INTERNATIONAL JOURNAL OF MANAGEMENT (IJM)

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1 INTERNATIONAL JOURNAL OF MANAGEMENT (IJM) ISSN (Print) ISSN (Online) Volume 7, Issue 2, February (216), pp Journal Impact Factor (216): (Calculated by GISI) IJM I A E M E THE EMPIRICAL STUDY ON INVESTORS RISK PERCEPTION AND BEHAVIOUR OF EQUITY INVESTORS IN TIRUCHIRAPPALLI DISTRICT S. Abdul Lathif Assistant Professor, Department of Business Administration, Jamal Mohamed College (Autonomous), Trichirappalli 2 Dr. U. Syed Aktharsha Associate Professor, Jamal Institute of Management, Jamal Mohamed College (Autonomous), Trichirappalli 2 ABSTRACT The purpose of this paper is to examine the relationship among the individual behavioural of Equity Investors and his Perception. It explores individual investor s preferences for Investment choices and provisionally investigates the impacts of risk tolerances and risk perceptions on their investment decisions. A sample of 2 investors using a structured questionnaire from investment avenues in Tiruchirappalli district. The result of analysis have shown that investor s decisions to make their investment choices are significantly and negatively related to personal income level. Key words: Perception, Equity Investors, Investment Management, Decision-Making Cite this Article: S. Abdul Lathif. and Dr. U. Syed Aktharsha. The Empirical Study on Investors Perception and Behaviour of Equity Investors in Tiruchirappalli District. International Journal of Management, 7(2), 216, pp INTRODUCTION Investment is a real investment and not financial investment. It is a conscious act of an individual or any entity that involves development of money (cash) in securities or asset issued by an financial institution with a view to obtain the target returns over a specified period of time (John maynard Keynes, 1938). Investment decision-making behavior theories on investment activities is examined that the traditional investment approach was the dominant approach in the market until 195s. Although, this approach is lacked a scientific paltry, it is seen that it was the dominant view in the market for a long time due to the fact that its workability was relatively easy (Civan, 27). In the historic investment conception, the investors think that they can decrease the risk just by increasing the number of investment instruments. They have without considering the relations between the revenue of investment instrument (Dermirats and Gungor, 24). In the traditional investment approach, the investors are recommended to invest in the instruments with a high revenue possibility. However, they are not informed about how the risk will be measured and the mean values of yields realized in the past defined as expected return (Reilly and Ve Brown, 1999). The study execute by Markowitz in 1952 named investment selection establish the development of new theories in the field (Cihangir et al., 28). There are similar studies done in the field of investment (Kardiyen 28). With the help of the 266

2 theory developed by Markowitz, it was suggested that the risk cannot be reduced by increasing the number of financial instruments and the decision for investment should be made by taking in to consideration the direction and degree of relation among the investment instruments (Demirtas and Gungor, 24). According to the modern investment theory of Markowitz, the overall risk of investment could be lower than the each financial asset and some cases that the non-systematic risk of investment could be reduced to zero. After all, it was pointed out that investors could prefer some investments for being less risky although they produce the same amount of revenue and again they could prefer others for higher revenues even though they have the same level of risk (Markowitz, 1952). In Markowitz view, the risk can be reduced considerably with reverse correlations among the investment instruments as well as by diversifying the instruments available in the investors (Cetin, 27). According to this theory, Markowitz preferred the investments with lower risks instead of the once with higher revenues. While forming a investment and diversification (Civan, 27), as a result of the studies accomplish in the following periods meanwhile which analytical models failed to explain individual investors behavior. There are two studies of Kahneman and Tversky, who were interested in the area of finance. Their first study, which was on short-cut motive errors (Kahneman and Tversky, 1974) was published in 1974, although the second study, which was on frame dependency, was published in 1979 (Bayar, 211) and these two people formed the basis for behavioural finance (Bayar, 211). Kahneman and Tversky (1979) mentioned that irrational investors in their studies. In this sense, the expectation theory suggested that whip up big interest. In this theory Kahneman and Tversky stated that investors concentrated on loss and gains at different levels and also, Kahneman and Tversky argued that instead of expected risk, perceived risk must be taken in to account with his study entitled Integration of outcomes of psychological research into economic sciences and decision making against indecision that he wrote with Tversky, Kahneman received the nobel prize for economics in 22. For Kahneman, this prize was an index that behavioural finance was widely and scientifically accepted. To summarize, this is absents of understanding of individual behaviour of Equity Investors and perception. Also, the relationship between individual behaviour of equity investors and risk perception is less explored in previous studies. So, the objective of the study was to examine the perception of equity investors in Tiruchirappalli District. 2. REVIEW OF LITERATURE In this paper, a comprehensive literature review about individual behaviour of equity investors and his risk perception has been carried out. Many authors describe behaviour finance perspective. Such as, Deaux and Emswiller (1974), Lenney (1977), Maital et al. (1986), Thaler and Johnson (199) and Beyer and Bowden (1997). Those authors are to explain that individual investor would demonstrate different risk attitude when facing investment alternatives. Comparing with previously research, current study is to focus on external factors and psychological factors how to affect investor s investment decision and investment choices. For instance, Annaert et al. (25), Wang et al. (26) indicate the impact of information asymmetric problem on investor behaviour. This is another subject in behavioral finance field. Most of these researches are pay close attention to behavioral finance, especially in financial products choices (investment) and behaviour of individual investor investment related. There are some empirical evidence shows the impact of risk tolerance and risk perception of investment choices. These are Carducci and Wong (1998), Grable and Joo (1997), Grable and Lytton (1999), Grable (2), Hallahan et al., (23), Hallahan et al., (24), Frijns et al., (28), and Veld and Veld- Merkoulova (28). In terms of different risk perception or risk tolerance level, individual investor may show different reaction base upon their psychology factor and economic situation, which would lead to heterogeneous investment choice for individual investors. 3. RESEARCH OBJECTIVES To examine the risk perception of equity investors in Tiruchirappalli city. To study the importance of investment management of equity investors. To know about the Investors knowledge and experience of investing in equities. 267

3 4. RESEARCH METHODOLOGY 4.1. Research Design A Research design is purely and simply the framework of plan for a study that guides the collection and analysis of data. The study is intended to find the investors investment behaviour in various investment avenues at Tiruchirappalli district. The study design is Descriptive in nature Descriptive Research Is a fact finding investigation with adequate interpretation. It is the simplest type of research and is more specific. Mainly designed to gather descriptive information and provides information for formulating more sophisticated studies Survey Instrument The questionnaire was two pages in length classified into two parts. Part I consists of questions seeking information about demographics such as (Name, Gender, Age, Marital Status, Qualification, Employment, Annual Income, Financial instrument, Ability of investment appetite). The Part II includes questions that aim at obtaining details about Financial Future, Financial, Investment Preferences, Tolerance and Investment activities 4.4. Source of Data The sources of primary and secondary data were used for the collection of Information for the study. Primary data was collected through questionnaire and secondary data from Articles have been sourced from Various Magazines and journals dealing with the concepts of investment management and risk perception Sample Size A sample size refers to the numbers of items selected from the universe to constitute a sample. Sample size for the study is 2 Investors are properly responded in Investment Avenues in Tiruchirappalli district Sampling Method Simple random sampling was adopted. It is an approach in which each unit of population an equal chance of being selected Data Analysis Table 1Type of Investment Preferred and Time taken for Evaluation of Performance of investment by the respondents NO. Type of Investment Period of Time 1 Bonds Monthly Equities Quarterly Bank Deposits Annually T-Bills. Over 5 Years From the above table, it shows that 45.5 of the respondent s preferred Equity type of investments, 29 of the respondents preferred Bank Deposits and 25.5 of the respondents preferred bonds type of investment. No one prefers T Bills., it is clear that 35.5 of the respondents judge the 268

4 performance of investment in a month, 25 of the respondents judge the performance of investment, 21 of the respondents judge the performance of investment quarterly and 18.5 of the respondents take over 5 years to judge the performance of the investment. Table 2 Performance about their Financial Future and age from which the are investing No. 1 Financial Future Very Optimistic Age of Investing Age 8 and Over Positive Age 7 to Unsure Age 6 to Pessimistic Age 5 to Total 2 1. Age under Total 2 1. From the above table, it shows that 34 of the respondents are positive about their financial future, 29 of the respondents are unsure, 22.5 of the respondents are very optimistic about their financial future and 14.5 of the respondents are Pessimistic. It is found that 29.5 of the respondents have invested in age between 5 to 59 years, 26 of the respondents have invested in the age between 6 to 69 years, 23 of the respondents have invested in the age between 7 to 79 years, and 17.5 of the respondents have invested in the age 8 and above. It is revealing that people under 4 years only 4 have been investing. No Table 3 Understanding comfort level in stock Investing and Investor Perception Understanding and Comfort Level No Experience in Stock Market No Experience, but some Level of Comfort 4 2. Some Experience & Interest Reasonable Experience Best Statement Some Current Income High Current Income High Total Return Substantial Return Extensive Background and Good Comfort Total 2 1 Total 2 1 From the above table, shows that 29.5 of the respondents have no experience in stock market, 22.5 of the respondents have reasonable experience, 2 of the respondents have no experience but some level of comfort, 16.5 of the respondents have some experience and interest and 11.5 of the respondents are have extensive background and good comfort. It is found that 41 of the respondents perceive high total return as the best statement, 27 of the respondents perceive some current income and are very safe, 24.5 of the respondents are perceive substantial return. 269

5 Table 4 Attitude about Financial No. Attitude about Financial 1 Diversified Investment I Only invested with extra money I can afford to loss Associated with playing in the stock The higher the investment yield or rate of return the greater the risk Total 2 1 From the above table. It is clear that 41 of the respondents are associated with playing in the stock market, 25.5 of the respondents have diversified investment. 18 of the respondents afford to loss, and 15.5 of the respondents have an attitude that the higher the investment yield or rate of returns the greater the risk. No. Table 5 Investment Activities by the Any Investment Activities 1 Yes No Total 2 1. From the above table, shows that 5.5 of the respondents do not have any investment activities and 49.5 of the respondents are having investment activities. No Table 6 Tolerance since the time of investment and response to market decline Tolerance More Willingness Less Willingness Factors has no influence Liquidation Process. Immediately At Would wait for market turnaround No Idea 59 At Total 2 1. Total 2 1. From the above table, it shows that for 36 of the respondents risk factor has no influence since the time of first investment, 34.5 of the respondents have less willingness to take on risk, 29.5 of the respondents have no idea about risk. It is inferred that 4.5 of the respondents would wait for market turnaround, 28 of the respondents would immediately liquidate and move to a more stable investment, 22.5 of the respondents will move at 75 for stable investment and 9 of the respondents will move at 9 for stable investment. 27

6 No. Table 7 Time Horizon for Withdrawals and Growth Expected of Investment in 5 years Time Horizon for with drawals Growth Expected 1 Currently to Less than 3 years to Between 6 to 15 years to After 15 years Above Total 2 1 Total 2 1 From the above table, it is found that 35 of the respondents will make withdrawals between 6 to 15 years, 32.5 of the respondents currently need to make withdrawals, 18 of the respondents will withdraw in less than 3 years and 14.5 of the respondents will withdraw after 15 years. It is clear that 28.5 of the respondents expect their investment to grow from 3 to 5, 26 of the respondents expect their investment to grow from to 15, 23 of the respondents expect a growth above 5 and 22.5 of the respondents expect a growth from15 to 3. No. Table 8 Sharing Information about with Consultant, Learns from and Measure to Control Feel Fre e Responden ts 1 Yes No Lear n from Responden ts Yes 71 No Measure to Control Responden ts Avoidance 89 Modificatio n Total 2 1 Total 2 1 Total From the above table, it is found that 63.5 of the respondents feel free to share information on risk with consultant and 36.5 the respondents do not feel free to share information with the consultant. It is found that 64.5 of the respondents do not learn from their risk, and 35.5 of the respondents learn from their risk. The table shows that 55.5 of respondents control the risk by modification and 44.5 of the respondents avoid risk. Table 9 Chi-Square Analysis for Income Level and Age of Investing Age of Investing Income Level From 25 to 35 From 35 to 45 From 45 to 55 Above 55 Grand Total Rs Rs.5 to Rs Rs.6 to Rs Rs.7 to Rs Above Rs Grand Total Null Hypothesis (H): No Significant relationship between Income and Age of investing. Alternate 271

7 Hypothesis (H1): There is a Close Significant relationship Income and Age of investing. Factor Income Level Calculated Chi-Square Table Degree of Freedom Re-Marks Not Significant It is noted from the above table that the calculated Chi-square value is less than the table value. So, there is Close relationship between Age group and Age of investing. Table 1 Chi-Square Analysis for Income Level and Performance of Investment Performance of Investment Income Level Monthly Quarterly Annually Over 5 Years Grand Total Rs Rs.5 to Rs Rs.6 to Rs Rs.7 to Rs Above Rs Grand Total Null Hypothesis (H): No Significant relationship between income level and performance of investments. Alternate Hypothesis (H1): There is Close Significant relationship between income level and performance of investments. Factor Income Level Calculated Chi-Square Table Degree of Freedom Table 11 Chi-Square Analysis for Income Level and Financial Future Remarks Not Significant Financial Future Income Level Very Optimistic Positive Unsure Pessimistic Grand Total Rs Rs.5 to Rs Rs.6 to Rs Rs.7 to Rs Above Rs Grand Total Null Hypothesis (H): No Significant relationship between income level and financial future. Alternate Hypothesis (H1): There is Close Significant relationship between income level and financial future. 272

8 Factor Calculated Chi-Square Table Degree of Freedom Remarks Income Level Not Significant Table 12 Chi-Square Analysis for Income Level and Financial Financial Income Level Reduces Invest with Extra Money Associated with Playing in the stock Rate of Returns Grand Total Rs Rs.5 to Rs Rs.6 to Rs Rs.7 to Rs Above Rs Grand Total Null Hypothesis (H): No Significant relationship between income level and financial risk. Alternate Hypothesis (H1): There is Close Significant relationship between income level and financial risk. Factor Calculated Chi-Square Table Degree of Freedom Remarks Income Level Not Significant It is noted from the above table that the calculated Chi-square value is less than the table value. So, there is Close relationship between Income level and Financial. Tolerance Income Level Table 13 Chi-Square Analysis for Income Level and Tolerance Less Willingness Tolerance No Idea Grand Total Rs Rs.5 to Rs Rs.6 to Rs Rs.7 to Rs Above Rs Grand Total Null Hypothesis (H): No Significant relationship between income level and risk tolerance. Alternate Hypothesis (H1): There is Close Significant relationship between income level and risk tolerance. 273

9 Factor Calculated Chi-Square Table Degree of Freedom Remarks Income Level Not Significant 5. FINDINGS 55 of the respondents are not experienced in the stock market of the respondents belong to the age between 3 years to 6 years old of the respondents are purchased Equities type of investments. 34 of the respondents are optimistic of their financial future. 41 of the respondents describe high total return as best statement. 41 of the respondents are associated with playing in the stock market of the respondents are expecting their growth 3 to 5. = 55.5 of respondents control the risk by modification. From the Chi-Square Analysis, It is clear that there is a close relationship between Age group and Age of investing and Performance of investments. From the Chi-Square Analysis, It is confirmed that there is Close relationship between Income level and Financial Future and risk. 6. SUGGESTIONS Most of the respondents are not aware of Investment Management. So, proper guidance can be given to them. This is to create awareness. A regular investor friendly seminar can be organized to suit the timings of the investing public. For instance, such seminars can be interactive sessions, arranged at frequent intervals. The newsletters published help investors. Hence newsletters / bulletins can be published for guidance. Efforts should be taken to popularize Equity through appropriate publicity measures. 7. CONCLUSION The study is made to find out Investors perception and Behaviour of Equity investors. The study reveals that the investors in Tiruchirappalli city are not aware of Investment which would minimize risk and maximize the return. And also it is clear that the investors in Tiruchirappalli city have low level of understanding about risk and the importance of Investment management as they are not aware these factors. Hence proper should to be taken in order to improve the awareness level in the minds of the investors. 8. BIBLIOGRAPHY [1] Alex Kane: (Mar- 1982) Skewness Preferences and Investment Choice, Journal of Financial and Quantitative Analysis, Vol 17, No.1. [2] Asai, M. and M. McAleer (27), Investment index GARCH: a class of parsimonious dynamic covariance models, Unpublished Paper, University of Western Australia. [3] Bollerslev, T. (199), modeling the coherence in short-run nominal exchange rates: a multivariate generalized ARCH model, Review of Economics and Statistics, 72. [4] Campbell, J.Y. (1987), Stock returns and the term structure, Journal of Financial Economics, 18, [5] Chen, N.F., R. Roll and S.A. Ross (1986), Economic forces and the stock markets, Journal of Business. 274

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