Investigating the influence of psychological biases on the investment decisions of the Malaysian investors

Abstract

This study investigates the influence of psychological biases on the investment decisions of both retail investors and fund managers in Malaysia. The study also explains the investment decision behaviours of the Malaysian retail investors and fund managers and how both have been mitigating the influence of psychological biases during their investment decisions. The yardstick which motivate this study is the fact that Malaysian stock market has drawn global attention, particularly after counteracting 1997 stock market crash and Southeast Asian financial crisis. An indication that both local and foreign investors are optimistic about this stock market. However, it has been argued that Malaysian market is not fully developed because investors are easily overreacted to economic development, market rumours, and speculative political issues. Other studies have shown that investors in Malaysia are influenced by psychological biases. As such, it is important for investors to be aware of how these biases influence investment decisions, especially when viewed from the point that these biases could lead to the market downturn and subsequently harm individuals, mutual fund, college endowments, pension funds, etc. More importantly, this study also reveal whether one group of investors is more influenced compared to the other group – investor type, gender, monthly income, investment experience, and trading frequency. To this end, the researcher adopts mixed methods research approach – survey questionnaire and interview – to collect data from the Malaysian retail investors and fund managers. Having exposed investors to these biases, the quantitative results indicate that there is no difference between retail investors and fund managers, between male and female, between low income earners and high income earners, between low investment experience and high investment experience, and between fewer annual trading frequency and more annual trading frequency in Malaysia. In addition, the qualitative results reveal that fund managers investment decisions processes are more comprehensive compared to retail investors. Though fund managers acknowledge the influence of psychological biases on the investment decisions; they have been using different and comprehensive approaches to mitigate such influences during investment decisions processes compared to retail investors.