Making investment decisions in stock markets using a forecasting-Markowitz based decision-making approaches

2019 ◽  
Vol 15 (2) ◽  
pp. 647-659 ◽  
Author(s):  
Zahra Moeini Najafabadi ◽  
Mehdi Bijari ◽  
Mehdi Khashei
Keyword(s):  
Decision Making ◽  
Time Series ◽  
Stock Markets ◽  
Time Series Prediction ◽  
Investment Decisions ◽  
Rate Of Return ◽  
Expected Returns ◽  
Prediction Methods ◽  
Content Type ◽  
Markowitz Model

Purpose This study aims to make investment decisions in stock markets using forecasting-Markowitz based decision-making approaches. Design/methodology/approach The authors’ approach offers the use of time series prediction methods including autoregressive, autoregressive moving average and artificial neural network, rather than calculating the expected rate of return based on distribution. Findings The results show that using time series prediction methods has a significant effect on improving investment decisions and the performance of the investments. Originality/value In this study, in contrast to previous studies, the alteration in the Markowitz model started with the investment expected rate of return. For this purpose, instead of considering the distribution of returns and determining the expected returns, time series prediction methods were used to calculate the future return of each asset. Then, the results of different time series methods replaced the expected returns in the Markowitz model. Finally, the overall performance of the method, as well as the performance of each of the prediction methods used, was examined in relation to nine stock market indices.

scholarly journals ANALISIS PORTOFOLIO SEBAGAI DASAR PENGAMBILAN KEPUTUSAN INVESTASI SAHAM YANG TERDAFTAR DI BEI

IQTISHODUNA ◽  
2013 ◽  
Author(s):  
Sri Yati
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Analytical Method ◽  
Stock Exchange ◽  
Investment Decisions ◽  
Portfolio Analysis ◽  
Rate Of Return ◽  
Expected Returns ◽  
Risk Level ◽  
Expected Return

This study aims to analyze rate of return and risk as the tools to form the portfolio analysis on 15 the most actives stocks listed in Indonesian Stock Exchange. Descriptive analytical method is used to describe the correlation between three variables: stock returns, expected returns of stock market, and beta in order to measure the risk of stocks to help the investors in making the investment decisions. The research materials are 15 the most actives stocks listed in Indonesian Stock Exchange during 2008-2009. The results show that PT. Astra International Tbk. has the highest average expected return of individual stock (Ri) of 308,3355685, while PT. Perusahaan Gas Negara Tbk. has the lowest of -477,0827847. The average expected return of stock market (Rm) is 0,00247163. PT. Astra International Tbk. has the highest systematic risk level of 20229,14205, while the lowest of -147,5793279 is PT. Kalbe Farma Tbk. Furthermore, the results also indicate that there are 9 stocks can be combined to form optimal portfolio because they have positive expected returns.

Role of personal values in investment decisions

2016 ◽  
Vol 39 (8) ◽  
pp. 940-964 ◽  
Author(s):  
Otuo Serebour Agyemang ◽  
Abraham Ansong
Keyword(s):  
Decision Making ◽  
Corporate Governance ◽  
Quantitative Methods ◽  
Investment Decision ◽  
Personal Values ◽  
Investment Decisions ◽  
Content Type ◽  
Investment Decision Making ◽  
Recent Emergence ◽  
Decision Making Processes

Purpose This paper aims to examine the role personal values play in investment decision-making processes among Ghanaian shareholders. Design/methodology/approach In consequence of the recent emergence of the issue of corporate governance practices in Ghana, and the kind of the research objective of this paper, a mix of qualitative and quantitative methods was used. These methods were used in two stages. The first stage was qualitative, which purposively selected 20 individual shareholders to solicit their perspectives on how personal values influence investment decisions. Their responses were used to construct the content of this enquiry. The second stage, which was quantitative, used stratified sampling technique to select 503 individual shareholders to confirm the responses obtained from stage one of the enquiry. Findings The findings of the study reveal that individual shareholders in Ghana hold value priorities and that honesty, a comfortable life and family security play a significant role in their lives and their investment decision-making processes, and the kind of companies they choose to invest in. Also, to Ghanaian individual shareholders, there is a clear distinction between a comfortable life and a prosperous life in the sense that they are not incentivized more by the latter but by the former in their investment decisions. Practical implications The results can inform corporate directors and managers what values are considered in investment decisions, and that it is not purely financial. With these results, they can be informed that while some financial values are important, it is just to live a comfortable life and not a prosperous life. This may influence these directors and managers to have a more long-run focus and to have more of a corporate social responsibility (CSR) focus by putting implementable measures in place to tackle corporate responsibility issues and to take up a responsibility for their CSR feat. Also, the results can be used for public policy in that if regulators find out that more CSR-type information is important to investors, they might require additional CSR-type disclosures in financial statements. Originality/value This paper contributes to the knowledge on the stakeholder perspective of corporate governance that individual shareholders’ personal values have influence on their investment decisions and the choice of companies they invest in.

Evaluation of behavioral biases affecting investment decision making of individual equity investors by fuzzy analytic hierarchy process

2019 ◽  
Vol 12 (3) ◽  
pp. 297-314 ◽  
Author(s):  
Jinesh Jain ◽  
Nidhi Walia ◽  
Sanjay Gupta
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Investment Decision ◽  
Investment Decisions ◽  
Analytic Hierarchy ◽  
Content Type ◽  
Behavioral Biases ◽  
Investment Decision Making ◽  
Overconfidence Bias ◽  
Hierarchy Process

Purpose Research in the area of behavioral finance has demonstrated that investors exhibit irrational behavior while making investment decisions. Investor behavior usually deviates from logic and reason, and consequently, investors exhibit various behavioral biases which impact their investment decisions. The purpose of this paper is to rank the behavioral biases influencing the investment decision making of individual equity investors from the state of Punjab, India. This research would provide valuable insight into the different behavioral biases to investors and other participants of the capital market and help them in improving investment decisions. Design/methodology/approach The research is conducted on the individual equity investors of Punjab, India. Fuzzy analytic hierarchy process was applied to rank the factors influencing the decision making of individual equity investors of Punjab. The primary factors considered for the study are overconfidence bias, representative bias, anchoring bias, availability bias, regret aversion bias, loss aversion bias, mental accounting bias and herding bias. Findings The three most influential criteria were herding bias, loss aversion bias and overconfidence bias. The five most influential sub-criteria were “I readily sell shares that have increased in value (C61),” “News about the company (Newspapers, TV and magazines) affects my investment decision (C84),” “I invest each element of my investment portfolio separately (C71)” and “I usually hold loosing stock for long time, expecting trend reversal (C52).” Research limitations/implications Although sample survey conducted in the present study was based on a limited sample selected from a particular area that truly represented the total population, it is considered as the limitation of this study. Practical implications The outcome of this research provides investors with a better understanding of behavioral biases that influence their decision making. This study provides them a guideline on different behavioral biases that they should consider while making investment decisions. Originality/value The research model is based on the available literature on behavioral finance and the research results and findings would add value to the existing knowledge base.

Challenging investment decision-making in pension funds

2019 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Carl-Christian Trönnberg ◽  
Sven Hemlin
Keyword(s):  
Decision Making ◽  
Critical Incident ◽  
Pension Fund ◽  
Investment Decision ◽  
Investment Decisions ◽  
Pension Funds ◽  
Content Type ◽  
Fund Managers ◽  
Intuitive Thinking ◽  
Investment Decision Making

PurposeThe purpose of this study was to gain a better understanding of pension fund managers investment thinking when confronted with challenging investment decisions. The study focuses on the theoretical question of how dual thinking processes in experts’ investment decision-making emerge. This question has attracted interest in economic psychology but has not yet been answered. Here, it is explored in the context of pension funds.Design/methodology/approachThe sample included 22 pension fund managers. The authors explored their decision-making by applying the critical incident interview technique, which entailed collecting investment decisions that fund managers retrieved from recent memory (Flanagan, 1954). Questions concerned the investment situation, the decision-making process and the challenges and uncertainties the fund managers faced.FindingsMany of the 61 critical incidents examined concerned challenging (mostly stock) investments based on extensive analysis (e.g. reliance on external analysts for advice; analysis of massive amounts of hard company and stock market information; scrutiny of company reports and personal meetings with CEOs). However, fund managers to a high degree based their decisions on soft information judgments such as experience and qualitative judgements of teams. The authors found heuristics, intuitive thinking, biases (sunk cost effects) and social influences in investment decision-making.Research limitations/implicationsThe sample is small and not randomly selected.Practical implicationsThe authors suggest anti-bias training and better acquaintance with human forecasting limitations for pension fund managers.Originality/valuePension fund managers’ investment thinking has not previously been investigated. The authors show the types of investment situations in which analytical and intuitive thinking and biases occur.

Shared leadership in entrepreneurial teams: a qualitative study

2019 ◽  
Vol 12 (3) ◽  
pp. 427-441
Author(s):  
Shiji Lyndon ◽  
Ashish Pandey
Keyword(s):  
Decision Making ◽  
Shared Leadership ◽  
Design Methodology ◽  
Investment Decisions ◽  
Qualitative Approach ◽  
Content Type ◽  
Entrepreneurial Teams ◽  
Depth Interviews ◽  
Practical Implications ◽  
Answering Questions

Purpose The purpose of this paper is to unravel the underpinnings of the phenomenon of shared leadership. The study was carried out with the objective of answering questions such as what is shared in shared leadership, what are individual and team level factors which lead to sharing and what are the outcomes of shared leadership. Design/methodology/approach The study adopted a qualitative approach. Eighteen in-depth interviews were conducted. The data were analysed using Nvivo 11 software. Findings The study found that in entrepreneurial teams while sharing leadership, cofounders share competencies, roles, vision, stress and decision-making. The study also reveals various individual and team level factors which facilitate shared leadership and its outcomes. Practical implications The study offers critical insights regarding the characteristics of individuals and team where shared leadership would work and hence can be used to understand the factors to be considered while forming teams. The study also has important insights for the investors regarding what dynamics to look for in individuals and teams before making investment decisions. Originality/value The inductive approach adopted in the study helps in understanding some of the basic underpinnings of the phenomenon of shared leadership which were not adequately answered by previous studies.

scholarly journals How do emotional intelligence and behavioral biases of investors determine their investment decisions?

2020 ◽  
Vol 14 (1) ◽  
pp. 35-47
Author(s):  
Saloni Raheja ◽  
Babli Dhiman
Keyword(s):  
Decision Making ◽  
Stock Exchange ◽  
Investment Decision ◽  
Sample Selection ◽  
Investment Decisions ◽  
Risk Tolerance ◽  
Content Type ◽  
Behavioral Biases ◽  
Investment Decision Making ◽  
The Impact

Purpose In earlier studies, research has shown that EI is the only element, which influences the ways in which people develop in their lives, jobs and social skills control their emotions and get along with other people. It is EI that dictates the way people deal with one another and understand emotions. The research gap is to explore the impact of behavioral factors and investors psychology on their investment decision-making. Design/methodology/approach The information was gathered from 500 financial specialists. The region of research was the financial specialists who contribute through LSC Securities Ltd. in Punjab State. The purposive testing system was used in this examination. Findings The investigation found that the positive connection between the conduct predispositions of the financial specialists and venture choices of the speculators and positive connection between enthusiastic insight of the financial specialists and their venture choices. Yet, the authors found that the enthusiastic insight better foresees the venture choices of the financial specialists than the conduct predispositions of the speculators. Among the different elements of conduct inclinations of the speculator’s lament and carelessness are identified with the financial specialist’s venture choices. Among the various estimations of eager understanding – care, dealing with emotions, motivation, empathy and social aptitudes are related to the hypothesis decisions of the monetary pros. Research limitations/implications The sample selection was based on purposive sampling, rather than a random probability sample. The sample was area specific, restricted only to Ludhiana Stock Exchange in Punjab state. Therefore, the results of the study cannot be generalized with certainty to all the investors investing through other exchanges in other states. The inferences are based on the assumption that the data provided by the investors are true and correct. The findings may be relevant for other stock exchanges as that of the Ludhiana Stock Exchange. However, the authors do not claim the generalization of the results. Practical implications This study also helps to understand the relationship between investment decision-making and risk tolerance of investors. It will helpful for the financial advisors to know the behavioral biases of investors while making an investment decision, and therefore, they can advise investors properly to mitigate such biases. It may help the investors in understanding the subjective part of their behavior and control their emotions while taking decisions for their investment in stock market options. Social implications This research will help investment advisors and finance professionals to judge investors’ attitudes toward risk in a better way, which leads to better investment decisions. Originality/value This study is my own study and it is original and has not been published anywhere.

scholarly journals Sales forecasting in a mechanical component manufacturer: comparison between monte carlo simulation and time series analysis

2019 ◽  
Vol 10 (4) ◽  
pp. 1324
Author(s):  
Kevin William Matos Paixão ◽  
Adriano Maniçoba da Silva
Keyword(s):  
Decision Making ◽  
Time Series ◽  
Monte Carlo Simulation ◽  
Monte Carlo ◽  
Moving Average ◽  
Prediction Methods ◽  
Future Scenario ◽  
Sales Forecast ◽  
Forecasting Methods ◽  
Weighted Moving Average

Organizations today are required to be prepared for future situations. This preparation can generate a significant competitive advantage. In order to maximize benefits, several companies are investing more in techniques that simulate a future scenario and enable more precise and assertive decision making. Among these techniques are the sales forecasting methods. The comparison between the known techniques is an important factor to increase the assertiveness of the forecast. The objective of this study was to compare the sales forecast results of a mechanical components manufacturing company obtained through five different techniques, divided into two groups, the first one, which uses the fundamentals of the time series, and the second one is the Monte Carlo simulation. The following prediction methods were compared: moving average, weighted moving average, least squares, holt winter and Monte Carlo simulation. The results indicated that the methods that obtained the best performance were the moving average and the weighted moving average attaining 94% accuracy.

Does underconfidence matter in short-term and long-term investment decisions? Evidence from an emerging market

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Maqsood Ahmad
Keyword(s):  
Decision Making ◽  
Stock Exchange ◽  
Emerging Market ◽  
Investment Decision ◽  
Investment Decisions ◽  
Investment Strategies ◽  
Short Term ◽  
Content Type ◽  
Investment Decision Making

PurposeThe purpose of this article is to clarify the mechanism by which underconfidence heuristic-driven bias influences the short-term and long-term investment decisions of individual investors, actively trading on the Pakistan Stock Exchange.Design/methodology/approachInvestors' underconfidence has been measured using a questionnaire, comprising numerous items, including indicators of short-term and long-term investment decision. In order to establish the influence of underconfidence on the investment decisions in both the short and long run, a 5-point Likert scale questionnaire has been used to collect data from the sample of 203 investors. The collected data were analyzed using SPSS and AMOS graphics software. Hypotheses were tested using structural equation modeling technique.FindingsThis article provides further empirical insights into the relationship between heuristic-driven biases and investment decision-making in the short and long run. The results suggest that underconfidence bias has a markedly negative influence on the short-term and long-term decisions made by investors in developing markets. It means that heuristic-driven biases can impair the quality of both short-term and long-term investment decisions.Practical implicationsThis article encourages investors to avoid relying on cognitive heuristics, namely, underconfidence or their feelings when making short-term and long-term investment strategies. It provides awareness and understanding of heuristic-driven biases in investment management, which could be very useful for finance practitioners' such as investor who plays at the stock exchange, a portfolio manager, a financial strategist/advisor in an investment firm, a financial planner, an investment banker, a trader/broker at the stock exchange or a financial analyst. But most importantly, the term also includes all those persons who manage corporate entities and are responsible for making its financial management strategies. They can improve the quality of their decision-making by recognizing their behavioral biases and errors of judgment, to which we are all prone, resulting in more appropriate investment strategies.Originality/valueThe current study is the first to focus on links between underconfidence bias and short-term and long-term investment decision-making. This article enhanced the understanding of the role that heuristic-driven bias plays in the investment management and more importantly, it went some way toward enhancing understanding of behavioral aspects and their influence on the investment decision-making in an emerging market. It also adds to the literature in the area of behavioral finance specifically the role of heuristics in investment strategies; this field is in its initial stage, even in developed countries, while, in developing countries, little work has been done.

Behavioral factors affecting investment decision-making in bank stocks on the Ghana stock exchange

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Alexander Quaicoe ◽  
Paul Quaisie Eleke-Aboagye
Keyword(s):  
Decision Making ◽  
Stock Market ◽  
Stock Exchange ◽  
Investment Decisions ◽  
Mental Accounting ◽  
Content Type ◽  
Gambler’S Fallacy ◽  
Gambler's Fallacy ◽  
Ghana Stock Exchange ◽  
Regret Aversion

Purpose The finance literature is awash with papers bordering on the classical assumption that investors are rational in their decision-making, and hence, would always take decisions rationally given the right information, thus making the stock market efficient. This assumption has, however, been found to be at least inadequate given the fact that investors are complex psychological beings full of emotions. This paper aims to investigate the psychological factors that tend to influence the decisions of investors. Design/methodology/approach The study used a questionnaire to survey a total of 350 investors holding stocks of listed banks on the Ghana Stock Exchange (GSE). Findings The study found the existence of various behavioural biases among the investors surveyed. The most dominant factor or bias found to be influencing investment decisions of respondents was herding with nearly 62% weight. Again, biases such as regret aversion and gambler’s fallacy were also found to strongly influence the decisions of investors, along with mental accounting, overconfidence and anchoring. Practical implications The presence of these behavioural biases, therefore suggests that investors do not always take rational decisions, and hence, making the stock market efficient and that as psychological beings, their investment decisions are impacted strongly by their psychology. Originality/value The study used a questionnaire to survey a total of 350 investors holding stocks of listed banks on the GSE with a special focus on overconfidence, anchoring, herding, gambler’s fallacy, mental accounting and regret aversion as the variables of interest, the first of its kind in Ghana.

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