Investor Attitudes Towards Risk On Stock Market - Free Essay Example

Sample details Pages: 10 Words: 2852 Downloads: 5 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? For the abnormal return in stock market, investor attitudes will become increasingly important. This paper attempts to analyze the impact of investor attitude towards risk that have a greater influence on stock market .In this study researcher focused on particular Islamabad stock market and obtain primary data based on five point Likert scale from investor of ISE. The data indicate that investors have substantially different attitudes toward various investments. Don’t waste time! Our writers will create an original "Investor Attitudes Towards Risk On Stock Market" essay for you Create order However, there are significant statistical differences between attitudes of the investor groups in their attitudes toward three risk types. These data also show significant differences in attitudes toward risk. After analyzing the data through the Regression and Correlation, including ANOVA test, the result found the significance impact of variables on stock market. Introduction The whole financial theory is based on the basic hypothesis of rational investor on the financial markets. This rationality is characterized by a continuous quest of the investors to maximize their utility function (actually maximizing the return of the investment for a given risk level or minimizing the risk for an expected return level). In spite their rationality; investors have a different perception over risk, its bearing having an important psychological factor. Most investors show different attitude towards risk like motivated risk aversion, but we can find on the financial markets. While risk behavior has been studied intensely and a large number of risk perception. Through attention to risk perception and risk propensity which are mediators in attitude transaction, financial institutions can realize the effects on investor behavior and their returns expectations. The first section of this paper is the introduction, the second section is the literature review, the third sec tion establishes hypothesis model, the fourth section presents the study results and the fifth section is the conclusion and recommendations.Different Studies are available; far less research exists regarding peoples mind-sets towards risk taking, i.e., risk attitudes, such as, risk aversion, risk tolerance and risk neutral. These can be conceptualized as two poles of a one-dimensional attitude towards risk-taking but also as two separate concepts. It is widely assumed that people differ considerably in their attitude towards risks, ranging from good sense to risk-seeking and even pleasure in risk-taking. The first trial of conceptualizing the investorsà ¢Ã¢â€š ¬Ã¢â€ž ¢ risk aversion belongs to Milton Friedman and Leonard Savage (Milton Friedman, Leonard Savage Utility Analysis of Choices Involving Risk, JPE, 1948) who defined the risk aversion by using the following decisional situation: an investor who can chose among comparable investments will always chose the one with the l owest risk. Explaining the investment behavior using the returns of risky financial investmentsà ¢Ã¢â€š ¬Ã¢â€ž ¢ utility function brought a new perspective to the risk aversion theory. Further studies showed that there are also other factors with direct impact over the attitude towards risk (economic growth forecasts of a market, the level of training and the experience gained, fluctuations of the exchange market, psychological factors, biases and heuristics etc.). This paper follows studies conducted with investors to examine investor attitudes and behavior towards inherent risk and potential returns in stock market. Statement of the Problem The problem statement of research was à ¢Ã¢â€š ¬Ã…“Impact of Investor Attitude towards Risk on Stock Marketà ¢Ã¢â€š ¬?. Major variables used in this study include stock market return volatility and risk attitude i.e risk tolerance, risk aversive, risk neutral variables that are the indicators of investor attitude. Objective: the objectives of research are:- To study how these attitude types are affecting the stock market. To find whether there is any relationship between stock market index and investor behavior. Significance of the Study The market return fluctuate according to events and trends , the human mind also have some psychological factor that can be influenced or might directs towards good or bad decision making regarding investment. From this study individual investor can get knowledge how their behavior that can maximize or minimize their utility in investment plan in market portfolio. They can change their behavior accordingly. Every Kind of individual like small investor including Man, Women with different status i.e. single or Martial with different age can change their mind set and able to understand how they should make decision to see the market trends or events. Review of Literature There is lot work has been done so far in this regard. Now we have overview some of researcher works in this section of the paper as review literature. With the reference of research topic, some of studies are being done in which all the variables includes Risk attitude factors i.e; Risk Aversion, Risk Tolerance, Risk are taken into consideration to define the impact of those variables on stock market. Levin, Synder and chapman (1975) were concerned with the differences between men and women in accepting the risks of financial investments, they focused on a group of 110 students using a questionnaire regarding lotteries to check the more risk aversive according to gender differentiation. the results indicating that women are more risk aversive than men Powell and Ansic (1997) questioned a small group regarding property insurance and the exchange market and again found that women are more aversive than men (this study was among the first which analyzed individual aversion towa rds speculative and pure risks); using information regarding the weight of the funds invested in risky assets. Jaimie Sung and Hannna (1996) analyzed the risk tolerance corresponding to four ethnic groups: Caucasian, Hispanic, Black and others. Given the substantial differences among risk tolerance capacities of these groups (the Caucasians have the highest risk tolerance and the Blacks the lowest) we may assert that this factor has a direct impact on the way investors accept and perceive the risk attached to financial investments. Education also has a direct influence on risk tolerance, as several studies prove a direct link between higher education and the acceptance of higher risk related to investments. The analysis was conducted on four education levels: primary school, high school, college and postgraduate studies. The results demonstrate an intense and direct impact on accepting financial risk: the higher the subjectà ¢Ã¢â€š ¬Ã¢â€ž ¢s education, the higher his toleranc e to risk. Sitkin and Pablo (1992) developed a model of determinants of risk behavior. In this model, personal risk preferences and past experiences form an important risk factor in which to frame the problem, and social influence also affects the individualà ¢Ã¢â€š ¬Ã¢â€ž ¢s perception. Sitkin and Weingart (1995) extend the Sitkin-Pablo model leading to the definition that risk perception and propensity are the mediators in risk behaviors of uncertainty decision-making. Shyan-Rong Chou, Gow-Liang Huang, Hui-Lin Hsu (2010) has done research on à ¢Ã¢â€š ¬Ã…“Investor Attitudes and Behavior towards Inherent Risk and Potential Returns in Financial Productsà ¢Ã¢â€š ¬?. They establish a model by which to measure attitudes and behavior towards investment risk.They used variables: Risk propensity, Risk perception, Behavior finance, Decision making. They study to form a framework (framing) for interpretation of their respective populationà ¢Ã¢â€š ¬Ã¢â€ž ¢s attitudes and behaviors . Empirical results found no difference by gender to investor propensity to take risk, nor in cognitive perception of such. However, higher and lower perceptions of risk were indicated by investors according to their personal investment experience. Investors with little experience in stocks and structured notes were found to have significantly sensitive perception of risk. Thus the model proposed is relevant in finding a positive correlation between experience and propensity of risk, though the understanding of such remains uncertain. In respect to financial products other than mutual funds, investor propensity and perception of risk tend to show a negative correlation. Amos Tversky; Daniel Kahneman (1974) defines in their research à ¢Ã¢â€š ¬Ã…“Judgment under Uncertainty: Heuristics and Biasesà ¢Ã¢â€š ¬? that Heuristics that are important feature of the individual decision-making process which may be considered to include thought representativeness and availability. They foun ded that there is anchoring bias in the decision-making process which arises due to factors such as overconfidence, loss aversion, status quo bias, mental accounting, framing and so on. Investors in the process of assessing the risks and returns are influenced by this anchor effect. All these studies proved the complexity of risk aversion and its subjective dimension, as the estimates are difficult to obtain accurately. Investors have ultimately a unique behavior which results in un balanced price, no matter how adverse they are to risk. Understanding risk aversion offers another perspective for constructing and optimizing risky financial portfolios. Theoretical Frame work Our theoretical frame work is as under: (Independent Variables) Risk Aversion Risk Tolerance Risk Neutral (Dependent Variable) Stock Market Explanation The possibility of physical or social or financial harm /detriment / loss due to a exposure. This is the (dominating) negative perspective; however, there is also a neutral perspective, i.e., risk = uncertainty about the outcomes (good and/or bad ones) of a decision; and a positive perspective. A persons opinion belief about how large the risk associated with a hazard is (regarding negative outcomes) A general perspective of humanà ¢Ã¢â€š ¬Ã¢â€ž ¢s mind towards taking or avoiding a risk when deciding how to proceed in situations with uncertain outcomes. Risk Attitude towards taking risks or avoiding risk are; i.e, Risk aversion, Risk Tolerance, Risk Neutral. So, all decisions about how acceptable a risk is in individual or societal terms deepened on market events or trends. The actual behavior of people when facing a risk situation, each investor has unique personal risk tendencies, investment style, and level of risk awareness. These characteristics, in addition to the expect ation of returns, help investment decision making and portfolio construction. According to traditional financeà ¢Ã¢â€š ¬Ã¢â€ž ¢s capital asset pricing model, due to investor risk aversion, rational investors understand that increased investment risk demands return with a higher premium. Diagrammatical Expression of Variable:  [1] Purpose of the study (Hypothesis Testing) Hypothesis testing offers an enhanced understanding of the relationship that exists among variables. It could also established casual and effect relationship. The research à ¢Ã¢â€š ¬Ã…“Impact of Investor attitude towards risk on Stock Marketà ¢Ã¢â€š ¬?, includes there are certain variables upon which the growth of Stock Market depends; these are interest rate, Risk Aversion, Risk Tolerance, Risk Neutral ,Uncertainty. Research is being carried out to analyze the nature of the relationship between all these variables. Hypothesis Risk Tolerance Investor: Investors who tend towards higher risk are more adventurous and so are willing to attempt high-risk, high reward investments. H1: Investor who has a higher tolerance to risk that have significant impact on stock market volatility H2: Investor who has a higher tolerance to risk that have no significant impact on stock market volatility Risk Aversive Investor: People who tend towards lower risk behavior are less willing to engage in risky adventurous behavior due to their low risk tolerance. That is, this kind of investor has a high degree of risk perception in financial products. H3: Investor who are risk aversive has significant impact on stock market volatility H4: Investor who are risk aversive has no significant impact on stock market volatility Risk Neutral Investor: Someone is completely indifferent to the risk involved an investment and is only concerned about expected return. H5: Investor who are risk neutral has significant impact on stock market volatility H6: Investor who are risk neutral has no significant impact on stock market volatility Methodology: (Sample Data Collection) Sample is taken from Islamabad stock exchange and data collection is based on primary data using questionnaire consist of five likert scale including Strongly Agree, Agree, No Strong Opinion, Disagree, Strongly Disagree to analyze the dependent and nondependent variables. The questionnaire sample obtained from the valid source à ¢Ã¢â€š ¬Ã…“The Scottish Life Risk Attitude Profiling Questionnaire is based on the Byrne Blake Risk Profile Questionnaireà ¢Ã¢â€š ¬?  [2]  . The Respondents which have obtained during the research work are 30 that included 20 brokers, 10 small investorà ¢Ã¢â€š ¬Ã¢â€ž ¢s i.e Man, Woman having different qualification, age and income groups. To analyze the data being a researcher we used Regression and correlation in SPSS to see the impact and relationship between variables. Data Analysis and Discussion The results drawn from statistical analysis is based on regression analysis. As the independent variable is comprised of three facets i.e, risk aversion, risk taking and risk neutral so several hierarchical regression analyses are performed to formally check the hypothesis. Separate regression analyses are run for analyzing independent-dependent relationship. Regression has been used in order to measure that how much variation in dependent variables has been caused by independent variable. The results are as follows: Risk Aversion (a) Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate 1 .467(a) .218 .048 .48900 Interpretation Table illustrate that value of R Square is 0.218 which is equal to 21.8 %. This means that independent variable i.e. risk aversion is accounting for 21.8 % of variation in the dependent variable i.e stock market. (b) ANOVA Model Sum of Squares df Mean Square F 1 Regression 1.535 5 .307 1.284 Residual 5.500 23 .239 Total 7.034 28 a. Predictors: (Constant), risk aversion b. Dependent Variable: Stock market Interpretation F ( 1. 101) = 1.284 ; P 0.01 Since the value of P is less than 0.01, so we can say that the overall effect of this independent variable is highly significant. RISK Tolerance (a) Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate 1 .442(a) .195 -.025 .50735 Predictors: (Constant), risk tolerance Interpretation Table illustrate that value of R Square is 0.195 which is equal to 19.5 %. This means that independent variable i.e. risk tolerance is accounting for 19.5 % of variation in the dependent variable i.e. stock market. (b) ANOVA Model Sum of Squares df Mean Square F 1 Regression 1.372 6 .229 .888 Residual 5.663 22 .257 Total 7.034 28 a. Predictors: (Constant), risk tolerance b. Dependent Variable: Stock market Interpretation F ( 1. 101) = 0.888 ; P 0.01 Since the value of P is less than 0.01, so we can say that the overall effect of this independent variable is highly significant. Risk Neutral (a) Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate 1 .687(a) .472 -.056 .51517 Predictors: (Constant), risk tolerance Interpretation Table illustrate that value of R Square is 0.472 which is equal to 47.2 %. This means that independent variable i.e. risk neutral is accounting for 19.5 % of variation in the dependent variable i.e. stock market. (b) ANOVA Model Sum of Squares df Mean Square F 1 Regression 3.319 14 .237 .893 Residual 3.716 14 .265 Total 7.034 28 Predictors: (Constant), risk neutral Dependent Variable: Stock market Interpretation F (1. 101) = 0.893; P 0.01 Since the value of P is less than 0.01, so we can say that the overall effect of this independent variable is highly significant. CONCLUSION This study uses the questionnaire approach to test the risk attitudes and returns expectations of investors of particular Islamabad stock exchange. There are different trends and economic crisis that rapidly changed the attitude of investors of male and female. Variance analysis also found that less experienced investors have lower risk propensity and higher risk perception. However, considering individual attitude and perception about returns of stock market either influenced positively or negatively that assessed during research questionnaire. In the test model, investor experience and their risk propensity is in positive correlation. So, the conclusion of this study is consistent with recent literature, however the relationship between risk attitude and expected returns has not yet been determined as successful and strong empirical result. RECOMMENDATIONS Researcher recommended the followings ways to gain higher return from their investing attitude. Compare current stock value with historical results of securities or bonds markets. If you are risk aversive and need higher income during shorter period of time and at low risk, you will need to find other financial instruments.   As we know that, there is direct correlation between risk and income. The higher is income, the higher is risk so investor should ensure about their instruments worth in which he/she going to invest such can be divided as follows: bank savings, bonds and shares.   Another issue is that somehow media reports negatively about stock market return so, investor rapidly change their mind set as the framing heuristic applied without thinking the validity of information. So investor should protect his or her investments. Having purchased securities, keep monitoring securities market periodically. Other Recommendations are that Do not spread the whole mon ey in the market and prefer to invest in only those companies that pay a dividend and that have a history of raising their dividend every year. Investor should forget making a profit; instead focus on the income provided from the stock portfolio and make every stock purchase with the intent that the purchase will be a long-term investment. Develop a savings plan to add to your holdings each quarter to help dividend reinvestments to accumulate more shares on a cost averaging basis. REFERENCES Amos Tversky; Daniel Kahneman Science, New Series, Vol. 185, No. 4157. (Sep. 27, 1974), pp. 1124-1131. Jaimie Sung, Sherman Hanna, Factors related to risk tolerance, Financial Counseling and Planning, Vol. 7,1996, pag. 14). Levin Irwin P., Mary A. Snyder and Daniel P. Chapman (1975), The Interaction of Experiential and Situational Factors and Gender in a Simulated Risky Decision-Making Task, Journal of Psychology, 1988, 122(2),pp. 173-181) Powell Melanie, and David Ansic (1997), G ender Differences in Risk Behaviour in Financial Decision-Making: An Experimental Analysis, Journal of Economic Psychology, 18(6), 1998, pp. 605-628. Risk Attitude Profiling questionnairehttps://www.scottishlife.co.uk/scotlife/nmsruntime/saveasdialog.asp?fileName=Risk_Attitude_Questionnaire.pdf Source:https://www.emeraldinsight.com/books.htm?chapterid=1760442show=html Sitkin and Pablo (1992) Review of management Review-1992.vol 17, No.1, p-38). Shyan-Rong Chou, Gow-Liang Huang, Hui-Lin Hsu (2010) International Research Journal of Finance and Economics ISSN 1450-2887 Issue 44 (2010)  © Euro Journals Publishing, Inc. 2010. https://www.eurojournals.com/finance.html)

Cultural Sensitivity And Culture And Other Practices

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Relationship between Politics and Religion in India Free Essays

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Childrens Drawings Step by Step Essay Example For Students

Childrens Drawings: Step by Step Essay N,R. Smith (1973) believes that the child begins the drawing with no intention or symbolization, but as the drawing progresses a pattern is made and the child sees a representation and then proceeds to make the rest tooth drawing shift towards this representation and builds on that. The basic pattern of childrens development to drawings begins at scribbles which appear from 12 months. The scribbles are non-representational and just involve the progressive control of movement. These scribbles tend to be viewed as gestures rather than drawing in true sense of the world according to Viscosity. Rancher (1956) believes that the earliest scribbles are a motor impulse, this simply means the child has no intention to draw a representation of an object or event it is just a coincidence. They begin to progress from 20 months of age where the scribbles being to become representational and the marks stand for whole objects. Cognitive psychologists tend to search these scribbles for visual resemblance where they attempt to make some sense Of it. There is Often some intended meaning within the scribbles, for example dots representing foot prints but not true representation. Symbolic pictures Start to appear around 3 years Of age where children begin to understand that pictures represent objects and begin to start drawing simple pictures Of people. Over time more realistic pictures are drawn round 5/6 years old and at 6/7 years old children begin to use size, position and composition to show depth, those of which allow more natural representations of the real world and tend to have a more significant meaning. Liquate (1927) and later on Pigged ; Inhaler (1969) invented the Stage Theory of Drawing, This is the belief that drawings are external representations of the childs internal model which is their mental picture. The stage theory consists of four stages. The first stage is fortuitous realism which occurs at 18-2. 5 years old and consists to labeling objects in scribbles. The second stage is tailed realism (2/5-5 years old), representational intention but tends to be inaccurate. The third stage being intellectual realism (5-8 years old), drawing what the child knows rather than what they see and the fourth stage, visual realism which is beyond 8 years old which is where the child actually draws what they see. There has been evidence to back up the stage theory, for example Freeman gamma; Kinkajou (1972) conducted a study in 1972 on 5-7 year olds. They were asked to draw a mug in front Of them Which had the handle out Of view. Results found that under year olds who would be in the intellectual stage drew the mug which included the hidden parts as they would be drawing What they knew, whereas the 8 year olds and over who would be in the Visual stage drew only what they could see. However the Stage theory has been criticized for the stages being too rigid leading to underestimating the childs ability. Barrett. Beaumont ; Jennet (1985) also found that instructions can have an impact on the childs drawing. They found that if children were given standard instructions, i. E. Just telling them to draw what they can see, only 11% of drawings would be correct whereas if hey were given explicit instructions, i. E. Draw exactly what they can see and look at it very carefully in order to draw it as you see, 65% of drawings were correct. It is also argue that the stage theory can vary over different cultures. The human figure is a drawing particularly investigated as it is regarded to be a way in which children express something about themselves. Researchers believe they can explain a childs personality and their current emotional state. Tests were created to investigate this, for example the Kinetic Family Drawings Test claimed o measure how children felt about the topics in the drawing and their wider environment. Drawing on Debates in Leisure and Sport Theory EssayHowever Burrito (2003) criticized this and argued that when a child uses a dark color it may not necessarily mean they are expressing a negative attitude, it could simply be that the child favors this color and they want to express this in their drawing y using their favorite color _ The things that children may not be able to tell themselves can often be found through interpretations and observations Of their drawings Of graphic symbols. Previous research found the main and clearest signs found in drawings are over sized ears without earrings which could suggest the child is experiencing some sort of verbal abuse in their life, big hands in a drawing suggest that the child is experiencing some sort of physical abuse and aggression, if a drawing oaf person has no mouth it is suggested that the child finds it difficult to communicate and drawings of a person with aged teeth, spiked fingers and hair relate to aggressive behavior. However to properly interpret childrens drawings, these patterns must be consistent over time and not just occur once otherwise it is highly likely it will have no meaning or representation and is just a random occurrence with significance at all, Wales believes that as we begin to summarize characteristics of childrens drawings and watch them develop and change throughout childhood we soon see that the obeseÐ’Â »actions that are made on the childrens drawings are in fact the product of our own interpretations and what we believe the picture is showing, The question of how children draw pictures which differ so much from adults is a major question which often causes debates such as is there actually a message there or is it just a typical childs drawing which has no significance or meaning whatsoever, Many questions arise involving this research area once people attempt to make sense of childrens drawings, however many people believe childrens drawings should be left as they are without investigation as they believe it is mysterious and imaginative. The research looked into for this essay has shown that the main indicators used in childrens drawings which help to understand childrens thoughts, messages and emotions are the colors used and the figure size. The research into childrens drawings in relation to childrens minds has found many results showing that drawings do relate to the childs cognitions however all research into interpreting childrens drawings and What it tells us about their minds can be criticized because it could just be that the child enjoys drawing something particular and their decision to draw what they are drawing is always influenced by their own knowledge of the object and their own thoughts and interpretations on the object and what bits are important about it. The drawing is a representation of how the child sees the world themselves and it is thought that to alter this information by adding adult interpretations and to investigate more into it is a shame. As the childs cognition capacity increasing, children are more able to express representations as they move trot simple drawings, to complex drawings. It is difficult to conclude whether these drawings actually represent something to the child or whether it is simply our own interpretations and representations. References Barrett, Beaumont gamma; Jennet. (1985). The effect of instructions on view- pacifistic in young childrens drawing and picture selection.