Factors Influencing Investors' Decision-Making in the Equity Share Market during the Covid-19 Pandemic: A Study of Klang Valley
DOI:
https://doi.org/10.56532/mjbem.v2i2.259Abstract
The Covid-19 pandemic triggered unprecedented volatility in Malaysia's equity share market, prompting renewed interest in the psychological and behavioural drivers of individual investment decisions. This study examined the influence of four behavioural finance constructs—anxiety behaviour on market volatility, risk perception, risk propensity, and herding—on individual investors' decision-making in the equity share market on Bursa Malaysia during the Covid-19 pandemic, with a focus on investors in the Klang Valley. Using a quantitative, cross-sectional survey design, data were collected via a structured questionnaire distributed to 204 individual investors identified through the Taro Yamane sampling formula, yielding 121 usable responses (59.31% response rate). Data were analysed using SPSS and AMOS through reliability and validity testing, structural equation modelling, and multiple regression. The measurement model achieved acceptable reliability and convergent validity, and the four independent variables jointly explained 63.1% of the variance in investment decision-making (R² = 0.631). Hypothesis testing revealed that risk perception (β = 0.656, p = 0.003), risk propensity (β = 0.376, p = 0.010), and herding (β = 0.243, p = 0.041) significantly and positively influenced investment decision-making, while anxiety behaviour on market volatility (β = 0.017, p = 0.857) did not have a significant effect. These findings suggest that during crisis periods, investors' perceptions of and appetite for risk, together with social imitation, outweigh fear-driven reactions in shaping investment behaviour, offering practical implications for financial advisors, regulators, and investors themselves.
References
Aruna, P. (2017, May 3). More young investors entering into Malaysian market. The Star. https://www.thestar.com.my/
Bakar, S., & Yi, A. N. (2016). The impact of psychological factors on investors' decision making in Malaysian stock market: A case of Klang Valley and Pahang. Procedia Economics and Finance, 35, 319-328.
Baruch, Y., & Holtom, B. C. (2008). Survey response rate levels and trends in organizational research. Human Relations, 61(8), 1139-1160.
Blais, A., & Weber, E. U. (2001). Domain-specificity and gender differences in decision making. Risk Decision and Policy, 6(1), 47-69.
Cho, J., & Lee, J. (2006). An integrated model of risk and risk-reducing strategies. Journal of Business Research, 59(1), 112-120.
Christie, W. G., & Huang, R. D. (1995). Following the pied piper: Do individual returns herd around the market? Financial Analysts Journal, 51(4), 31-37.
Dewan, P., & Dharni, K. (2019). Herding behaviour in investment decision making: A review. Journal of Economics, Management and Trade, 24(2), 1-12.
Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research, 18(1), 39-50.
Geetha, N., & Ramesh, M. (2012). A study on relevance of demographic factors in investment decisions. Perspectives of Innovations, Economics and Business, 12(1), 14-27.
George, D., & Mallery, P. (2003). SPSS for Windows step by step: A simple guide and reference, 11.0 update. Allyn and Bacon.
Graham, J. R. (1998). Herding among investment newsletters: Theory and evidence. SSRN Electronic Journal.
Guadagnoli, E., & Velicer, W. F. (1988). Relation of sample size to the stability of component patterns. Psychological Bulletin, 103(2), 265-275.
Hamid, F. S. (2013). The effect of reliance on international funding on banking fragility: Evidence from East Asia. Margin: The Journal of Applied Economic Research, 7(1), 29-60.
Hassan, E. U., Shahzeb, F., Shaheen, M., Abbas, Q., Hameed, Z., & Hunjra, A. I. (2013). Impact of affect heuristic, fear and anger on the decision making of individual investor: A conceptual study. World Applied Sciences Journal, 23(4), 510-514.
Kengatharan, L., & Kengatharan, N. (2014). The influence of behavioral factors in making investment decisions and performance: Study on investors of Colombo Stock Exchange, Sri Lanka. Asian Journal of Finance & Accounting, 6(1), 1-23.
Khan, M. T. I. (2016). Impact of financial literacy, financial knowledge, moderating role of risk perception on investment decision. SSRN Electronic Journal.
Kiruba, A. S., & Vasantha, S. (2020). The impact of accounting ratios on stock returns: The case of India's chemical industry. Adalya Journal, 9(1), 362-371.
Linciano, N., & Soccorso, P. (2012). Assessing investors' risk tolerance through a questionnaire. SSRN Electronic Journal.
Nasir, A. M., & Mohamad, S. (1993). The efficiency of the Kuala Lumpur Stock Exchange: An analytical view. Malaysian Journal of Economic Studies, 30(1), 1-16.
Nunnally, J. C. (1967). Psychometric theory. McGraw-Hill.
Pompian, M. M. (2006). Behavioral finance and wealth management: How to build optimal portfolios for private clients. John Wiley & Sons.
Sansa, N. A. (2020). The impact of COVID-19 on financial markets: Evidence from China and USA. Electronic Research Journal of Social Sciences and Humanities, 2(2), 29-39.
Sarkar, A. K. (2017). Analysis of individual investors behaviour of stock market. International Journal of Trend in Scientific Research and Development, 1(5), 922-931.
Satish, B., & Padmasree, K. (2018). An empirical analysis of herding behaviour in Indian stock market. International Journal of Management Studies, 5(3), 124-132.
Sitkin, S. B., & Weingart, L. R. (1995). Determinants of risky decision-making behavior: A test of the mediating role of risk perceptions and propensity. Academy of Management Journal, 38(6), 1573-1592.
Slovic, P. (1972). Psychological study of human judgment: Implications for investment decision making. The Journal of Finance, 27(4), 779-799.
Subash, R. (2012). Role of behavioral finance in portfolio investment decisions: Evidence from India. (Master's thesis, Charles University in Prague).
Ton, H. T. H., & Dao, T. K. (2014). The effects of psychology on individual investors' behaviors: Evidence from the Vietnam Stock Exchange. Journal of Management and Sustainability, 4(3), 125-134.
Weber, E. U., Blais, A., & Betz, N. E. (2002). A domain-specific risk-attitude scale: Measuring risk perceptions and risk behaviors. Journal of Behavioral Decision Making, 15(4), 263-290.
Zajac, J. (2004). Risk investment, asset returns, and information. Risk, Decision and Policy, 9(2), 161-176.
Downloads
Published
Issue
Section
License
Copyright (c) 2023 admin admin; Siti Salehatun Binti Musa, Asst. Prof. Dr Farhana Tahmida Newaz
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
