Investment behaviour in mutual funds: is it a knowledge-based decision?

Abstract

Purpose This paper aims to make an analysis of investment behaviour in mutual funds, by looking at different investment decision influencers and trying to identify the extent to which the investment decision is knowledge-based. The paper has three main purposes, namely, to assess the degree to which the considered factors influence investment decision-making in young capital markets from Central and Eastern Europe (CEE); to compare the investment behaviour in the three considered countries; and to characterise investment behaviour in periods of economic turbulence. Design/methodology/approach The researchers considered a model of investment behaviour comprising six influencing factors. Inferential statistics through multiple linear regression was applied using the MATLAB R2014a software. The decision to invest was measured by the flow of new capital attracted by the fund (dependent variable) and the considered influencing factors (independent variables) were: the size of the fund, the risk associated to the fund, the growth of the fund, the growth of the fund category, the performance of the fund in its category. The research was conducted in Romania, Slovakia and Hungary. The period of study included the global economic crisis of 2007-2008. Findings The results illustrated that all considered factors do have an influence on the investment behaviour of investors in CEE, but with different levels of impact. The study concludes that the investment decision is partially knowledge-based, as investors in the region consider only some of the available information when making the decision to invest. Investment behaviour of investors in CEE is rather similar than dissimilar when deciding to invest in mutual funds. However, based on the differences between countries, it can be stated that the Hungarian investor is more mature and more informed than the others, when making investment decisions. Originality/value The study contributes to the exiting literature through the analysis of investment behaviour in young capital markets that are less studied in the literature. The limited number of studies considering mutual funds, usually comprise one fund category, while the present research considers all five most prevalent mutual funds categories for the studied period. It also contributed by collecting data from a less studied geographical region, CEE with three specific case studies, namely, Romania, Slovakia and Hungary that are looked at in a comparative manner.

Financial inclusion and mutual funds investment decision

“…Information related to mutual funds is still limited, thus it has not reached all investors in various regions. These results do not in line with the results of Sabri and Afiqah (2016), Ahmad andShah (2022), Hassan Al-Tamimi andAnood Bin Kalli (2009), Jariwala (2015a), Lusardi (2019), and Nicolescu and Tudorache (2021) who found that financial literacy had a positive effect on investment decisions.…”

“…Of the 183 investors who invest in PSX, the results show that financial literacy can improve investment decisions. In the Capital Markets of Central and Eastern Europe (CEE), Nicolescu & Tudorache (2021) researched investment behaviour in mutual funds by looking at the effect of financial knowledge and skill analysis on investment decisions. The results show that the investment decisions of investors in the CEE capital market are influenced by knowledge because investors in these regions only consider some of the available information to make investment decisions.…”

“…Previous research has shown inconsistent results. Sabri and Afiqah (2016), Ahmad and Shah (2022), Hassan Al-Tamimi and Anood Bin Kalli (2009), Jariwala (2015), Lusardi (2019), Nicolescu and Tudorache (2021) suggest that financial literacy has a positive effect on investment decisions. This means that when investors have an understanding and knowledge about investing in the capital market using investment instruments (like stock, bond, mutual fund, etc), investment risk, and skills on how to decide on investment in the capital market then it will encourage them to invest in mutual funds.…”

Investors’ Behavior and Equity Investment Decision: An Evidence from Nepal

“…Today's standard finance is unable to explain the market due to its variation between theory and evidence (Statman, 2018). The investment decision is the blend of knowledge, available information, and behavior of the individual investors (Nicolescu & Tudorache, 2020). The new thought of financial markets emerges, incorporating the inclusion of human emotions, behaviors, and sentiments while making investment decisions (Zahera & Bansal, 2018).…”