The attitude of others to trading. Find the Right Attitude for Trading Success
Although the extant research has acknowledged and examined this relationship, the measures of financial attitude and behavior still vary widely and are generally posed as a series of questions rather than statements. In addition to this, there is insufficient knowledge regarding retail investors' behavior in the face of a health crisis, such as the current COVID pandemic.
This study addresses these gaps in the prior literature by examining the relative influence of six dimensions of financial attitude, namely, financial anxiety, optimism, financial security, deliberative thinking, interest in financial issues, and needs for precautionary savings, on the trading activity of retail investors during the pandemic.
I will cover the second one first, as I feel this is such a major reason why people fail and why they will always keep searching for success, but never, ever attain it. How many times have you heard that wealth is a state of mind? I thought it was mumbo jumbo, despite my continual reading of success manuals and positive thinking books, tapes and, later, videos and DVDs. No matter how much I thought about thinking of being wealthy, my current circumstances and peripheral outlook beyond that were somewhat grim and depressing at the time. The reason why I am stressing this attitude to money, and how your attitude does reflect what you will make, and your overall success, is that too many people have the mindset or attitude of — you have to work for someone else to make money!
Data were collected from respondents and analyzed using the artificial neural network ANN method. The results revealed that all six dimensions had a positive influence on trading activity, with interest in financial issues exerting the strongest influence, followed by deliberative thinking.
The study thus contributes important inferences for researchers and managers. Introduction Retail investors differ from institutional investors by way of their investment size, resources, access to research, and professional advice Bhattacharya et al.
The Importance of Trading Psychology
Apart from this, these investors also tend to binars and strategies a different approach toward managing their finances. In this context, financial attitude represents an expression of the individuals' underlying knowledge of finance and their ability to manage decisions related to financial dealings Shim et al.
Accordingly, insights related to financial attitude can serve as a metric of individuals' financial knowledge, which can then be improved through education. It is critical to examine the attitude of retail investors since their financial attitude Grable and Lytton,along with their financial behavior and knowledge Joo and Grable, can influence their financial well-being and satisfaction Falahati et al. This understanding of financial attitude becomes even more important during black swan events like the COVID pandemic, which has created extensive uncertainty and panic worldwide.
Examining retail investors' COVIDrelated investment behavior is especially vital because no documented epidemic or viral infection outbreak has yet had this same level of impact on the financial markets Baker et al. The swift and unprecedented spread of the COVID outbreak has made the financial markets extremely volatile, leaving investors with huge losses in a short timeframe Zhang et al.
The impact of the pandemic control measures has also been severe in terms of the curtailed economic activity, contraction in output, and extensive repercussions like job loss for many individuals Pastor and Vorsatz, The fears that have arisen during this time have negatively impacted market returns and liquidity, throwing the financial markets worldwide into complete disarray.
The combination of these factors has caused an unprecedented reaction in the financial markets Baker et al. Despite such volatility, retail investors may not stay away from the markets, since they still need different financial products and services to utilize their investible surplus gainfully Garber and Koyama, In addition, we believe that easy access to stock markets may also attract retail investors to invest in different financial instruments, particularly while they are confined to their homes during the COVID lockdown restrictions with an abundance of spare time on their hands.
Information technology-enabled financial services support stock trading through an online interface Oertzen,making this easy access possible. In fact, online stock trading has increased individuals' stock market participation by providing ubiquity of access and speeding up trading with benefits like lower cost and higher volumes Khan et al.
Containing fear and greed are key to making money
However, investing in such volatile markets, as seen during the COVID pandemic, can be risky and leaves the investors vulnerable to higher losses. Indeed, many financial instruments can amplify the risks associated with investing under such world-changing circumstances Corbet et al.
The decision not to invest may thus seem a safer and more attractive option than parking money in ill-advised instruments Barrafrem et al. Based on the preceding discussion, we argue that retail investors may need to be protected from their own erroneous decision-making while trading during such extraordinary events, which are beyond the comprehension of even the most well-informed institutional investors.
Thus, we posit that there is an exigent need to understand the psychological factors influencing retail investors' financial decisions during the COVID pandemic. We believe that the pandemic provides a unique opportunity to obtain revelatory insights about the behavior of retail investors in the face of extrinsic stressors.
Given the current backdrop of uncertainty in the economic environment and the extreme vulnerability of retail investors, we contend that an analysis of investors' psychological make-up, as measured through their financial attitude, will generate key insights into how this health crisis has affected their financial behavior. These insights can then help in formulating policies to protect retail investors and better educate them about the risks involved in making financial decisions during such extraordinary events.
To our knowledge, no prior studies have examined the impact of the psychological dimensions of financial attitude on retail investors' financial behavior during previous health crises.
Find the Right Attitude for Trading Success
Thus, there is an immediate need for a contemporaneous examination of investors' behavior in general and the psychological dimensions of their financial attitude in particular during the COVID pandemic. Additionally, an extensive review of the literature has revealed that even in the context of a normal situation e. In fact, the extant literature has largely focused on cognitive aspects instead, such as financial literacy and numeric skills, when it comes to financial decisions in normal situations Fernandes et al.
Notably, only a select number of studies have examined the effect of financial attitude on retail investors' behavior Yong et al.
Thus, significant research gaps exist regarding a the influence of financial attitude the attitude of others to trading retail investors' behavior during an extrinsic event such as the COVID pandemic, and b the influence of financial attitude on retail investors' behavior in general.
The present study proposes to address these gaps by examining the influence of retail investors' financial attitude on their behavior during the attitude of others to trading COVID pandemic. Next, in consonance with past studies e. The choice to measure financial behavior using trading activity and financial attitude using the above-mentioned six dimensions is also based on the suggestions of a panel of five professors from the area of finance and four professionals experienced in advising retail investors.
Accordingly, our research objective is to assess the impact of financial attitude, measured by financial anxiety, optimism, financial security, deliberative thinking, interest in financial issues, and needs for precautionary savings, on retail investors' financial behavior, proxied by trading activity, during the COVID pandemic.
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Specifically, we address two research questions: RQ1: Have the various dimensions of financial attitude influenced the trading activity of retail investors during the COVID pandemic? RQ2: What is the relative strength of the influence of these dimensions of financial attitude on the trading activity of retail investors during the COVID pandemic? To test the proposed relationships, we analyzed data collected from retail investors who have traded in stock markets during the COVID pandemic.
The data the attitude of others to trading analyzed using the artificial neural network ANN approach to measure the relative influence of the various financial attitude dimensions. The novelty of this study comes from the following: a it is the first study to examine the impact of financial attitude on the trading activity of retail investors during a health crisis.
The global COVID pandemic has caused unimaginable volatility in the financial markets, a disruption on a scale never before witnessed in a health crisis, including the Spanish flu. As such, our findings will help demystify the psychology of retail investors in the face of panic and unforeseen circumstances.
The extant empirical models related to the psychology of retail investors, including attitudes, biases, and behaviors, have not been analyzed, maintaining the possibility of non-linear the attitude of others to trading among the variables examined. Financial attitude Irrationality causes retail investors to deviate from the rational behavior expected of them based on the homo economicus model Barberis, Behavioral finance acknowledges such breaches the attitude of others to trading rationality regarding financial decisions by incorporating the learnings from psychology to provide a more realistic view of financial behavior Camerer and Loewenstein, The extant literature on behavioral finance has largely focused on certain anomalies and cognitive biases such as herding that influence individuals' financial decisions e.
In comparison, the influence of financial attitude on decisions such as buying insurance policy has been less examined, though some studies have investigated attitudes and the attitude of others to trading in this context e. Financial attitude can be described as a psychological inclination, which manifests when individuals evaluate the well-established practices of financial management with varying degrees of acceptance or non-acceptance Parrotta and Johnson, Furthermore, it can be classified as a view, state of mind, or judgment Pankow, Extant studies in this area have examined various aspects of individuals' financial attitudes that may contribute to irrational decisions.
For instance, Stromback et al. Further emphasizing the importance of psychological factors, Park and Sela noted that individuals tend to avoid the finance-related decisions that are incompatible or believed to be with their affective style of decision-making.
They assessed financial attitude in terms of needs for precautionary savings, decision styles, spending tendency, interest in financial issues, and anxiety.
Similarly, the Organisation for Economic Co-operation and Development OECD proposed an instrument to measure the financial attitude of investors based on the extent of their belief in planning and their propensity to save and spend Paluri and Mehra, In comparison, Tsui-Yii and Sheng-Chen used achievement, prestige, power, and respect as the key determinants of financial attitude.
Drawing upon these studies and our discussion with the expert panel, we interpret financial attitude as an expression of investors' financial anxiety, their optimism, the extent of their financial security, their degree of deliberative thinking, the depth of their interest in financial issues, and their needs for precautionary savings.
Accordingly, we used these six dimensions as measures of financial attitude. Research model The present study proposes six dimensions of financial attitude as antecedents of retail investors' financial behavior, which, in turn, is measured through their trading activity during the COVID pandemic Fig. Based on a comprehensive review of the literature, which has posited that financial attitude determines financial behavior Kadoya and Khan, and that this behavior can be represented by trading activity Lewis and Mackenzie,we selected our dependent and independent variables.
Furthermore, our proposed model is consistent with Parrotta and Johnson's financial management framework adapted from the Deacon and Firebaugh Family Resource Management Model. According to Parrotta and Johnsonfinancial management behavior is the outcome of financial attitude and literacy. Their model further suggests that financial management behavior influences the financial satisfaction of individuals. In this regard, scholars have argued that attitudes' predictive power is higher in situations where behavior is captured through specific actions Ajzen and Fishbein, On the whole, the TPB suggests that attitude, subjective norms, and perceived behavioral control function as antecedents of behavioral intentions Ajzen, This theory thus provides a reliable theoretical backdrop for our study since it has been the attitude of others to trading empirically in multiple contexts Armitage and Conner,