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Determinants of investors' financial behaviour in Tehran Stock Exchange
Mahmood Yahyazadehfara; Mohammad Reza Zalia; Hooman Shababib a Faculty of Economics and Administrative Sciences, University of Mazandaran, Babolsar, Iran b Rahedanesh Institute of Higher Education, Babol, Iran First published on: 13 January 2011

To cite this Article Yahyazadehfar, Mahmood , Zali, Mohammad Reza and Shababi, Hooman(2011) 'Determinants of

investors' financial behaviour in Tehran Stock Exchange', Applied Economics Letters,, First published on: 13 January 2011 (iFirst) To link to this Article: DOI: 10.1080/13504851003781416 URL: http://dx.doi.org/10.1080/13504851003781416

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Iran a Downloaded By: [PERI Pakistan] At: 06:58 16 March 2011 Decision-making and investors’ behaviours are affected by various factors in Tehran Stock Exchange. iFirst Determinants of investors’ financial behaviour in Tehran Stock Exchange Mahmood Yahyazadehfara. economic factors with 47% and internal factors with 31% are the most important factors that affect the stocks trading in Tehran Stock Exchange. Shefrin (2000) and Siegel (1998). Introduction At the time of decision-making. investors concentrate on risk and return.1 Hartmann and Patrickson (1998) compared the behaviour of managerial decision-makers with the expected behaviour of newly empowered employees in TQM programmes and suggested that. University of Mazandaran. 2011. Indeed. This research seeks to find an answer to this question: ‘Which factors affect investors’ financial behaviour?’ Lintner (1956) stated that financial behaviour studies and analyses the effect of informational interpreting and operating to solve personal structured decision-making.com DOI: 10. The total effect of political and psychological factors on investors’ financial decision-making is 79 and 64%. respectively. Based on theoretical perspective. They also concluded that training for individuals limited to the normative models advocated within TQM ignored the evidence. Froot and Dabora (1999) examined pairs of large.Applied Economics Letters. 1–8. Hunderson and Warr (2002). Siamese twin’ companies whose stocks are traded around the world but have different trading and ownership habitats. investors collect the key information of decision-making by the study of macro.1080/13504851003781416 1 . Babol.ac.yahyazadeh@umz.informaworld. Factors such as high economic and political volatility rate and instability of rules and regulations lead to high risk in the decision-making of stock exchange.ir 1 Hirshleifer (2001). training in rational models may encourage newly empowered employees to discontinue their adaptive behaviour. other strategies should also be included in training programmes. but also it tries to indicate the application of psychological decision-making in forecasting and recognizing financial markets. psychological factors with 53%. E-mail: m. in addition to rational decision-making strategy. It should be stated that not only the financial behaviour tries to indicate that rational behaviour is logical and correct.*. personal investors often do not have extensive instruments for balancing these two variables. Iran b Rahedanesh Institute of Higher Education. Political and psychological factors not only have direct effect but also affect the investors’ financial decision-making indirectly (through intended interest rate) 16 and 11%. which suggested that other decision strategies could be just as effective. respectively. To analyse the research data. with *Corresponding author. Mohammad Reza Zalia and Hooman Shababib Faculty of Economics and Administrative Sciences.and micro-levels of investment environments. I. Murphy (2000). Applied Economics Letters ISSN 1350–4851 print/ISSN 1466–4291 online # 2011 Taylor & Francis http://www. Babolsar.and micro-variables. Studies in these fields indicate that several factors affect the decision-making of investors that can be categorized into two sets of macro. In contrast to institutional investors. The results indicate that political factors with 62%. All these factors lead to a secondary risk in capital market that derives from unpredictable behaviour of investors. Twins pool their cash flow so. path analysis and Linear Structural Relationships (LISREL) software are used.

(2001) investigated the effective factors on investors’ behaviour in New York Stock Exchange (NYSE) on 309 investors. but markets are segmented by frictions other than international transactions costs. differences in parent expenditures. The results show a slight difference among investors’ expectations. voting rights issues. investors are rational. The results indicated that. Security Industry Authority (SIA) organization investigated stockholders’ needs and their decisionmaking process among 1504 investors with least assets amount of $100 000 in US stock exchange in 2003. Finally. Dreman et al. is the most important factor on investors’ decision-making and price volatility. the relative prices of twin stocks appear correlated with the markets where they are traded most. Latin America. such as macro. They also found that country-specific sentiment shocks affect share price movements of locally traded stocks in proportion to their local trading/ownership intensity. In this research. 34% expected stock exchange stability and 16% expected stock exchange declination in the near future. In contrast. debentures or investment mutual funds) during October 2002 to April 2003. effective political. 40% of investors believe that increase in interest rate leads to higher stock prices. currency fluctuations. ex-dividend-date timing issues and tax-induced investor heterogeneity. investors apply a combination of fundamental methods. investors believe that economic factors are much more important than other factors in their decision-making and they use a combination of capital goods to reduce their risks. They argued that these results can be explained by a nonfinancial component of the utility functions of socially responsible investors. North America and western Europe. annual flows in socially responsible funds are less sensitive to lagged negative returns than flows in conventional funds. 25% believe in lower stock prices. Although 53% of investors believe that increase in decisionmaking knowledge is relatively important and 44% of them confirm this advancement is very important. 23% do not have any comments and 12% believe that there is no relationship between interest rate and stocks’ price. failure in governmental planning. 80% of investors believe that balance sheet data of audited firms can be used to make an ideal decision in stock exchange. To investigate the effect. Furthermore. Data were gathered from 1086 investors in stock exchange using a questionnaire of 55 questions. The results showed that investors’ reliability to financial data and firms accounting were decreased because of financial disgrace. they found that the monthly volatility of investor cash flows is lower in socially responsible funds than in conventional funds. In addition. Yahyazadehfar et al. The results showed that 50% of investors expected stock exchange improvement. a twin’s relative price rises when the market on which it is relatively intensively traded rises. Gang Zhou (2004) investigated the expectations and inclinations of personal investors in China stock exchange. Africa. that is. National Association of Securities Dealers (NASD) investigated different aspects of investors’ decisionmaking in US stock exchange based on decision knowledge of investors and other effective factors on financial behaviour in 2005. Furthermore. but more sensitive to lagged positive returns. twin stocks should move together. in their decision-making. administrative anarchy of government and internal political struggles and problems were analysed. Marston and Straker (2001) examined the importance of the investor relations function within the top 80 continental European companies by reporting on the result of a postal questionnaire. Asia. Investors were selected between the ages of 21 and 69 and they had at least one decision-making activity (related to stocks. They also believe that gossips and news that are related to high return of stock might affect the investors’ purchase. The researcher believes that unpredictability of political environment. Hill (1998) investigated the reaction of 1450 investors to political–social changes in South-east Asia. M. 13 factors such as political economics expectations. McKinsey Institute made a comprehensive investigation on investors’ decision-making in several countries in 2002. respectively. economic and cultural factors on stockholders’ behaviours have been investigated.and micro-investigation of firms and industry. Consistent with anecdotal evidence. Also. The results show that approximately 40% of investors use at least two investment instruments in their decision-making. 2120 investors of this market have been interviewed. accounting disclosure and financial indices are important factors that investors rely on when they want to make a decision about stock exchanges. foreign struggles. The investors’ assets were at least $30 000. Claire A. Bolen and Cohen (2005) studied the dynamics of investor cash flows in socially responsible mutual funds. They examined several explanations for this phenomenon: discretionary uses of dividend income by parent companies. The results confirmed that many continental European companies have well established investor relations practices and the function is growing in importance. The results showed that only the latter hypothesis can explain some (but not all) of the facts. In addition. Downloaded By: [PERI Pakistan] At: 06:58 16 March 2011 . especially in the case of South-east Asian countries whose political structure is unstable. according to different regions of eastern Europe. such as agency problems. To analyse the effects. political leadership. 3% contend that this is not important.2 integrated markets.

Determinants of Investors’ Financial Behaviour Sun and Hsiao (2006) examined the influences of overconfidence. The remainder of this article is categorized into two parts including Method and Material and Discussion and Conclusion. the questionnaire was distributed and collected in 1 week and at different hours. that is to determine the effective factors on stockholders’ financial decision-making.33 and 6. (2) Political factors affect stockholders’ decisionmaking. correlation method has been used. statements and boycotts (41. 20% of repliers informed their investing period less than 2 months. average = 4. four main hypotheses have been used to investigate the financial behaviour of investors: . as very high. respectively. two questions with higher SD were deleted to improve the reliability to 84%. high = 5. 7.87 and 14. Psychological factors can affect financial behaviour of investors. Results According to the given data. and 42. ranking indices (very high = 6. Thus. 30. reliability of the questionnaire was estimated 82% using Alpha-Kronbach method. But based on investing horizon. cabinet changes (38.2%) and external governors’ comments (38. 20% had 3 to 5 stocks in their portfolios. it can be concluded that 60% of repliers had 5 to 17 stocks and had expected return on 30 to 50% stocks. Correlation studies are categorized into two categories of correlation and regression analyses. to gather information from investors.2%) as very high. To design the primary questionnaire. 30 to 50 and . average. the authors try to determine the investors’ financial behaviour in Tehran Stock Exchange. regret aversion and self-control on the disposition effect of selling winners too early and holding losers too long. respectively. On the whole. respectively. Linear Structural Relationships (LISREL) have been used. 50%. This questionnaire included 38 demographic (gender. 35. respectively. The literature is summarized in Table 1. the final sample.4% of repliers informed that comments of stock exchange consultants have II. 22.7. Based on this table. To measure variables and gather information. high and average. respectively. In the special questions’ section. 50% of them trade stocks between 10 and 23 times. 17. mental accounting and self-control positively influence the disposition effect and (2) self-control negatively influences the disposition effect. Therefore. occupation.3%). According to Table 5.55. mental accounting. very low = 2 and nothing = 0) were applied.9% of repliers estimated it as high. 24. (4) Internal factors affect stockholders’ decisionmaking. included 135 investors.1% of repliers estimated the effect of economic factors as very high. education. In this stage.3% of repliers estimated the effect of political factors as very high. 40% informed it between 2 and 6 months. Stocks trading volume is shown in Table 2. In this stage. (3) Psychological factors affect stockholders’ decision-making. which was selected based on simple sampling. 30% had 5 to 9 stocks in their portfolios and 40% had more than 10 stocks in their portfolios. 7. repliers have enough knowledge to make financial decisions. Ultimately. In the second stage. 20. Political factors included 12 variables such as political news. But based on rate of return. respectively. Method and Material In this research. on an average. very low and nothing. The results also indicated that selfcontrol can reduce irrational behaviour of investor. Consequently. In addition. internal factor and expected return factor items. psychological factor. 49. 60 and 40% of repliers had an annual return of less than or equal to 30. repliers estimated the effect of political factors such as internal governors’ comments (44. special questions decreased to 38 questions.6 and 6. investing volume in stock exchange and investing horizon) and special questions. In this research. the researcher’s questionnaire was used. In addition. Downloaded By: [PERI Pakistan] At: 06:58 16 March 2011 3 (1) Economic factors affect stockholders’ decisionmaking. III.59.9% of repliers informed very high and no interest rate. internal political events and internal governors’ comments. Table 3 shows variables of economic factors.3 and 53.4% of repliers estimated political relations of Iran as very high and high. 10% of repliers had less than 3 stocks in their portfolios. 25% informed it between 6 and 15 months and 15% informed it more than 15 months. low = 3. Based on the literature. 2. low. According to Table 4. Tables 4–7 show political factor. In contrast. The results of empirical data analysis of 290 investors indicated that all four psychological factors have significant influences on the disposition effect.6 and 26% of repliers estimated the effect of stock exchange authorities’ comments and released news.2%). According to the main objective of this research. 35 stock buyers were questioned as the primary sample. The findings showed that (1) overconfidence. respectively. The statistical universe of this research is Tehran Stock Exchange’s investors with at least two times stocks trading record in the year 2007. On the contrary.

Johnson.Downloaded By: [PERI Pakistan] At: 06:58 16 March 2011 4 Table 1. (3) finanStock making. Annual flows in socially US mutual responsible funds are less (2) total net assets of mutual funds sensitive to lagged negative fund database returns than flows in conventional funds. (2) greater effect of psychological factors on stockholders’ decision-making (1) Definition of political indices that affect decisionmaking. (3) the other factors nomic and political factors degree of risk suffering of of investors investors (1) Extensive statistical uni(1) An increasing need for 1086 investors (1) The degree of decisionverse. (2) direct relationeffect of interest rate on Street investors for decisionship between interest rate decision-making. Mc Gregor. (3) investigate the effect of firm-level factors on decision-making of stockholders 1450 investors (1) Political economics expec. (2) investigate decision-making. (2) the in Wall degree of knowledge of investors. (2) poli. but more sensitive to lagged positive returns 290 investors (1) Psychological factors (1) Overconfidence. (2) compare the effect of economic systems on investors’ decisionmaking – 4 Zhou The effective factors on decision-making about purchasing firms’ stocks Investigate the aspects of SIA decision-making of investors in USA and the effective factors on decision-making 1998 5 Investigate and analyse the Hill political risk and its effects on stockholders’ decision-making 2005 6 Mutual fund attributes Bolen.Greater importance of ecoComprehensive investigation tical factors nomic factors of investors’ needs (1) Investigate the trend of change in stockholders’ decision-making. (3) prepare a and stocks price. (2) political leading. Yahyazadehfar et al. (2) selfcontrol negatively influences the disposition effect – . (3) the cial data and their effect on Exchange decision-making model effect of audited financial decision-making data on investors’ decisionmaking 2120 investors (1) Economic factors.(1) Unpredictability of polititations. (2) there making. (2) attention to the financial knowledge among making knowledge. (2) the effect of ecothe effect of economic facare no differences between nomic and political factors tors and its difference with the degree of risk and ecoon decision-making. Cohen and investor behaviour M. cal factors and its great of South(3) government programmes effect on decision-making. (2) investigate the dence to balance sheet data effect of macro factors on decision-making. 7 The influence of investors’ Sun. Research title 1 Investigate the effective factors on financial decision-making of investors in New York Stock Exchange (NYSE) 2005 2 National Investigate the effective Association factors on stocks price of Securities and investors’ decisionDealers making in Wall Street (NASD) Stock Exchange 3 2003 2004 (1) Attention to the degree of (1) The effect of market trends (1) News and gossips have a risk taking based on differhigh effect on investors’ on investors’ decisionent criteria. mental accounting and self-control positively influence the disposition effect. Slovic 2001 309 investors in NYSE Year Market(s) Research variables Research findings Strengths and weaknesses of the research No. A comparative analysis among the literature of financial decision-making of investors Researcher(s) Dreman. east Asian (2) difference among politicountries cal factors’ effect in different countries (1) Net asset value per share. Hsiao psychology on disposition effect 2006 (1) Declination in investors’ 1504 investors (1) Investigate the investors’ risk taking (2) less confineeds.

5 38.3. etc.2 26.2 57.1 25.6 13.1 Very low (%) 8.2 5. respectively.4 36.8 Nothing (%) 6.Determinants of Investors’ Financial Behaviour Table 2.5 1.5 7.5 .8 High (%) 29 16 39.2 38. 6.8 28.5 1.2 7.8 4.3 10.5 1.6 26 29.9 10. Internal factors can also affect financial decisionmaking of investors.5 5.3 1.7 35. Cabinet changes Environmental changes Political relations Contracts and boycotts Very high (%) 34.9 Moderate (%) 20.9 10.9 0.6 23.5 5.5 1.1 3.1 6.53.7 – Missing (%) 1.3 32.6 1.6 Nothing (%) 1.5 6.8 8.3 54.4 22.2 46.7 3.8 24.24% of repliers estimated the effect of psychological factors on stocks trading as very high.3 13.4 0.6 16.7 5. According to the results. etc.2 4.2 High (%) 32.5 1.7 5.6 9.5 1.9 Low (%) 12.7 6.5 1.8 10.3 1.8 Missing (%) 1.9 10.9 15.3 11.3 15.6 High (%) 13.2 16.5 1.4 9.5 1.3 6. very low and nothing.7 6.7 Very low (%) 13. 9.5 Moderate (%) 13 17. Buying and selling volume in 2007 Buy No.6 19. Average percentage of political factors Political factors Internal political news Internal political events Internal governors’ suggestions Foreign political news Foreign governors’ suggestions International pressures Elections.1 17.7 – 6.8 2.9 13.6 25.1 Moderate (%) 15.6 20. 14.1 20.5. high.5 1. average.3% of repliers estimated the effect of consulting services on stocks trading as very high.8 1. such as applying and acquainting with financial Table 3.6 2.6 6.5 – 7.2.6 44.5 46.7 11.9 38.5 1.3 9.3 19.2 13. In this research.3 20.8 35.5 1.7 61.5 1. Frequency percentage of economic factors Economic factors Interest rate Financial investment substitution Physical investment substitution Inflation rate Very high (%) 17.1 38.4 4.3 53.7 9.2 6. 1 2 3 4 5 Volume Less than 3 3–14 14–23 23–35 Over 35 % 10 20 35 20 15 Sell Volume Less than 2 Between 2 and 9 Between 9 and 25 Over 25 – % 15 35 25 25 – 5 very high effect on stocks trading.3 3.3 19.7 7.9 3. nine internal factors.3 10. Average percentage of psychological factors Psychological factors Released news Stock exchange authorities’ suggestions Interview with firms’ managers Affiliates’ recommendations Associations’ informal news News of Internet sites Stockbrokers’ suggestions Consultancy services Consultancy firms Very high (%) 26 49.6 48.9 9.1 Missing (%) 1.1 32.8 16.1 3. 22.8 6.5 1.4 15.1 – – 10.6 21.5 1.5 Downloaded By: [PERI Pakistan] At: 06:58 16 March 2011 Table 4. low.6 Low (%) 31.1 Very low (%) 15.2 32.3 41.4 18.2 0.5 9.5 0. but only 15.1 8 – – 8.1 28.9 3.6 8.73 and 14.5 1.5 Low (%) 3. on an average.5 1.8 16 0.5 1.5 1.7 25.3 12.5 Table 5. 31.1 9.5 1.5 Nothing (%) 0.3 6.2 27.8 7.8 0.3 16.5 1.8 10.4 40. University students’ struggles.1 5.9 44.5 1.4 11.1 27.4 20.

9 1. 45.2% of repliers estimated the percentage of balance sheet items on investors’ financial decision-making as very high.77% of repliers stated that they have very high. very low and no expectations from their stocks returns.6 41. 49.7 31.5 1.3% of repliers estimated the relationship between balance sheet items and stocks’ expected return. respectively. 6.000 131 0.5 0. expected return factors have considerable effect on investors’ financial decision-making.000 131 0.6 Nothing (%) 9.9 25. 8.9 2.642 0.5 1.8% of repliers estimated liquidity strength and 41.000 131 0. 27.000 131 Decision-making variable (buying and selling stocks) 0. Very low (%) 5. average. But 5. Furthermore.3 42 49.3 2.9 13.5 4.6 45.2 44.481 0. were used.6 42. Based on Table 6. The correlation between research factors and purchase decision-making variable Factors Economic Correlation coefficient Purchase variable 0.581 0. on an average. internal and financial Table 8.2 35. very low and nothing.7 9. 47.000 131 0.5 1.000 131 0.5 1.2% of repliers stated that they have enough information about risk and return. respectively.5. 9. Consequently.000 131 0.9 8.3 – – 1.3 47.6 16 15.9 4.59 and 3.4 – – 4. Average percentage of internal factors Internal factors Applying financial proportions Knowing financial proportions Financial proportions’ efficiency Balance sheet items Trust to balance sheet data Relationship between balance sheet data and stock profit returns Trading volume Legal investors’ decision-making Cashing power Very high (%) 19.3 6.3% of repliers stated that they do not have any information about risk and return.1 33. high.712 0. 44 and 39% of repliers stated that they have a lot of information about stocks return and stocks price trend.9 27.731 0.000 131 0.5 1.8 13 3. In contrast.5 6.5 1.5 10. 5. Table 8 shows a correlation among political.6 Table 6.5 1. as shown in Table 7.2 31. respectively.4 – 8.736 0.5 5.1 13 13. 11.1 10.6 3.1 17.000 131 0. economic.3 Low (%) 11.6 4.6 and 2.8 High (%) 46. Consequently.3 9.49.688 0.89.5 Downloaded By: [PERI Pakistan] At: 06:58 16 March 2011 proportions and efficiency of these proportions. 11. According to Table 7.7 35.4 8.62 0. Average percentage of expected return Expected return variable Very high (%) High (%) Moderate (%) Low (%) Very low (%) Nothing (%) Missing (%) Risk and return Earning yield Stock price trend 38. 38.1 3.7 11.623 0.8 – Missing (%) 1.8 6.1 Moderate (%) 6.6 7.7 11. In addition.1 22.452 0. low.4% of repliers stated that they do not have any information about stocks return and their trends.000 131 Selling variable 0. low.5 1. 36.3 19.2 6.5 10.2 5.6% of repliers estimated legal investors’ decision-making.9% of repliers estimated the effect of internal factors on investors’ financial decision-making as very high.5 Table 7. 40.5 1.5 26 29 6.93. 7.7 M.9 49.3 22.556 0. average.3 11. psychological.3 38.000 131 0.703 0.5.000 131 Pearson Sig (two-tailed) N Political Pearson Sig (two-tailed) N Psychological Pearson Sig (two-tailed) N Internal Pearson Sig (two-tailed) N .9 4.5 1. Yahyazadehfar et al.

49). respectively. Root Mean Square Error of Approximation (RMSEA) should be analysed.47 0.31 0. the political factor has most direct and indirect effect on financial decision making of investors in Tehran Stock Exchange. 1. trading volume. As shown in Table 9.452). In this research.) Internal factors (trading volume. affiliates’ recommendations. the total effect of economic factors. psychological. psychological and internal factors have a significant relationship with financial decision-making of investors.5. In addition. environmental changes) Psychological factors (released news in public media. RMSEA is 0.62 Expected rate of return 0.31 0.) Expected rate of return Direct Indirect Total 0. 31% and 49% respectively. 47 and 32% effect on investors’ decision-making in Tehran Stock Exchange. political factors such as governors’ comments and internal and external changes had the greatest effect on financial decision-making of investors with 62% of direct effect and 17% of indirect effect.) Economic factors (interest rate. economic.49 Source: Data were gathered from individual investors of Tehran Stocks Exchange using questionnaire. stock return. RMSEA will measure the error of the statistical universe and is a function of sample.22 · 0. Consequently. According to Table 8. On the contrary. indirect effect of political factors on financial decision-making equals 17% (0. indirect and total effect of effective factors on financial decision-making Type of effect No.47 7 Decision-making 0.62 0. expected return plays as an intermediary variable.17 0. Direct effect of internal and psychological factors derives from the multiplication of the direct effect of these factors on expected return and stockholders’ financial decision-making. respectively. Variable 1 2 3 4 5 Political factors (governors’ statements. 1. the greatest relationship exists between political and financial decision-making factors (r = 0.11 – – – 0. degree of freedom and model’s estimation. In addition to the direct effect. Path analysis of effective factors on stockholders’ financial decision-making decision-making (buying and selling stocks) factors. Figure 1 shows the path analysis results based on LISREL software outputs.49 Economic factors 0. inflation rate. As shown in Fig. Political and psychological factors have 17 and 22% of direct effect on expected return.47 0. For example.0113.34 · 0. To determine whether the above path analysis is statistically suitable. that is less than 0. financial ratio.17 0. etc.64 0. investment replacements.53 0.31 0. the total effect of political and psychological factors (direct effect + indirect effect) on financial decisionmaking of investors in Tehran Stock Exchange equals 79 and 64%. economic and internal factors have 53. political and psychological factors have an indirect effect also on stockholders’ decision-making. Direct. Downloaded By: [PERI Pakistan] At: 06:58 16 March 2011 Table 9. balance sheet items. expected return has 49% direct effect on financial decision-making of investors and it derives from political and psychological factors. According to Table 9. Based on the path analysis results.79 0. Based on this table. Strong correlation among research variables indicates that path analysis method can be used to investigate direct and indirect effects of these four factors on financial decision-making. . etc. and it shows that the accuracy of the model is high. political. internal factors and expected rate of return are 47%.49 0. etc.22 0.49) and the indirect effect of psychological factors on final dependent variable equals 11% (0.736) and the lowest relationship exists between economic and stocks buying factors (r = 0.53 Psychological factors Fig. respectively.Determinants of Investors’ Financial Behaviour Political factors Internal factors 0.

97–113. (2002) The decline of inflation and the bull market of 1982–1999. interview with firms’ managers and informal board of directors’ reporting.62. 1–14. Yahyazadehfar et al. S. Department of International cooperation.com/governance (accessed 4 May 2010). Journal of Psychology and Financial Markets. Journal of Finance. 1533–97. Hartmann. decisions in Tehran Stock Exchange are made based on political and psychological factors. (1999) How are stock prices affected by the location of trade?. (1998) Individual decision making: implications for decision training in TQM. Siegel. 56. Journal of Financial and Quantitative Analysis. it is the responsibility of governors and stock exchange authorities to prepare necessary prerequisites for optimal decision-making of investors. Republic of China. (5) Another variable that affects the financial decision-making of investors is the expected return. It means that if the economic conditions of the country are suitable. Froot.mckinsey. Available at http://www. (1998) Stocks for the Long Run. McKinsey and Company (2002) McKinsey Global Investor Opinion Survey on Corporate Governance. (2001) A report on the March 2001 Investor Sentiment Survey. Hill. affiliates’ recommendations. New York. and Slovic. psychological and economic factors. Zhou. USA. International Journal of Corporate Communications. brokers’ comments. J. Murphy. L and Patrickson. Harvard Business School Press. Lintner. A. Thus. The path coefficient of this variable is equal to 0. Vanderbilt University Working Paper Series. J.. (2001) Investor psychology and asset pricing. (3) Economic factors such as interest rate. 53. J. Marston. Hirshleifer. These effects are as follows: (1) The path coefficient of political factors is equal to 0. 37. American Economic Review. Applied research & consulting LLC. most of the M. and Hsiao. inflation rate and investment substitutions with path coefficient equal to 0. pp. stock exchange authorities’ comments. Joint Conference on Information Sciences. 29–61. 1–41.31. M. 24–53. 2. it can be concluded that due to lack of information objectivity and enough financial experts. McGrawHill Edition. (2005) Mutual fund attributes and investor behavior. internal factors such as balance sheet items and extracted financial ratios have the least effect on financial decision-making of investors (see Table 6). K. (2005) NASD investor literacy research. 189–216. (2001) Investor relations: a European survey. (2) Psychological factors as the second variable have a path coefficient equal to 0. P. A. Taiwan. 619–33. (2000) The visual investor: how to spot market trends. Downloaded By: [PERI Pakistan] At: 06:58 16 March 2011 . due to factors such as internal and external governors’ comments and internal and external political changes. Nashville. (1956) Distribution of incomes of corporations among dividends. Sun. gossips. retained earnings and taxes. and Straker.53. (2004) Individual Investors Pay more Attention on Combinatorial Financial Product.47 is the third variable that has a direct effect on financial decision-making of investors. These factors also have a direct effect on financial decision-making of investors (see Table 5). C. M. and Warr.. (2000) Beyond Greed and Fear. investors will buy more stocks and vice versa (see Table 3). M. R. 15. G. P. 2nd edn. MacGregor D. according to the above discussions. Boston. Johnson S. 8. and Dabora.8 IV. due to factors such as released news in public media. D. Journal of Financial Economics. 126–34. A (1998) How investors react to political risk. 82–93. Hunderson. H. NASD. 46. Duke Journal of Comparative and International Law. J. (2006) The Influence of Investor Psychology on Disposition Effect. Shefrin. Wiley Edition. expected return and also internal factors (as an intermediary) affect the dependent variable including decision-making in buying and selling of stocks. 283–313. C. Discussion and Conclusion Political.49 and it depends on factors such as risk and return data and stock price trends (see Table 7). M. (4) Internal factors are also another variable having the least effect on the financial decisionmaking of investors and have a path coefficient equal to 0. These factors have the strongest direct effect on financial decision-making of investors (see Table 4). Dreman D. 6. Consequently. In other words. and Cohen. International Journal of Quality and Reliability Management. E. References Bolen.