Active trading and retail investors in Malaysia

Abstract

Purpose -The purpose of this paper is to investigate who trade actively in the Malaysian stock market and what determines investors' active trading decisions. Design/methodology/approach -Using a cross-sectional survey on individual investors, the study identifies active and inactive investors and then, investigates active trading by estimating binary logistic regression. Findings -Active investors in Malaysia are more likely to be male, working in non-finance-related sectors and are more experienced. The likelihood of active trading increases with the number of hours spent on researching investment, very short-term favorable unemployment and economic growth expectations (three-month) and past investment outcomes, whereas this probability decreases with higher cognitive ability and short-term unemployment expectations. Practical implications -The results imply that regulators may focus on certain groups of investors, based on the result of this study, and provide them training to reduce inactivity in this market. As active trading in response to past investment outcomes indicate rational response, regulators therefore may inform investors to learn about their ability and skill from their prior investment outcome, through educational program. Educational program may also include the role of macroeconomic indicators in active investing decisions. Originality/value -This is the first study to combine a list of demographic and socio-economic characteristics, investment characteristics, macroeconomic expectations and past investment outcomes together to explain the likelihood of active trading.

Past behaviour, financial literacy and investment decision-making process of individual investors

“…Traditional financial studies have approached this subject differently by highlighting the economic viewpoints that assume an individual as a rational decision-maker to the best course of action (Schiffman and Kanuk, 2007). It also supports the buy-and-hold trading strategy which is considered as an optimal and a generally accepted benchmark (Khan et al , 2017) to justify investors' rational and persistent behaviour. However, schools of new thoughts such as bounded rationality (Simon, 1955), cognitive dissonance (Hardyck et al , 1965), prospect theory (Kahneman and Tversky, 1979) and heuristics (Tversky and Kahneman, 1974) and so on have shown that these hypotheses are inconsistent and not able to explain why investors behave in such an unpredictive way.…”

Predicting Stock Market Investment Intention and Behavior among Malaysian Working Adults Using Partial Least Squares Structural Equation Modeling

“…Information related to macroeconomic variables may predict the variation in trading decisions. The significance of macroeconomic expectations in decision-making has been echoed in financial literature [8]. According to the consumptionbased capital asset pricing model and other models, it was admitted that stock market participation could be much lower than predicted [9].…”

“…This study adopted 5 items from Akhtar and Das [29]. For the measurement of stock market participation, this study adopted 5 items from Khan, Tan, and Chong [8] and Akhtar and Das [29]. All items adapted in this study presented in Appendix A.…”

Does financial literacy affect investor's planned behavior as a moderator?

“…Traditional finance research studies have taken a different approach to this topic, emphasizing economic opinions that presuppose an individual to be a rational decisionmaker (Schiffman and Kanuk, 2007) when it comes to the optimum course of action. It also endorses the purchase trading policy, which is widely regarded as an optimal and widely accepted benchmark for supporting investors' logical and consistent behavior (Khan et al, 2017). Though, researcher like Simon (1955) (bounded rationality), Kahneman and Tversky (1979) (prospect theory), Hardyck et al (1965) (cognitive dissonance) and Tversky and Kahneman (1974) (heuristics) shown that the hypotheses of traditional finance are unpredictable and not able to enlighten why individual act in such an inconsistent way.…”