QTB FINAL PROJECT

7/27/2019 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.


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.


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


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


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


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


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


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**


N 150 150

Security Pearson

Correlation

.279**

1


N 150 150


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


N 150 150

Risk Pearson

Correlation

.093 1


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**


N 150 150

Security Pearson

Correlation

.461**

1


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*


N 150 150

Risk Pearson

Correlation

.203* 1


N 150 150


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**


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


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


ModelVariablesEntered

VariablesRemoved Method

1 Security . Enter



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


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


1 (Constant

)2.071 .327 6.326 .000

Security .341 .096 .279 3.535 .001



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Coefficients

Model

Unstandardized

Coefficients

Standardized

Coefficients


1 (Constant

)2.071 .327 6.326 .000

Security .341 .096 .279 3.535 .001



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


Model

Variables

Entered

Variables

Removed Method

1 Risk . Enter




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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


1 (Constant

)2.833 .340 8.343 .000

Risk .122 .107 .093 1.141 .256




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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