Citation

Khan, Mohammad Tariqul Islam and Tan, Siow Hooi and Chong, Lee Lee (2017) Perception of past portfolio returns, optimism and financial decisions. Review of Behavioral Finance, 9 (1). pp. 79-98. ISSN 1940-5979

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Abstract

Purpose: The purpose of this paper is to examine the relationships among perception of past portfolio returns, optimism and financial decisions. Design/methodology/approach: The relationships are examined using a data set of both retail and institutional investors in Malaysia and estimated using ordinary least square regression. Findings: The results demonstrate that perception of past portfolio returns influences both retail and institutional investors’ trading and risk taking. Optimism measured as relative investment optimism and personal investment optimism similarly influences both groups of investors’ financial decisions. However, perception of past portfolio returns causes only retail investors to exhibit optimism. The results furthermore show that only for retail investors perception of past portfolio returns indirectly influences financial decisions, through the mediating channel of optimism. Practical implications: The findings on the influences of perception of past portfolio returns and the mediating channel in decision process help to understand the differences between retail and institutional investors. Retail investors are found to be more susceptible to optimism. Therefore, regulators in Malaysia may enhance their initiatives by incorporating the peril of forming optimistic expectations in financial decisions, by giving special focus on retail investors. Originality/value: This paper focuses on investors’ perception of past portfolio returns and its influence on various financial decisions, unlike past portfolio returns or market returns. Also, this paper is among the first to demonstrate the mediating channel of optimism in investors’ decision process.

Item Type:	Article
Uncontrolled Keywords:	Portfolio management, Perception, Optimism, Financial decisions, Past portfolio returns
Subjects:	H Social Sciences > HG Finance > HG4501-6051 Investment, capital formation, speculation
Divisions:	Faculty of Management (FOM)
Depositing User:	Ms Rosnani Abd Wahab
Date Deposited:	10 Nov 2020 22:46
Last Modified:	10 Nov 2020 22:46
URII:	http://shdl.mmu.edu.my/id/eprint/7125

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