Analysing the factors that influence investment intentions in South Africa
Mankuroane, Tlotlego Evadia
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Analysing the factors that influence the long- and short-term investment intentions of investors is critical to provide investment institutions a framework that will assist to compile suitable investment products for investors. Risk tolerance is one of the elements that has been used over time to profile investors, however, this study revealed that other factors, such as behavioural biases, personality measures, and demographic factors must also be included. The behavioural biases of investors include representativeness, overconfidence, anchoring, gambler’s fallacy, availability bias, loss aversion, regret aversion, mental accounting, and self-control bias. The personality measures comprise personality traits and three subcategories. Personality traits include neuroticism, extraversion, openness to experience, agreeableness, and conscientiousness. The three subcategories are risk aversion, short-term investment intentions and long-term investment intentions. Elements of behavioural biases, personality traits, and demographic factors should be added in order to accurately profile the client. Theoretical and empirical objectives were formulated in order to provide an insight into the intentions of investors to invest. The theoretical objectives thoroughly analysed the theory of Subjective well-being (SWB), risk tolerance, behavioural bias, and personality traits. Previous studies revealed that demographic factors can influence life satisfaction and the level of risk tolerance that investors are willing to accept. Furthermore, the literature on behavioural biases and personality traits have been found to influence the investment intentions and decisions of investors. The primary objective of this study was to analyse the factors that influence investors’ investment intentions in South Africa. An empirical study and a literature review were included in the research design through the application of a quantitative research approach and a positivistic paradigm. The target population selected for this study included investors emanating from a South African investment company. The sampling method that was used in this study was a purposeful sampling method, which encompasses selecting information-rich cases while using limited resources effectively. Although this is an existing questionnaire, the research instrument was a self-administered questionnaire compiled by the original researcher that was circulated electronically to 3000 investors who form the client base of the investment company. The sample size of this study was determined by the investment company that distributed the questionnaire. This study reached a sample size of 593 participants. Demographic factors were obtained for this study to gather the background information of the respondents by means of demographic questions. The questions on demographics comprised age, gender, race, marital status, province, annual income, religion, and the highest level of education. The following scales were also included in the questionnaire: Survey of Consumer Finances (SCF), behavioural biases, satisfaction with life scale (SWLS), and personality measures. The findings from the study revealed that a demographic factor, age, has a significant impact on long-term investment intentions. The results also indicated that the factors that influence the intentions of investors to invest in the short term are personality traits (extraversion, agreeableness, openness to experience, conscientiousness), risk tolerance, as well as behavioural bias (overconfidence bias). Concerning long-term investment intentions, the factors that were found to have a significant influence on the intentions of investors to invest in the long term are personality traits (extraversion, openness to experience), risk tolerance, and behavioural biases (overconfidence bias). As a result, it can be concluded that these factors have the potential of influencing the intentions of investors to invest in both the short and long term. The results gathered from this study have the ability to contribute significantly towards the financial industry as well as for the research that will be undertaken in the future. By incorporating the above-mentioned factors, financial planners and institutions will offer investors financial products that are more suitable for them. Future research can contribute by including more demographic factors that may have an impact on the investment intentions of investors. Since financial institutions usually consider risk tolerance when profiling the client, they should also consider factors such as personality measures, Satisfaction with Life (SWL), and behavioural biases as these factors can have an impact on short-term and long-term investment intentions.