The Relationship between Psychological Factors, Risk Perception and Social Media on Investment Decision Making
The purpose of this paper is to examine the determinants of investor’s investment decision-making in Indian stock markets. The hypothesized direct and indirect effect of psychological factors (anger, positive mood, fear and stress) and risk perception on investment decision making are based on the Behavioural Economic theory. However, the Cultivation theory is used as the basis to test the moderating effect of social media on investment decision-making. The data for the present quantitative study was collected using online survey questionnaire distributed to stock market investors in India. The samples were collected using convenient and snowballing sampling. The research hypotheses were tested and analysed using Partial Least Squares approach for direct and indirect effect test and Product Indicator approach for moderation analysis. Risk perception found to be significant in mediating the relationships between psychological factors such as anger, positive mood and stress towards stock market investment decisions. However, social media does not moderate the relationships between all the tested psychological factors and stock market investment decisions among Indian investors. The findings are beneficial for the stock market investors to be aware of the effect of positive and negative psychological factors on their judgment on risk perception and investment decision making. Despite the claim that social media might strengthen the effect of psychological factors on investment decision-making, this was found to be insignificant in this research.
Anders A F Wahlberg & Lennart Sjoberg (2000) Risk perception and the media, Journal of Risk Research, 3(1), 31-50.
Ayoko Djisseglo. (2019). FOMO:An Instagram Anxiety. Retrieved from https://medium.com/@adjiss2/fomo-an-instagram-anxiety-2a019e7bc36f
Baker, H. Kent and Ricciardi, Victor. How Biases Affect Investor Behaviour (2014). The European Financial Review, February-March 2014, 7-10.
Behm-Morawitz, Elizabeth; Ta, David. (2014). Cultivating Virtual Stereotypes? The Impact of Video Game Play on Racial/Ethnic Stereotypes. Howard Journal of Communications, 25(1), 1–15.
Bekalu, M. A., McCloud, R. F., & Viswanath, K. (2019). Association of Social Media Use with Social Well-Being, Positive Mental Health, and Self-Rated Health: Disentangling Routine Use from Emotional Connection to Use. Health education & behavior: the official publication of the Society for Public Health Education, 46(2_suppl), 69–80.
Ben Stupples. (2018). How millennials invest is affected by social media, FOMO. Retrieved from https://www.benefitspro.com/2018/10/10/how-millennials-invest-is-affected-by-social- media/
Benartzi, S., & Thaler, R. H. (1995). Myopic loss aversion and the equity premium puzzle. Quarterly Journal of Economics, 110, 73–92.
Bernaola, D.M.V., Willows, G.D. & West, D. (2020). The relevance of anger, anxiety, gender and race in investment decisions. Mind Soc.
Beullens, K., Roe, K., & Van den Bulck, J. (2012). Music video viewing as a marker of driving after the consumption of alcohol. Substance use & misuse, 47(2), 155–165.
Boda, R. J., & Sunitha, G. (2018). Investor's Psychology in Investment Decision Making: A Behavioural Finance Approach. International Journal of Pure and Applied Mathematics, 119(7), 1253-1261.
Bollen, J. H. M. (2011). Twitter mood predicts the stock market, Journal of Computational Science, 2(1), 1-8
Brammer S. B. (2004) Corporate Reputation and Stock Returns: Are Good Firms Good for Investors (Electronic version). Social Science Research Network (SSRN).
Bridget Casey. (2016). Why is investing important. Retrieved from https://www.moneyaftergraduation.com/why-is-investing-important/
Cao, H. & Han, Bing & Hirshleifer, David & Zhang, Harold. (2007). Fear of the Unknown: Familiarity and Economic Decisions. University Library of Munich, Germany, MPRA Paper. 15. 10.2139/ssrn.985381
Chan, Wesley. (2003). Stock price reaction to news and no-news: Drift and reversal after headlines. Journal of Financial Economics, 70, 223–260.
Croucher, Stephen M. (2011). Social Networking and Cultural Adaptation: A Theoretical Model. Journal of International and Intercultural Communication. 4(4), 259– 264.
Deeksha Bhardwaj. (2018). Essay on Investment. Retrieved from https://www.yourarticlelibrary.com/investment/essay-on-investment/82264/
Delaney, Liam, Fink, Gunther and Harmon, Colm, (2014), Effects of stress on economic decision-making: Evidence from laboratory experiments, No 2014-02, Stirling Economics Discussion Papers, University of Stirling, Division of Economics, https://EconPapers.repec.org/RePEc:stl:stledp:2014-02.
Devi, M. K. N., & Bhaskaran, V. M. (2015). Impact of Social Media Sentiments and Economic Indicators in Stock Market Prediction. International Journal of Computer Science & Engineering Technology, 6(4).
Dowling, Michael M. and Lucey, Brian M. (2004). The Role of Feelings in Investor Decision-Making. http://dx.doi.org/10.2139/ssrn.346302
Ellison, N. B., Steinfield, C., & Lampe, C. (2007). The benefits of Facebook “Friends:” Social capital and college students’ use of online social network sites. Journal of Computer-Mediated Communication, 12, 1143-1168.
Eric Tham. (2018). Social Media Impact on Househould Investors and their Stock Markets Participation. Retrieved from https://www.thinkforwardinitiative.com/research/social-media- impact-on-household-investors-and-their-stock-markets-participation.
Fang, Lily H. and Peress, Joel. (2009) Media coverage and the cross-section of stock returns. Journal of Finance, 64, 2023-2052.
Gabriele M. Lepori. (2015). Positive mood and investment decisions: Evidence from comedy movie attendance in the U.S, Research in International Business and Finance, 34(6), 142- 163.
Gambetti, E., & Giusberti, F. (2012). The effect of anger and anxiety traits on investment decisions. Journal of Economic Psychology, 33, 1059-1069.
Grable, J. E., & Roszkowski, M. J. (2008). The influence of mood on the willingness to take financial risks. Journal of Risk Research, 11(7), 905–923.
Grullon, Gustavo, George Kanatas, and James P. Weston. (2004). Advertising, breadth of ownership, and liquidity. Review of Financial Studies 17, 439–461.
Hair Jr, J. F., Hult, G. T. M., Ringle, C., & Sarstedt, M. (2016). A primer on partial least squares structural equation modeling (PLS-SEM). Sage publications.
Hammermeister J, Brock B, Winterstein D, Page R. (2005). Life without TV? cultivation theory and psychosocial health characteristics of television-free individuals and their television-viewing counterparts. Health Communication, 17(3), 253-64.
Han Tan. (2020). The Importance of Stock Markets. Retrieved from https://www.fxempire.com/forecasts/article/the-importance-of-stock-markets-663262
Henseler, J., Ringle, C. M., & Sarstedt, M. (2015). A new criterion for assessing discriminant validity in variance-based structural equation modeling. Journal of the Academy of Marketing Science, 43(1), 115–135.
Henseler, J., Ringle, C. M., & Sarstedt, M. (2015). A new criterion for assessing discriminant validity in variance-based structural equation modeling. Journal of the Academy of Marketing Science, 43(1), 115–135
Hoteit, T.A. (2015). Effects of Investor Sentiment Using Social Media on Corporate Financial Distress. semanticscholar.org. https://www.semanticscholar.org/paper/Effects-of-Investor- Sentiment-Using-Social-Media-on-Hoteit/
Hughes, Michael (1980). The Fruits of Cultivation Analysis: A Re-examination of Some Effects of Television Watching. Public Opinion Quarterly, 44(3), 287– 302.
Isen, A. M. (2001). An influence of positive affect on decision making in complex situations: Theoretical issues with practical implications. Journal of Consumer Psychology, 11, 75– 85.
Ismail, Shakerin & Nair, Radha & Sham, Rohana & Wahab, Siti. (2018). Impacts of online social media on investment decision in Malaysia. Indian Journal of Public Health Research and Development, 9. 1241. 10.5958/0976-5506.2018.01627.3.
J. Walter Thompson Intelligence. (2011). Fear of missing out (FOMO). Retrieved from https://www.jwt.com/en/worldwide/news/fomojwtexploresfear of missing out phenomenon/
Jennings Bryant, Dorina Miron. (2004) Theory and Research in Mass Communication, Journal of Communication, 54(4), 662–704. https://doi.org/10.1111/j.1460- 2466.2004.tb02650.x
Kathleen Smith. (2019). Are the virtual Interactions of Social Media Busting or Boosting Your Stress? Retrieved from https://www.everydayhealth.com/wellness/united-states-of- stress/social-media-busting-boosting-your-stress/
Klibanoff, Peter, Owen Lamont, and Thierry A. Wizman. (1998). Investor reaction to salient news in closed-end country funds. Journal of Finance, 53, 673–699.
Krasnova, Hanna; Wenninger, Helena; Widjaja, Thomas; Buxmann, Peter. (2013). Envy on Facebook: a hidden threat to users' life satisfaction? In: Proceedings of the 11th International Conference on Wirtschaftsinformatik (WI2013). Universität Leipzig, Germany. 27.02.- 01.03.2013.
Kyla Gemmell. (2016). Why Snapchat Is the Leading Cause of FOMO. Retrieved from https://www.theodysseyonline.com/why-snapchat-is-the-leading-cause-of-fomo
Lee, C.J., & Andrade, E. (2011). Fear, Social Projection, and Financial Decision Making. Journal of Marketing Research, 48, S121 - S129.
Lee, Lian Fen, and Hutton, Amy P. and Shu, Susan. (2015). The Role of Social Media in the Capital Market: Evidence from Consumer Product Recalls. Journal of Accounting Research, 53(2), 367-404.
Lena Linetti. (2019). Why social media is Boosting Your Stress. Retrieved from https://www.thejakartapost.com/life/2019/01/09/why-social-media-is-boosting-your- stress.html
Lerner, J. S., & Keltner, D. (2001). Fear, anger, and risk. Journal of Personality and Social Psychology, 81(1), 146–159.
Li, L., Wang, Z., Zhang, Q., & Wen, H. (2020). Effect of anger, anxiety, and sadness on the propagation scale of social media posts after natural disasters. Information Processing and Management, 57(6), 102-313.
List of stock exchanges. (2019). Wikipedia.org. https://en.wikipedia.org/wiki/List_of_stockexchanges.
Lucey, B. M., & Dowling, M. (2005). The role of feelings in investor decision-making. Journal of Economic Surveys, 19(2), 211–238.
Michael Joseph Roszkowski and Geoff Davey. (2010). Risk Perception and Risk Tolerance Changes Attributable to the 2008 Economic Crisis: A Subtle but Critical Difference. Journal of Financial Service Professionals 64(4), 42–53.
Morgan, Michael; Shanahan, James; Signorielli, Nancy (3 September 2015). Yesterday's New Cultivation, tomorrow. Mass Communication and Society. 18(5), 674–699.
O'Reilly M. (2020). Social media and adolescent mental health: the good, the bad and the ugly. Journal of mental health (Abingdon, England), 29(2), 200–206.
O'Reilly, M., Dogra, N., Whiteman, N., Hughes, J., Eruyar, S., & Reilly, P. (2018). Is social media bad for mental health and wellbeing? Exploring the perspectives of adolescents. Clinical child psychology and psychiatry, 23(4), 601–613.
Pham, M. T. (2007). Emotion and rationality: A critical review and interpretation of empirical evidence. Review of General Psychology, 11(2), 155–178.
Podsakoff, P. M., MacKenzie, S. B., Lee, J. Y., & Podsakoff, N. P. (2003). Common Method Biases in Behavioral Research: A Critical Review of the Literature and Recommended Remedies. Journal of Applied Psychology, 88(5), 879-903.
Porcelli, A. J., & Delgado, M. R. (2009). Acute stress modulates risk taking in financial decision making. Psychological Science, 20(3), 278-83.
Preston, S. D., Buchanan, T. W., Stansfield, R. B., & Bechara, A. (2007). Effects of anticipatory stress on decision making in a gambling task. Behavioral Neuroscience, 121(2), 257-63.
Prosad, J. M., Kapoor, S., & Sengupta, J. (2015). Theory of Behavioral Finance. In Copur, Z. (Ed.), Handbook of Research on Behavioral Finance and Investment Strategies: Decision Making in the Financial Industry (pp. 1-24). IGI Global.
PTI. (2020). BSE ranks among 10 most valued exchanges in the world. Retrieved from https://www.moneycontrol.com/news/business/bse-ranks-among-10-most-valued-exchanges- in-the-world-5431601.html.
Riaz, L., & Hunjra, A.I. (2015). Relationship between Psychological Factors and Investment Decision Making: The Mediating Role of Risk Perception. Pakistan Journal of Commerce and Social Sciences, 9(3), 968–981
Richard L. Peterson. (2018). Profiting from Media Outrage. Retrieved from https://www.linkedin.com/pulse/profiting-from-media-outrage-richard-l-peterson-m-d-/
Riddle, K. (2009). Cultivation Theory Revisited: The Impact of Childhood Television Viewing Levels on Social Reality Beliefs and Construct Accessibility in Adulthood (Conference Papers). International Communication Association, 1–29.
Ringle, C. M., Wende, S., & Becker, J.-M. (2015). SmartPLS 3. Bönningstedt: SmartPLS. Retrieved May 6, 2020, from https://www.smartpls.com/
Robinson, O. J., Bond, R. L., & Roiser, J. P. (2015). The impact of stress on financial decision- making varies as a function of depression and anxiety symptoms. PeerJ, 3, e770.
Schniederjans D. (2013) Enhancing financial performance with social media: An impression management perspective. Decision Support Systems, 55(4), 911-918.
Schwarz, N., & Clore, G. L. (2003). Mood as Information: 20 Years Later. Psychological Inquiry, 14,(34), 296–303.
Seate, Anita Atwell; Mastro, Dana. (2 April 2016). Media's influence on immigration attitudes: An intergroup threat theory approach. Communication Monographs, 83(2), 194– 213.
Shafi, H., M. H., S. I. S., &., K. U. R. (2011). Relationship between Risk Perception and Employee Investment Behavior. Journal of Economics and Behavioral Studies, 3(6), 345- 351.
Shanahan, J., & Morgan, M. (1999). Television and its Viewers: Cultivation Theory and Research. Cambridge: Cambridge University Press. doi:10.1017/CBO9780511488924.
Shefrin, H. (2006). A behavioural approach to asset pricing (1st ed.). London: Academic Press Inc.
Sim B. Sitkin and Amy L. Pablo. (1992). Reconceptualizing the Determinants of Risk Behavior. Academy of Management Review 17(1), 9–38
Sobkow A, Traczyk J and Zaleskiewicz T. (2016) The Affective Bases of Risk Perception: Negative Feelings and Stress Mediate the Relationship between Mental Imagery and Risk Perception. Front. Psychol. 7, 9-32.
Statman, M. (2014), Behavioral finance: Finance with normal people, Borsa İstanbul Review, 14(2), 1-9.
Stock Market Capitalization (2019). Retrieved from https://www.theglobaleconomy.com/India/stock_market_capitalization.
Sugandha. (2019). 12% return from stock market every year. Retrieved from https://www.cnbctv18.com/personal-finance/12-return-from-stock-market-every-year- 3100181.html
Sunny. (2020). Here’s how investors think FOMO could power fresh gains in the stock-market. Retrieved from https://www.marketwatch.com/story/heres-how-investors-think-fomo-could- power-fresh-gains-in-the-stock-market-2020-06-13?mod=article_inline
Sushmita Goswami, Brijesh Kishore Goswami, Aneesya Panicker, Avnish Sharma. (2020). Exploring the Role of Emotions and Psychology in Financial Investment Decisions in Indian Securities Market. International Journal of Advanced Science and Technology, 29(1), 532-547.
Szasz, P. L., Hofmann, S. G., Heilman, R. M., & Curtiss, J. (2016). Effect of regulating anger and sadness on decision-making. Cognitive behaviour therapy, 45(6), 479–495.
Tetlock, Paul C. (2007). Giving content to investor sentiment: The role of media in the stock market, Journal of Finance, 62, 1139–1168.
Tetlock, Paul C., Maytal Saar-Tsechansky, and Sofus Macskassy. (2008). More than words: Quantifying language to measure firms’ fundamentals. Journal of Finance, 63, 1437–1467.
Tsay-Vogel, Mina; Shanahan, James; Signorielli, Nancy. (2016). Social media cultivating perceptions of privacy: A 5-year analysis of privacy attitudes and self-disclosure behaviors among Facebook users. New Media & Society. 20(1),141–161.
Ursachi, G., Horodnic, I., & Zait, A. (2015). How Reliable are Measurement Scales? External Factors with Indirect Influence on Reliability Estimators. Procedia: Economics and Finance, 20, 679-686.
Valenzuela, S., Park, N., & Kee, K. F. (2009). Is there social capital in a social network site? Facebook use and college student’s life satisfaction, trust, and participation. Journal of Computer Mediated Communication, 14, 875-901.