QTB FINAL PROJECT
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Transcript of QTB FINAL PROJECT
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1. Introduction1.1 Introduction
One of the funny things about the stock market is that every time one person buys,
another sells, and both think they are astute. - William Feather. The conventional
finance standard seeks to understand financial markets using models in which investors
are rational. In common discussion, investment refers to financial assets such as
deposits, bonds and shares. It is an inquiring thing, that by difference economists can
discuss investment without ever declare finance. By investment they mean capital
formation, the formation of new capital assets, including intangible assets such as
education. Economists have always discussed the relationship between these two,
investment and finance, and the disagreement over its nature remains unsettled. The
capital market, similar to the money market plays a considerable responsibility in the
national economy. A developed, active and vibrant capital market can adjoin widely in
the rapidly economic growth and development. It circulates funds from people for
investments purpose in the creative means of an economy, activating idle monetary
resources and puts them in proper investments. Capital market also assists in capital
generation. Capital formation is net accumulation to the present stock of capital in the
economy. Through utilization of idle resources it generates savings; the mobilized
savings are made available to a range of sectors e.g. agriculture, industry, etc. This
assists, in increasing capital formation. It lifts up resources for longer span of time.
Therefore, it provides an investment possibility for people who aspired to invest
resources for a longer span of time. It provides appropriate interest rate of return also to
investors. Instruments such as bonds, equities, units of mutual funds, insurance policies,
etc. definitely provide diverse investment avenues for the public. The capital market
increase production and output in the national economy. As it makes funds available for
long periods of time, the financial requirements of business houses are met by the capital
market. It helps in research and development. This helps in increasing production and
productivity in the economy by generation of employment and development ofinfrastructure. Capital markets consist mainly of Stock (equity) and Debt markets. The
capital market provides a path for raising the long-term financing needs of business
through equity and long term debt by magnetize investors with a long term investment
perspective. In the last few months Pakistans economic situation has been failing due to
unstable political position, rise in insurgency and global slowdown. In fact, annual
growth below 4 percent remains insufficient to absorb the growing labor force and
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inflation rate remains high. To make things even worst, budget shortage has reached
unsustainable stage; foreign reserves had dropped and the currency fall to a record low.
As a result, the government had requested a new bailout from the IMF. Yet, given that
general election is about to take place, it may be difficult for the declaration party to
implement tax reforms, spending cuts and tightening of the monetary policy .Stocks inPakistan had a positive presentation during the last month. Pakistan Stock Market
(KSE100), rally 890 points or 5.23 percent during the last 30 days. Historically, from
1990 until 2013, Pakistan Stock Market (KSE100) averaged 5170 Index points reaching
an all time high of 18074 Index points in February of 2013 and a record low of 539 Index
points in June of 1990. The Karachi Stock Exchange 100 Index is a major stock market
index which tracks the routine of largest companies by market capitalization from each
division of Pakistani economy listed on the Karachi Stock Exchange. Since October 15th,
2012 it is a free-float index. The KSE100 has a base value of 1000 as of November, 1991.
Here we comprise a chart with historical data for Pakistan Stock Market (KSE100).
In 2012 stock market shows positive affect in investment through various monitory
channels as per economic review, from 1990 until 2013, Pakistan Stock Market averaged
5170 Index points reaching an all time high of 18074 Index points in February of 2013.
Very satisfying atmosphere for investment, after watching trend of investment in country,
I decided to conduct a study that is consisting of such factors which influences while
deciding whether to invest or not. Secure investment is mandatory for economic growth
above all, that will help attract investors in this context. That is very crucial problem for
an inexperienced investor who seeks appropriate decision making criteria in this regard.
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My proposed variables that influence investment decision are rate of return, security and
risk, although there are number of studies conducted by different scholars around the
globe, different conceptual frame works in this regard presented by now but I consider
above mentioned variables carry more importance than any other variables. Secondly, all
the variables are interconnected with each others. Investor always seeks an opportunitieswhere he supposed to get high rate of return and minimum risk factors that is only
possible if investment is secure and invested at a firm which is guaranteed by
governmental regularity authorities.
Cleary (1999) explained the relationship of investment and firm financial status.The
objective of his research was to show how financial factors effect the investment
decisions in high creditworthy and less creditworthy firms.He used five variables in
which leverege,liquidity,growth and profitability were independent and investment
decision was dependent variable. The study showed that liquidity,profitability and growth
had positive significant relationship with investment decision and leverege had negetine
relationship with investment decision. Polk & Sapienza(2009) examined that how stock
market mispricing might influence firms investment decesions.Their objective was to
explor that how price fluctuation of shares effect ones to invest. They selected three
variables for their research which were mispricing,discretionary accruals and investment
decesion. Their study reflected the strong positive relationship between mispricing and
investment decision and also positive relationship of investment with discretionary
accruals. Jains & Dashora(2012) elaborated the risk of different factors on investment
decisions.Their intention was to study and analyze the impact of different factors on an
individual investor He used three variables Income,Age and Investment pattern as
independent variable to test dependent variable investment decision. The key results of
the study was that the income and investment pattern had significant relationship with
investment decision and age had negetive relationship with investment decision.
Lee, Wang, Kao, Chen, & Zhu(2011) explained the factors that effect the investment
performance in Taiwan stock market.Their objective was to show that how decision
factors affect the performance of taiwan stock market.They selected Investor
background,Strategy selection,Fundamental factors,Psychological factors and
Macroeconomic factors as independent variables to checked the Investment performance.They finally concluded that macroeconomic factors had strong positive significant
relationship with investment decision and it was most influencing factor in their
study.Their study also showed that Strategy selection,Fundamental factors and
Psychological factors had significant relationship with investment pattern but Investor
background had no significant relationship with investment decisions. Kadariya(2012)
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investigated the factors that effects in decision making to invest in Nepalese stock
market.The intent of the study had to determined the attitude of Nepalese investor for
investing in stock market.He used Capital structure,Averege pricing method,Political
factor,Media coverege,Belief on luck and Financial education as independent variable for
their research to test investment decision. He found that capital structure and averegepricing method had strong positive significant relationship with investment decision and
there was also positive relationship among Political factor,Media coverege,Belief on
luck,Financial education and investment decision.
This type of research has been conducted in developed countries hence there is a need to
be studied investment decision making process by different aspects in developing or
under developing countries perspective. Where risk factor is very high comparatively and
investment is not secured. Nevertheless, opportunities are also high due to continuous
development in different sectors. Therefore, there is a need to define criteria which must
be kept in mind while taking decision about investment purpose. Proposed variables
importance cannot be denied in this regard. Because most of the researches are conducted
on different variables while the proposed variables are not given as importance as it
deserves. It could be called as basic factors which are mandatory for decision making in
this context. The second very important thing is its interdependency on each other.
Investors always priorities that opportunities which gives high level of rate of return
combined with lower risk factor and high security. In developing countries, significance
of investment security increases comparatively due to limited spare amount and low per
capita income of citizens. Expenses have gone up for last couple of years due to
economical instability and insufficient resources planning from establishment. Every
individual has been striving for secure means of investment. As long as chances are
available to invest in any business globally while present in home country, investors seek
highest rate of return over their investment.
Therefore the purpose of this research study is to examine the impact of factors that affect
investment decision
1.2 Research Objective
This research is focusing on the factors that affect investment decisions in Pakistani stockmarket. Following are the main objectives of the study:
To examine the impact of rate of return on investment decision To determine the impact of security on investment decision To test the impact of risk on investment decision
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1.3 Research Question and Hypothesis
Research Question
What are the factors that affect investment decisions in stock market? to answer this
question I select the different variables.
Hypothesis
Hypothesis 1:
H1: There is relationship between rate of return and investment decision.
H0: There is no relationship between rate of return and investment decision.
Hypothesis 2:
H1 There is relationship between security and investment decision.
H0: There is no relationship between security and investment decision.
Hypothesis 3:
H1: There is relationship risk and investment decision.
H0: There is no relationship between risk and investment decision.
1.4 List of variable
Rate of return Market value Organizational environment Security Foreign investor Business opportunity International relation Risk taking Derivative instruments Inflation rate
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1.5 Details of variable
1) Rate of return:The gain or loss on an investment over a specified period, expressed as a
percentage increase over the initial investment cost. Gains on investments are considered
to be any income received from the security plus realized capital gains. By (Asiedu,
2002).
2) Market value:The market value also effect on the investment decision for the invester.if the
market value of the organization is strong the investor not feel hesitation in investment.
On the other hand if the organization market value the investor feel hesitation for
investment.
3) Organizational goodwill:Organizational goodwill is another important variable for the investment
decision .the goodwill of the organization attract the investor for investment. Goodwill is
the asset of any organization.
4) Security:Security is the guarantee given on the investment made that is actually an
assurance that investment is saved and firm is accountable under the law of regularity
authorities. By (Gutter & Fontes, 2006).
5) Foreign investor:If the security of the organization satisfied the foreign investor invest in
the organization. The foreign investor is the important variable for the investment
decision.
6) Business opportunities:Business opportunities also attract the investor for the investment. if the
organization provide opportunity for the development t
7) International relation:International relations is the study of relationships among different
countries, the roles of sovereign states, inter-governmental organizations, international
non-governmental organizations, non-governmental organizations, and multinational
corporations. .if the relation strong than people make more investment.
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8) Risk taking:
Risk is the potential of loss resulting from a given action, activityand/or inaction. The notion implies that a choice having an influence on the outcome
sometimes exists. Potential losses themselves may also be called "risks". If the investor is
the risk taking then he make more investment.
9) Derivative instruments:A security whose price is dependent upon or derived from one or
more underlying assets. The derivative itself is merely a contract between two or more
parties. Its value is determined by fluctuations in the underlying asset. The most common
underlying assets include stocks, bonds, commodities, currencies, interest rates and
market indexes. Most derivatives are characterized by high leverage.
10)Organizational environment:Organizational environment also attract the investor for investment
decision. Organizational environment: set of Forces surrounding an organization. May
affect its operation and access to scarce resources
11)Inflation rate:He rate at which the general level of prices for goods and services is rising,
and, subsequently, purchasing power is falling. Central banks attempt to stop severe
inflation, along with severe deflation, in an attempt to keep the excessive growth of prices
to a minimum. Inflation rate is high in country than less chance of investment
1.6 Term Definitions
Rate of Return
The gain or loss on an investment over a specified period, expressed as a percentage
increase over the initial investment cost. Gains on investments are considered to be any
income received from the security plus realized capital gains. By (Asiedu,2002)
Investment Decision
Investment decision is the process of taking decision of whether to invest or not over
certain assumptions The basic decision rule for a project appraisal using certainty
equivalent values as inputs and discounted at a rate adjusted for risk is simply to accept or
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reject the project depending on whether its NPV is positive or negative, respectively. By
(Savvides,1994)
Security
Security is the guarantee given on the investment made that is actually an assurance thatinvestment is saved and firm is accountable under the law of regularity authorities. By
(Gutter & Fontes,2006)
Risk
The chance of financial loss or more formally, the variability of returns associated with
the given asset. Risk is attributable to the performance of the stock market or the
economy. A risk is defined as one which is critical to the viability of the project in the
sense that a small deviation from its projected value is both probable and potentially
damaging to the project worth. By (Savvides,1994).
2.0: Theoretical Model
Risk
Security
Rate of Return
Investment decision
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2.3 Population and Sample
The population consists of all those investors who invest in stock market. A survey
questionnaire was constructed and randomly distributed to different investors and get response
from them. The sample size for study consists of 150 questionnaires and each questionnaire
consists of 17 questions.
2.4 Data Collection Method
InterviewA face to face meeting of people in which information is exchanged. A proper
meeting inwhich one or more persons question, talk to, or assess another person.
Interviews generate an advanced response rate. It is useful for gathering
information about difficult topics. The Interviewer can investigate deeper into a
response given by an interviewee. It is very time consuming. It is not used for a
huge number of people.
Questionnaire A set of printed or written questions with a selection of answers, develop for the
objective of a survey or statistical study. A set of cautiously considered questions
given in exactly the same form to a group of people in order to gather data about
some topic in which the researcher is interested.
The responses are gathered in a consistent way, so questionnaires are morepurposeful, certainly more than interviews. Huge amount of information can be
gathered from a high number of people in a short time frame. The results of the
questionnaires can generally be quickly and easily measure by either a researcher
or through the use of a software package. When data has been measured, it can be
used to judge against other research and would be used to compute change.
Questionnaires are in standardized form so it is not feasible to clarify any points in
the questions that respondent might misread. People may read in a different way
about each question therefore, their answer based on their own interpretation of
the question.
Finally I select questionnaire for my study because it is match with my researchtopic and also give a numeric data which mean we apply quantitative research
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approach in our study that leads towards theory testing and previous results
confirmation.
Measurement
In case of measuring the Investment decision, Rate of return, Security and Risk only
filled questionnaire is used that was filled from different investors. Respondents data
was obtained thorough one survey with 5-point Likert scale. Few questions were
asked from respondent and told him to tick only one appropriate option. The survey
contained a total of 17 questions and took approximately 10 minutes to complete.
Incomplete questionnaire was not included in the survey. There were different
measures for the variables defined. There were different related questions in the survey
for obtaining data for one variable. Measure for each variable is defined below:
Investment DecisionInvestment Decision was measure by asking the three questions by using the 5-points
rating type scales ranging from (1) strongly disagree to (5) strongly agree.
Rate of ReturnRate of Return was measure by asking the four questions by using the 5-points rating
type scale ranging from (1) strongly disagrees to (5) strongly agree.
SecuritySecuritywas measure by asking the five questions by using the 5-points rating type scale
ranging from (1) strongly disagrees to (5) strongly agree.
RiskRisk was measure by asking the five questions by using the 5-points rating type scale
ranging from (1) strongly disagrees to (5) strongly agree.
MethodologyWe use Descriptive and Inferential statistics in our study because descriptive statistics
summarize data in a meaningful way which is a representation of the entire population.
Generally, there are two main kinds of descriptive statistic that are used to illustrate data,
measures of central tendency include the mean, median and mode, whereas measures of
variability include the standard deviation (or variance), the minimum and maximum
values, kurtosis and skewness. Inferential statistic is used for in-depth analysis which
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shows the relationship between variables. We conduct inferential statistics to make the
conclusions. Inferential statistics consist of regression, correlation, histogram, bar charts,
scatter plots, chi-square test, f-test, z-test and t-tests. We use regression, correlation,
histogram, scatter plots and f-test in our study.
Descriptive statistics is the term that summarizes a given data set, which can also be an
illustration of the whole population or a sample. With descriptive statistics you are
basically telling what is or what the data shows. With inferential statistics, you are trying
to reach at the result that extends away from the urgent data alone. We use inferential
statistics to assume from the sample data what the population might assume. Descriptive
statistics help us to simplify large amounts of data in a sensible way. Each descriptive
statistic decreases lots of data into an easier summary.
Histogram is a summary graph explains a count of the data points spread in various
ranges. The effect is a rough calculation of the frequency distribution of the data.Histogram is a form of a bar graph used with numerical (scale) variable preferably of
constant nature. The intervals are shown on the X-axis and the number of scores in each
interval is stand for the height of a rectangle located above the interval. Unlike the bar
graph, in a histogram there is no space between the bars. The data is continuous so the
lower limit of any one interval is also the upper limit of the previous interval. It is useful
to
Summarize the data Investigate and comparing frequency distributions Check the normality of data
Scatter plots show the relationship between two variables by presenting data points on a
two-dimensional graph. These are especially valuable when there are a huge number of
data points. Scatter plot is a graph of two variables that shows how the score of one
variable associates with the score of other variable. Each dot or circle on the plot is a
symbol of a particular individuals score on the two variables with one variable being
represented on the X axis and the other on the Y axis. The measurement for both
variables is continuous (measurement data). It is useful to
Gain insight into the relationship between two scale variables To check the assumptions of linearity for correlation and regression statistics To locate the outliers those are far from the normal line
Correlation is used to check relationship between variables. The type and degree of
connection between any two or morevariables in which they differ jointly over aperiod.
Apositive correlation exists where the high values of one variable are related with the
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high values of the other variable. A 'negative correlation' means association of high
values of one with thelow values of the other.Correlation can vary from +1 to -1. Values
close to +1 indicate a high-degree ofpositive correlation, and values close to -1 indicate a
high degree ofnegative correlation.
A regression model ismethod to find out the statisticalrelationshipbetween two or more
variables where a change in a dependent variable is associated with, and depends on, a
change in one or moreindependent variables.A statistical measure that try to determine
the strength of the association between one dependent variable and a series of other
changing variables known as independent variables. The two central types of regression
are linear regression and multiple regressions.
The general form of each type of regression is:
Linear Regression: Y = a + bX + Ei
3. Descriptive Summary
Table 3.1
Descriptive Statistics
N Minim
um
Maxim
um
Mean Std.
Deviation
Rate_of_Return 150 2.00 4.75 3.5650 .52571Security 150 2.40 4.40 3.3573 .51584
Risk 150 1.80 4.40 3.1453 .48322
Investment
Decision
150 1.33 4.67 3.2156 .63002
Valid N (list
wise)
150
In the above table the minimum values, maximum values, mean values and the values of
standard deviation of all the four variables have been shown. There were scales of 5
responses that lead to the options (strongly disagree, disagree, neutral, agree, and strongly
agree). Number of observations of each variable is 150.If we observe the above output to
assess the average response rate then we come to know the means of different variables
like Rate of return (mean: 3.565), Security (mean: 3.357), Risk (mean: 3.14) and
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Investment decision (mean: 3.21). If we observe then know that all variables (Rate of
return, Security, Risk, Investment decision) show the average response rate of
respondents as lie within the option 3-4 (3 is for neutral and 4 is for agree).The minimum
option that is ticked by respondent is 1.33 and the maximum option that is ticked byresponded is 5.
Standard deviation and the extreme values (minimum in comparison to maximum value)
give the idea about the dispersion of the values of a variable from its mean value. Since
different units of measure have been used for different variables the dispersion of a
variable using standard deviation cant be compared to that of other variable unless both
the variables have the same unit of measure. But still these statistics are helpful to have
an idea about the central tendency and the dispersion of a variable in absolute terms
rather than relative terms. The value of standard deviation is (S.D.483) for risk which is
the lowest value as compare to other variable values. Which shows that most of the
respondent answers were same for the variable risk and have consistency in their
response rate but the value of standard deviation for investment decision is (S.D .630)
which is quite high as compare to other variables which clearly shows that the response
regarding investment decision of mostly respondents were not the same and they dont
have consistency in their answers.
3.2 Histogram
This shows the graphical representation of the variables with the curve to check the
normality of the response rate. Lets discuss the result of each variables histogram one
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Strongly Disagree = 1
Disagree = 2
Neutral = 3
Agree = 4
Strongly Agree = 5
The fig.1 shows the graphical representation of data through bars that is showing the
response of the respondents regarding rate of return. Most of the participants responds
in the center option 3 - 4 (3 is for neutral and 4 is for agree). Small numbers of
respondents were marked very low and also low response for high options. The bar in the
histogram is high for neutral response, form a curve that is similar to the normal curve.
The hump of the curve is on the top mean value which shows that the most of
respondents show the neutral response. Thus, frequency distribution of the rate of return
is normal and figure showed that data is normally distributed.
Figure 3.2
Figure 3.2
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The fig.2 shows the graphical representation of the bars that is showing the response of
the respondents regarding security. Most of the participants lies in the center option 3 - 4
(3 is for neutral and 4 is for agree). Small numbers of respondents were marked very low
and also low response for high options. The bar in the histogram is high for neutralresponse from a curve that is similar to the normal, bell shaped curve. Thus, frequency
distribution of the security is normal and figure showed that data is approximately
normally distributed.
The fig.3 shows the graphical representation of data through bars that is showing the
response of the respondents regarding risk. Most of the participants respond towards
higher values but most of data lies in the center option 3 - 4 (3 is for neutral and 4 is for
agree). Small numbers of respondents were marked very low. The bar in the histogram is
Figure 3.3
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high for neutral option form a curve that is similar to the normal, bell shaped curve. Thus,
data is normally distributed.
The fig.4 shows the graphical representation of data through bars that is showing the
response of the respondents related to investment decision. Most of the participants
respond towards higher values but most of data lies in the center option 3 - 4 (3 is for
neutral and 4 is for agree). Small numbers of respondents also marked very low. The bar
in the histogram is high for neutral option, form a curve that is similar to the normal, bell
shaped curve. Thus, data is normally distributed which showed that data is not dispersed
from mean values.
Figure 4.4
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3.1.3 Scatter Plots
Scatter plot or graph for two variables shows that how the scores of an individual on one
variable associates with his or her scores on the other variable. Lets discuss each plot or
graph one by one:
Figure 3.5
Figure 4.5 shows the results of scatter plot matrix where we intend to have some idea
about the relationship between rate of return and investment decision. If we observe the
flow of line that is downward from right to left this shows the positive relationship
between rate of return and investment decision. This means that if the organization gives
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high rate of return then it also increases the investing decision power. The above results
have been confirmed by the table of correlations.
Figure 3.6
Figure 4.6 shows the results of scatter plot matrix where we intend to have some idea
about the relationship between security and investment decision. If we observe the flow
of line that is downward from right to left which shows the positive relationship between
security and investment decision. This means that if the organization gives security then
it also increases the investing decision power. This result has been confirmed in the table
of correlations.
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Figure 3.7
Figure 4.7 shows the scatter plot matrix where we intend to have some idea about the
relationship between risk and investment decision. If we observe the flow of line that is
almost equal to straight line that is parallel to x-axis which shows that there is no
relationship between risk and investment decision.
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Figure 3.8
Figure 4.8 shows the results of scatter plot matrix where we intend to have some idea
about the relationship between security and rate of return. If we observe the flow of line
that is downward from right to left which shows the positive relationship between
security and rate of return?
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Figure 3.9
Figure 4.9 shows the results of scatter plot matrix where we intend to have some idea
about the relationship between security and risk. If we observe the flow of line that is
downward from right to left which shows the positive relationship between security and
risk.
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Figure 3.10
Figure 4.10 shows the results of scatter plot matrix where we intend to have some idea
about the relationship between rate of return and risk. If we observe the flow of line that
is downward from right to left which shows the positive relationship between rate of
return and risk? The above results have been confirmed by the table of correlations.
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4. CorrelationCorrelation is used to check the mutual relationship among variables. For checking the
relationship we will make two hypotheses: null (H0) and alternative (H1). We interpret
the findings on the acceptance or rejection of the hypothesis. We used correlation matrix
to check the mutual relationship of different variables.
Table 4.1
CorrelationRate_of_R
eturn
Investment
Decision
Rate_of_Return Pearson
Correlation
1 .194*
Sig. (2-tailed) .017
N 150 150
Investment
Decision
Pearson
Correlation
.194* 1
Sig. (2-tailed) .017
N 150 150
Table 4.4 presents the results of correlations. Where significance value (0.017) is less
than 0.05 which shows that there exist a relationship between rate of return and
investment decision. To check the strength of relationship between variables we compare
the value of Pearson correlation with developed ranges. The Pearson correlation value
(0.194) lies between 0 to 0.33 which shows that there is weak relationship between rate
of return and investment decision. The +ve sign with Pearson value (0.194) shows that
there is positive significant relationship between rate of return and investment decision.
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Table 4.2
Correlation
Investment
Decision
Security
Investment
Decision
Pearson
Correlation
1 .279**
Sig. (2-tailed) .001
N 150 150
Security Pearson
Correlation
.279**
1
Sig. (2-tailed) .001
N 150 150
Table 4.5 presents the results of correlations. Where significance value (0.001) is less
than 0.05 which shows that there is a relationship between security and investment
decision. To check the strength of relationship between variables we compare the value
of Pearson correlation with developed ranges. The Pearson correlation value (0.279) lies
between 0 to 0.33 which shows that there is weak relationship between security and
investment decision. The +ve sign with Pearson value (0.279) shows that both variables
are positively correlated to each other.
Table 4.3
Correlation
Investment
Decision
Risk
Investment
Decision
Pearson
Correlation
1 .093
Sig. (2-tailed) .256
N 150 150
Risk Pearson
Correlation
.093 1
Sig. (2-tailed) .256
N 150 150
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Table 4.6 presents the results of correlations. Where significance value (0.256) is greater
than 0.05 which shows that there is no relationship between risk and investment decision.
Table 4.5
Correlation
Rate_of_R
eturn
Security
Rate_of_Ret
urn
Pearson
Correlation
1 .461**
Sig. (2-tailed) .000
N 150 150
Security Pearson
Correlation
.461**
1
Sig. (2-tailed) .000
N 150 150
Table 4.7 presents the results of correlation analysis. Where significance value (0.000) is
less than 0.05 which shows that there is a relationship between rate of return and security.
To check the strength of relationship between these two variables we compare the value
of Pearson correlation with developed ranges. The Pearson correlation value (0.461) lies
between 0.33 to 0.70 which shows that there is moderate relationship between rate of
return and security. The +ve sign with Pearson value (0.461) shows that there is positive
significant relationship between rate of return and security.
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Table 4.6
Correlation
Rate_of_R
eturn
Risk
Rate_of_Ret
urn
Pearson
Correlation
1 .203*
Sig. (2-tailed) .013
N 150 150
Risk Pearson
Correlation
.203* 1
Sig. (2-tailed) .013
N 150 150
Table 4.8 presents the results of correlations. Where significance value (0.013) is less
than 0.05 which shows that there is a relationship between rate of return and risk. To
check the strength of relationship between variables we compare the value of Pearson
correlation with developed ranges. The Pearson correlation value (0.203) lies between 0
to 0.33 which shows that there is weak relationship between rate of return and risk. The
+ve sign with Pearson value (0.203) shows that both variables are positively correlated
with each other.
Table 4.7Correlation
Risk Security
Risk Pearson
Correlation
1 .216**
Sig. (2-tailed) .008
N 150 150
Security Pearson
Correlation
.216** 1
Sig. (2-tailed) .008N 150 150
Table 4.9 presents the results of correlation. Where significance value (0.008) is less than
0.05 which shows that there exist a relationship between risk and security. To check the
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strength of relationship between these two variables we compare the value of Pearson
correlation with developed ranges. The Pearson correlation value (0.216) lies between 0
to 0.33 which shows that there is weak relationship between risk and security. The +ve
sign with Pearson value (0.216) shows that there is positive significant relationshipbetween rate of risk and security.
Regression
Regression is used to check the effect size of independent variable on dependent variable.
Let I discuss the results of regression
Tables 4.8
Variables Entered/Removed
Mode
l
Variables
Entered
Variables
Removed Method
1 Rate_of_Ret
urn. Enter
a. All requested variables entered.
b. Dependent Variable: Investment Decision
Model Summary
Mode
l R R Square
Adjusted R
Square
Std. Error of
the Estimate
1 .194a .038 .031 .62016
a. Predictors: (Constant), Rate_of_Return
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ANOVAb
Model
Sum of
Squares df
Mean
Square F Sig.
1 Regression 2.222 1 2.222 5.777 .017a
Residual 56.920 148 .385
Total 59.141 149
a. Predictors: (Constant), Rate_of_Return
b. Dependent Variable: Investment Decision
The value of F-statistic (0.017) is statistically significant at less than five percent that
explains that the independent variable rate of return effect the dependent variable
investment decision. The value of the coefficient of determination (R2) is 0.038 which
represents the simple correlation and, therefore, indicates a high degree of correlation.
The R2value indicating that how much of the investment decision is being affected by
rate of return and its value 0.038 means that rate of return contributing 3.8% in
investment decisions. The value of the adjusted coefficient of determination (adj. R2) is
0.031, which shows that 3.1% variations in investment decisions.
Coefficients
Model
Unstandardized
Coefficients
Standardized
Coefficients
t Sig.B Std. Error Beta
1 (Constant) 2.387 .348 6.856 .000
Rate_of_Return
.232 .097 .194 2.404 .017
a. Dependent Variable: Investment Decision
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The coefficient table presents the results of the regression analysis. The objective of the
regression in this study is to find such an equation that could be used to find the impact of
rate of return on investment decision. The specified regression equation takes the
following form:
Investment decision = a + B (Rate of return) +Ei
Investment decision =2.387+0.232(Rate of return) +Ei
The results show that the independent variable less significantly affects the investment
decision as shown by the values of the t-statistic and the corresponding P-values. T-test isused to test the significance of the individual partial regression coefficients. This test
shows that the coefficients of the predictor are statistically significant at less than five
percent level of significance.
Tables 4.9
Variables Entered/Removed
ModelVariablesEntered
VariablesRemoved Method
1 Security . Enter
a. All requested variables entered.
b. Dependent Variable: Investment Decision
Model Summary
Model R R Square
Adjusted RSquare
Std. Error ofthe Estimate
1 .279a .078 .072 .60703
a. Predictors: (Constant), Security
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ANOVAs
Model
Sum of
Squares df
Mean
Square F Sig.
1 Regression 4.606 1 4.606 12.499 .001a
Residual 54.536 148 .368
Total 59.141 149
a. Predictors: (Constant), Security
b. Dependent Variable: Investment Decision
The value of F-statistic (0.001) is statistically significant at less than five percent that
explains that the independent variable security effect the dependent variable investment
decision. The value of the coefficient of determination (R2) is 0.078 which represents the
simple correlation and, therefore, indicates a high degree of correlation. The R2 value
indicating that how much of the investment decision is being affected by security and its
value 0.078 means that security contributing 7.8% in investment decisions. The value of
the adjusted coefficient of determination (adj. R2) is 0.072, which shows that 7.2%
variations in investment decisions.
Coefficients
Model
Unstandardized
Coefficients
Standardized
Coefficients
t Sig.B Std. Error Beta
1 (Constant
)2.071 .327 6.326 .000
Security .341 .096 .279 3.535 .001
a. Dependent Variable: Investment Decision
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Coefficients
Model
Unstandardized
Coefficients
Standardized
Coefficients
t Sig.B Std. Error Beta
1 (Constant
)2.071 .327 6.326 .000
Security .341 .096 .279 3.535 .001
The coefficient table presents the results of the regression analysis. The objective of the
regression in this study is to find such an equation that could be used to find the impact of
security on investment decision. The specified regression equation takes the following
form:
Investment Decision = a + B (Security) +Ei
Investment Decision =2.071+0.341(Security) +Ei
The results show that the independent variable security less significantly affects the
investment decision as shown by the values of the t-statistic and the corresponding P-
values. T-test is used to test the significance of the individual partial regression
coefficients.
Tables 4.10
Variables Entered/Removed
Model
Variables
Entered
Variables
Removed Method
1 Risk . Enter
a. All requested variables entered.
b. Dependent Variable: Investment Decision
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Model Summary
Mode
l R R Square
Adjusted R
Square
Std. Error of
the Estimate
1 .093a .009 .002 .62938
a. Predictors: (Constant), Risk
The value of F-statistic (0.256) is not statistically significant at less than five percent that
explains that the independent variable risk does not effect the dependent variable
investment decision. The R2value indicating that how much of the investment decision is
being affected by security and its value 0.009 means that risk contributing only 1% in
investment decisions.
Coefficients
Model
Unstandardized
Coefficients
Standardized
Coefficients
t Sig.B Std. Error Beta
1 (Constant
)2.833 .340 8.343 .000
Risk .122 .107 .093 1.141 .256
a. Dependent Variable: Investment Decision
The coefficient table presents the results of the regression analysis. The objective of the
regression in this study is to find such an equation that could be used to find the impact of
risk on investment decision. The specified regression equation takes the following form:
Investment Decision = a + B (Risk) +Ei
Investment Decision =2.833+0.122(Risk) +Ei
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Discussion
Discussion
Much of the economic and financial theories assume that individuals act rationally in the
method of decision making, through taking into account all available data. But there isproof to confirm repeated patterns of illogicality in the way humans arrive at decisions
and choices when faced with uncertainty. A study of the stock market that draw on
psychology, throws light on why people buy or sell stocks and why sometimes do not buy
or sell at all. The most vital challenge look by the investor is in the area of investment
decisions. The profit made, or losses acquire by an investor can be attributed mainly to
his decision-making abilities. In this study, the aim is to create the reality of such
fundamental factors, driven through various issues, in the investment decision-making
process. The capital market, similar to the money market plays a considerable
responsibility in the national economy. A developed, active and vibrant capital market
can adjoin widely in the rapidly economic growth and development. It circulates funds
from people for investments purpose in the creative means of an economy, activating idle
monetary resources and puts them in proper investments. Capital market also assists in
capital generation. Capital formation is net accumulation to the present stock of capital in
the economy. Pakistan had a positive presentation during the last month. Pakistan Stock
Market (KSE100), rally 890 points or 5.23 percent during the last 30 days. The Karachi
Stock Exchange 100 Index is a major stock market index which tracks the routine of
largest companies by market capitalization from each division of Pakistani economy
listed on the Karachi Stock Exchange.
Secure investment is mandatory for economic growth above all, that will help attract
investors in this context. That is very crucial problem for an inexperienced investor who
seeks appropriate decision making criteria in this regard. The aim of the study is to
explain the impact of different factors on investment decision. I decided to conduct a
study that is consisting of such factors which influences while deciding whether to invest
or not. My proposed variables that influence investment decision are rate of return,
security and risk, although there are number of studies conducted by different scholars
around the globe, different conceptual frame works in this regard presented by now but Iconsider above mentioned variables carry more importance than any other variables. This
study will be helpful for the finance managers in corporate and industries of Pakistan in
particular and those in developing countries and also give help to the layman who wants
to invest in stock market. The population consists of all those investors who invest in
stock market. The sample size for study consists of 150 questionnaires and each
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questionnaire consists of 17 questions. In case of measuring the Investment decision,
Rate of return, Security and Risk only filled questionnaire is used that was filled from
different investors. Respondents data was obtained thorough one survey with 5-point
Likert scale. There were different related questions in the survey for obtaining data for
one variable. The focus of my research on quantitative approach because data used in thisstudy is in numerical form. Quantitative research is frequently apply for testing theory
and also helps to check relationship between different variables whether they have
significant relationship or not.
We use Descriptive and Inferential statistics in our study because descriptive statistics
summarize data in a meaningful way which is a representation of the entire population.
Generally, there are two main kinds of descriptive statistic that are used to illustrate data,
measures of central tendency include the mean, median and mode, whereas measures of
variability include the standard deviation, the minimum and maximum values, kurtosis
and skewness. Inferential statistic is used for in-depth analysis which shows the
relationship between variables. We conduct inferential statistics to make the conclusions.
Inferential statistics consist of regression, correlation, histogram, bar charts, scatter plots,
chi-square test, f-test, z-test and t-tests. We use regression, correlation, histogram, scatter
plots and f-test in our study. With descriptive statistics you are basically telling what is or
what the data shows. With inferential statistics, you are trying to reach at the result that
extends away from the urgent data alone. Histogram is a summary graph that is used to
explain a count of the data points spread in various ranges. The effect is a rough
calculation of the frequency distribution of the data. Scatter plots are used to show the
relationship between two variables by presenting data points on a two-dimensional graph.
These are especially valuable when there are a huge number of data points. Correlation is
used to check relationship between variables. Thetype and degree of connection between
any two or morevariables in which they differ jointly over aperiod.A regression model
ismethod to find out the statistical relationshipbetween two or morevariables where a
change in a dependent variable is associated with, and depends on, a change in one or
moreindependent variables.
The study shows different results related to data and purposed variables. First of all we
check the reliability of data through Cronbachs alpha value. The value of Cronbachs
alpha is 0.655 which is considered as reliable. Descriptive statistic table shows mean,
minimum, maximum and standard deviation of all variables in which mean shows the
average value of all variables and standard deviation shows the dispersion of data from
mean values. Histogram and scatter plots show relationship in form of graphical
representation. The values of correlation and regression analysis present the strength and
http://www.investorguide.com/definition/type.htmlhttp://www.businessdictionary.com/definition/variable.htmlhttp://www.investorwords.com/3669/period.htmlhttp://www.businessdictionary.com/definition/technique.htmlhttp://www.businessdictionary.com/definition/relationship.htmlhttp://www.businessdictionary.com/definition/variable.htmlhttp://www.businessdictionary.com/definition/change.htmlhttp://www.businessdictionary.com/definition/dependent-variable.htmlhttp://www.businessdictionary.com/definition/associated.htmlhttp://www.businessdictionary.com/definition/independent-variable.htmlhttp://www.businessdictionary.com/definition/independent-variable.htmlhttp://www.businessdictionary.com/definition/associated.htmlhttp://www.businessdictionary.com/definition/dependent-variable.htmlhttp://www.businessdictionary.com/definition/change.htmlhttp://www.businessdictionary.com/definition/variable.htmlhttp://www.businessdictionary.com/definition/relationship.htmlhttp://www.businessdictionary.com/definition/technique.htmlhttp://www.investorwords.com/3669/period.htmlhttp://www.businessdictionary.com/definition/variable.htmlhttp://www.investorguide.com/definition/type.html -
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significances of variables. The results shows that there is weak positive significant
relationship between rate of return and investment decision and study also shows that
security and investment decision has moderate positive significant relationship but there
is not any relationship between investment decision and risk. The results clearly illustrate
that while taking investment decision, layman dont consider riskfactor if he expects toget high level of rate of returns of his investment while security factor is considerable
after all, the whole picture shows that there are some other factors that are kept in mind
while decision making.
Conclusion
According to the findings rate of return and securitys relationship with investment
decision is significant but week while there is no relationship of risk with investment
decision. which clearly illustrate that while taking investment decision, layman dont
consider risk factor if he expects to get high level of rate of returns of his investmentwhile security factor is considerable after all, secondly, whole picture shows that there
are some other factors that are kept in mind while decision making rather than proposed
theoretical frame work. Still there is a need to study different aspects of investment
decision making.
Limitations and Delimitations
The main disadvantage of the study is that the primary data is gathered to study investor
behavioral pattern using questionnaires. Making financial decisions can be serious for
various reasons that possibly could push many into making irrational decisions.
Therefore, while answering a questionnaire, the same respondents wants to be relaxed
and in a better frame of mind, hence when they have limited time they do not give proper
response that affect the results. A second drawback arises out of the fact that Pakistan is a
big country, and this study cannot be considered an estimate of the average Pakistani
investor. The sample collected is mainly from the Lahore city, which represents the
whole Pakistan population. The main advantage of this study is for Pakistani investor
because there is not a sufficient work on this topic in past, it helps them to make a
decision about investing in stock market. Secondly this study based on those variables on
which not a lot of research was conducted in past and these variables have lots of
important regarding investment decision.
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Implications
According to the finding of the study, investor should think rationally rather than
emotionally, which means that while taking decision regarding investment especially in
developing countries like Pakistan, layman should consider economical facts and figure
of that country. Second very important thing, investor should come up with a proper plan
of investment which encompasses the potential fluctuation of that particular stock market
combined with possible corrective measures could be taken timely and investments
investing and withdrawal should be properly planned.. Last but not least, the country
where risk factor over investment is high and security on investment is insufficient,
investor should focus on short term investment projects rather than long term.
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Appendix A
Factors that Effect Investment Decisions:
Dear participant,
The purpose of this survey is to explore the factors that effect the investment decisions. I am the
student of Superior University and this survey has been conducted by me for my thesis purpose. I
request you to kindly give me your valuable time to fill this questionnaire. I assure you that the
data provided by you will be kept confidential.
Thanks for your time and cooperation.
Name (optional)
1. Age Less than 25 years 2535 year 3545 year 45 plus
2. Gender Male Female
3. Nature of Investor Salaried Self Employed professional
Please indicate how strongly you agree or disagree with each statement using the scale
given below. Please mark the appropriate answer.
ScaleStrongly Agree Agree Neutral Disagree Strongly Disagree
5 4 3 2 1
Rate of Return
1 In my point of view rate of return attracts
the investors.
5 4 3 2 1
2 The rate of return increases the market 5 4 3 2 1
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value of the organization.
3 The profit ratio effects the organizational
environment.
5 4 3 2 1
4 My profit effect the organization
goodwill.
5 4 3 2 1
Security1 The security of business is not appropriate
in the country.
5 4 3 2 1
2 My security provides the domestic
government of the foreign investors.
5 4 3 2 1
3 The security increases the business
opportunity.
5 4 3 2 1
4 My organizations security satisfied the
foreign investors.
5 4 3 2 1
5 Our countrys security effect the
international relation and investing
decision.
5 4 3 2 1
Risk
1 I am a risk taker. 5 4 3 2 1
2 My company has domestic branch office inmost of major city.
5 4 3 2 1
3 My company has international branch officein most of country.
5 4 3 2 1
4 My company hedges their risk throughderivative instruments.
5 4 3 2 1
5 My company prefer to individual investorsthan institutional investors.
5 4 3 2 1
Investment
1 My investment can tolerate moderate losses
in order to achieve potentially favorable
return.
5 4 3 2 1
2 My investment can tolerate the risk of large
losses in my portfolio in order to increase thepotential of achieving high returns.
5 4 3 2 1
3 My investment outpaces inflation. I am
willing to assume some potential for short-term loss in order to achieve that goal.
5 4 3 2 1
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