The impact of behavioral factors on individual investment decision-making: An empirical study from Vietnam stock market during Covid-19 pandemic

Abstract

The study aims to analyze and investigate the relationship between investors’ demographic characteristics (i.e. age, gender, education level, investment experience and type of investor) through behavioral factors (including sentiment, overconfidence, overreaction-underreaction, herd behavior) that affect investment decision-making of the individual investors in Vietnam stock market during Covid- 19 pandemic. The research model was developed by many authors who suggested various behavioral factors which influence many the investors’ decision-making process, such as DeBondt and Thaler (1985), Odean (1999), Waweru et al. (2008) and so on. Specifically, this study employs the existing theories in behavioral finance, based on which hypotheses are proposed. Then, these hypotheses are tested via the questionaires distibuted among 305 local and foreign individual investors currently trading at securities companies with large trading market shares on HOSE’s ranking list as of the second quarter of 2021, but mainly surveys are done online due to the Covid-19 pandemic. The 5-point measurements are tested for their consistency and reliability. The collected data are analyzed by using SPSS and PLS-SEM softwares to consider the effect of investors’ demographic characteristics on investment decisions through behavioral variables as mediating factors and Covid-19 pandemic variable as moderating factor. In addition, preliminary interview with some investors are conducted to have deeper understanding of these behaviors. According to the findings of this study, factors have a direct influence on individual investors’ decision-making in varying degrees or not, in which overreaction-underreaction have the strongest influence and Covid-19 pandemic only has a significant impact as mediating factor between herd behavior and investment decision. For indirect effects, three of four demographic characteristics factors (investment experience, age and educational level) have a significant positive impact on investment decisions of individual investors through three behavioral factors(sentiment, herding and overreaction-underreaction). Despite of some limitations, this study also has some certain meaning for individual investors and listed company. Moreover, this study also suggest recommendation for individual investors in using behavioral factors with an acceptable level in order to bring good investment results.