this paper is to determine how the sentiment of the small investors affects their decision making by examining their portfolio returns and does experience level can reduce this errors.

    The proposed model of this research uses the classification trees analyses to examine this relationship. Investor‘s biases have been measured by means of a questionnaire comprising several items. As for the selected sample, it has been composed of 128 small investors actively trading on the Tunisian stock market.

    The findings show that the portfolio returns of the small investors were somehow influenced by behavioral biases and the results indicate that anchoring, familiarity, age and experience to be important contributory factors to the decision making performance. Also our findings reveal that their experience level can reduce the biases in their judgments.

  • References

    1. [1] Ait-Sahalia, Yacine and Lo, Andrew W.(1998), “Non-Parametric Risk Management and implied Risk Aversion â€, CRSP Working paper ,No.,468.

      [2] Altman (2012), implications of behavioral economics for financial literacy and public policy, Journal of socio economics, 41 677-690.

      [3] Barber, Brad M. and Odean, Terrance, (2005), (2007b), “All that Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investorsâ€. Oxford University Press on behalf of the Society for Financial Studies.

      [4] Barber, Brad M., and Terrance Odean, (2004), “Are individual investors’ tax savvy?†Evidence from retail and discount brokerage accounts, Journal of Public Economics, 88, 419-442. http://dx.doi.org/10.1016/S0047-2727(02)00217-7.

      [5] Bay, (2012), “Situating financial literacyâ€, Critical perspectives on accounting.

      [6] Daniel Kahneman, Amos Tversky, (1979), Econometrica, Vol. 47, No. 2, pp. 263-292. http://dx.doi.org/10.2307/1914185.

      [7] Dhar, Ravi and Zhu, Ning, 2006, “Up Close and Personal: An Individual Level Analysis of the Disposition Effectâ€, Management Science, 52-5, 726-74. http://dx.doi.org/10.1287/mnsc.1040.0473.

      [8] Fisher, Kenneth L. and Meir Statman, (2000), “Investor Sentiment and Stock Returnsâ€,Financial Analysts Journal, 56 (2), pp. 16-23. http://dx.doi.org/10.2469/faj.v56.n2.2340.

      [9] Furnham and Hua Chu Boo, (2011), “literature reviews of the anchoring affect, The Journal of Socio-Economics, 35-42.

      [10] Gathergood (2013), “self-control, financial literacy and consumer over-indebtednessâ€, Journal of economic psychology, 33 (2012) 592-602.

      [11] Grinblatt, Mark and MattiKeloharju, (2001), “what makes investors trade? Journal of Finance, 56, 589-616.

      [12] Heath, Chip, Steven Huddart, and Mark Lang. (1999), “Psychological Factors and Stock Option Exerciseâ€, Quarterly Journal of Economics, 114, 601–627. http://dx.doi.org/10.1162/003355399556089.

      [13] Ingmar Nolte, (2013), A detailed investigation of the disposition effect and individual trading behavior, the European Journal of Finance.

      [14] Kartasova, (2013), “Factors forming irrational Lithuniainaian individual investors’ behaviorâ€, Busniess systems and economics Vol. 3 (1), 2013.

      [15] Krishnan, R., and Booker, M. (2002), “Investors' use of analysts' recommendationsâ€. Behavioral Research in Accounting, 14: 129-56. http://dx.doi.org/10.2308/bria.2002.14.1.129.

      [16] Kumar, Alok and Lee, Charles M. C., (2006), “Retail Investor Sentiment and Return Comovementsâ€, Journal of Finance, 61-5, 2451-2486. http://dx.doi.org/10.1111/j.1540-6261.2006.01063.x.

      [17] Kyle, Albert, and F. Albert Wang, (1997), “speculation duopoly with agreement to disagree: Can overconfidence survive the market test?,†Journal of Finance, 52, 2073-2090. http://dx.doi.org/10.1111/j.1540-6261.1997.tb02751.x.

      [18] Malmendier, Ulrike and Devin Shanthi kumar, “Do Security Analysts Speak in Two Tongues?†Working Paper, (2004).

      [19] MarkkuKaustia and al., (2011),’’Stock market aversion? Political preferences and stock market participation, The Journal of Financial Economics, 98-112.

      [20] Nofsinger, (2001), “The impact of public information on investors», Journal of banking and finance, Vol 25, Issue 7, Pages 1339–1366.

      [21] Odean, Terrance, (1998a), “Are investors reluctant to realize their losses?â€Journal of Finance, Vol. 53, No. 5, p.1775-1798. http://dx.doi.org/10.1111/0022-1082.00072.

      [22] Odean, Terrance, (1998b), “Volume, volatility, price, and profit when all traders are above averageâ€, Journal of Finance 53, 1887-1934. http://dx.doi.org/10.1111/0022-1082.00078.

      [23] Riaz (2012), “impact of psychological factors on investment decision making mediating by risk perception: a conceptual studyâ€, Middle-east journal of scientific research 12(6) 789-795.

      [24] Roger, M.Edelen (2010), “Relative sentiment and stock returnsâ€, Financial Analysts Journal, FAJ ms 0905-FAJ-2044R.

      [25] Schgal and al., (2012), ‘’Prior return patterns in stock returns: evidence for emerging markets’’, the Asian Journal of Finance and Accounting, Vol 4, No 1.

      [26] Scholonick and al. (2013), the impact of wealth on financial mistakes: evidence from credit card nonpayment, Journal of financial stability, 9 (2013) 26-37. http://dx.doi.org/10.1016/j.jfs.2012.11.005.

      [27] Shefrin (2000), “Behavioral Portfolio Theoryâ€, Journal of Financial and Quantitative Analysis, Vol 35, Issue 02, pp 127-151. http://dx.doi.org/10.2307/2676187.

      [28] Shefrin, Hersh, and Meir Statman. (1985). “The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidenceâ€, Journal of Finance, 40, 777–782. http://dx.doi.org/10.1111/j.1540-6261.1985.tb05002.x.

      [29] Taylor and al., (2013), “financial capability and psychological health, Journal of economic psychology, 32, 710-723.

      [30] Thaler, R., E. J. Johnson. (1990), “Gambling with the house money and trying to breakeven: The effects of prior outcomes or risky choiceâ€. Management Sci., 36(6) 643–660. http://dx.doi.org/10.1287/mnsc.36.6.643.

      [31] Todd McElroy (2007), “Susceptibility to anchoring effects: How openness-to-experience influences responses to anchoring cuesâ€, The Judgment and Decision Making, Vol.2, No.1, pp., 48-53.

      [32] Tversky, Amos and Daniel Kahnemann, (1974), “Judgment under uncertainty: Heuristics and biasesâ€, Science, 185, 1124-1131. http://dx.doi.org/10.1126/science.185.4157.1124.

      [33] Weber, Martin, and Colin F. Camerer, (1998), “The Disposition Effect in Securities Trading: An Experimental Analysisâ€, Journal of Economic Behavior & Organization, 33, 167-184. http://dx.doi.org/10.1016/S0167-2681(97)00089-9.

      [34] Welsh and al., (2013), “Individual differences in anchoring: Traits and experienceâ€, Learning and Individual Differences.

  • Downloads

  • How to Cite

    Mouna, A., & Anis, J. (2015). A study on small investors’ sentiment, financial literacy and stock returns: evidence for emerging market. International Journal of Accounting and Economics Studies, 3(1), 10-19. https://doi.org/10.14419/ijaes.v3i1.4098

    Received date: 2014-12-30

    Accepted date: 2015-01-26

    Published date: 2015-02-01