In the recently changing political and economic system of conditions the constraint of self- support at old age has also appeared in Central-East Europe. The population is growing old while the proportion of those compelled to pay a contribution is shrinking continuously. Public social security systems manage this situation with more and more difficulties and the real value of payments as well as pensions is decreasing. The emerging responsibility of self- support directs attention to the opportunities provided by higher-yield investments, among others, the Stock Exchange. In this way it is becoming more and more important to understand what psychological and sociological specialities influence the selection of different forms of stock exchange investment in addition to some objective factors. By avoiding the typical ‘errors of investment’ a higher level of yield and standard of life resulting in more carefree old age can be ensured.
Beliefs, preferences and exposedness to influences, the source of control and dislike against certain industries, willingness to save and risk-taking attitude make up the most frequently examined group of factors that influence stock exchange behaviour. Our study presents the most recent results of research carried out about the influencing power of the factors above and also research with Hungarian university students, which focuses on the relationship between the demographic factors in the background and the stock exchange attitude.
Preliminary research, theoretical review
In connection with stock exchange investments it is often analysed how much risk is taken by the old and what factors influence their decision mostly. The research around this topic is especially justified by the fact that the pensioners possess a great part of household income so their decisions make a significant impact on the market. For example, it is not the same if this group invests the great amount of money they possess in gilt-edged securities or on the stock exchange (Boros, 2011). Several researches prove that the investors tend to select the portfolios where less risk is involved as they grow older due to the reduction of the investment horizon (Bakshi and Chen, 1994; Samuelson, 1991; Campbell and Viceira, 2002.) A research carried out between 1991 and 1996 in which 62.387 traditional financial investments were introduced and the investors’ portfolio was worth approximately 2.18 billion USD in the sample pointed out that during the six years of taking samples about 1.9 million traditional stocks were exchanged. In line with the previous proof the general size of the portfolio is related to age as the elder investors had greater investment either considering their total assets or the proportion of their annual income. At the same time, the elderly possess less risky portfolio, show greater willingness to diversification although they perform weaker and rarely trade (Korniotis & Kumar, 2007). The authors also conclude that between those less educated and with lower income the negative effects of growing old are also more intense; the willingness to invest is much greater for the investors with good cognitive abilities who are socially active.
Financial and risk attitude
Investment on the stock exchange promises the opportunity of financial profit. However, most
people are unwilling to invest in securities quoted on the stock exchange, rather, they invest
their money in a savings account or buy an estate (Gunnarsson & Wahlund, 1997). The
‘Prospect-Theory’ (Kahneman & Tversky, 1979; Tversky & Kahneman, 1992) gives an
explanation by the fact that we have aversion to risk even if the chances are for gains. The
chances of profit generally seem to be too uncertain due to the unpredictable nature of the
stock exchange and market processes in the future.
Several empiric researches prove that those willing to undertake higher risks are more likely to buy stock and shares than the risk averse (Clark-Murphy & Soutar, 2004; Tigges et al., 2000; Wärneryd, 2001; Wood & Zaichkowsky, 2004)1. While there is no or only weak correlation between the general risk taking ability and risky forms of investment from the part of private investors (Morse, 1998; Wärneryd, 1996) the correlation is more significant between the attitude of taking more risks in more special investments and the really risky investment and taking the risk of investment portfolio (Wärneryd, 1996). It is in line with the supposition that risk has special ‘territories’ (Weber, Blais, & Betz, 2002). Usually people with high risk taking and higher income buy stocks and shares; men take more risks than women and those with a lower level of income (Clark-Murphy &Soutar, 2004; Tigges et al., 2000; Wärneryd, 2001; Wood &Zaichkowsky, 2004; Cicchetti & Dubin, 1994; Grable, Lytton, & O’Neill, 2004).
Kahneman and Tversky (1979) proved that in profitable situations (range) people tend to averse risks while in losses they prefer taking risks. In risky situations instead of the ‘utility’ of their disposable income they are engaged in checking the changes in their assets and their actions can be characterised by risk aversion. It means that we have fear in realising our disadvantageous situations (at least till chances are low for the exchange rates to return) while in a profitable situation we tend to take on the first advantage of selling. (‘A bird in the hand is worth two in the bush’). In general, investors on the stock exchange have their disadvantageous situation far too long and realise their advantageous stances too early, which, on the whole, can decrease the performance of investments (Joó & Ormos, 2012). To sum up, people by nature ‘prefer’ taking risks when it comes to losses and they are risk averse in terms of profit so they can often become generous if they have to put up with losses. This is also proven by the fact that the stocks and shares sold by the investors perform better in the future than those purchased later (Odean (1999) and Chen et al. (2007) in Joó & Ormos, 2012).
Attitude to money
We usually invest money in the securities quoted on the stock exchange with the hope of financial profit and increasing capital. At the same time, however, the most important goal in the life of the people who are tightly related to money is increasing their assets further. The accumulation of money is interpreted by them as intelligence, performance and power. It is proved that being overwhelmed and ‘obsessed’ by money can influence willingness to invest on the stock exchange positively (Keller & Siegrist, 2006). Financial gains mean one of the ways of realising their goals and values in connection with money. The wide range of –sometimes contradictory- results published in literature also emphasizes the impacts of demographic variables. Men are more obsessed by money than women (Furnham, 1984) and more likely to see it as an instrument of influencing or pressurising others (Lim & Teo, 1997; Lim, Teo, & Loo, 2003; Tang & Gilbert, 1995) while women are more engaged in financial planning (Lim et al., 2001; Tang, 1993). People with lower income are more obsessed with money and more likely to regard money as a value of power, authority and influence than those with higher income (Furnham, 1984).
Internal and external locus of control
According to the well-known trader BirgerSchäfermeier (2008) being successful on the stock
exchange is not defined by either luck or trading system, it is only and exclusively ‘internal
locus of control’ and ‘risk control’ that count. He identifies internal locus of control as a ‘state
control’ which can also be called discipline in everyday life. In his mind it is the key to
infinite gains. Discipline is not about the ability to observe and obey all the rules, it is much
more like that. ‘Discipline is the ability for someone to get into the optimal productive mood
necessary for the task to be solved’. (In psychology, on the contrary, a person with internal
locus of control is someone who perceives certain positive or negative events as the
controllable consequence of their own behaviour. In contrast, the person with external locus
of control sees the events with a positive or negative turn as if they were not related to
patterns of behaviour and expressions of personality.)
Under the term ‘risk control’ Schäfermeier means managing risks, i.e. the art of how we can manage and allocate our money on the stock exchange and when to sell our stocks and shares that would otherwise be turning into losses.
The examination of ethical attitude has been gaining more and more ground in economics.
Examinations reflect the growing significance of mutuality, fairness, trust and cooperation in
economic behaviour (Fehr & Gächer, 1998). Our attitude to money is decisively influenced by
the moral meaning attached to the notion of money. An important basic issue is, for example,
whether people regard money as ‘good’ or ‘bad’ (deriving from devil) (Tang, 1993). The
concept of its ‘good’ nature correlates with protestant labour ethics (Tang & Gilbert, 1995)
according to which money is good if earned by working conscientiously but it has a negative
connotation if the excessive love of it leads to unethical behaviour or excessive consumption
(Tang & Chiu, 2003). According to an interesting research in areas where the proportion of
the Catholic inhabitants is greater than the Protestants the willingness to take a risk is higher
on the stock exchange (Kumar et al, 2011). Those who think that gaining profit from the
market is not ethical (as money is not earned by working hard) typically do not invest money
on the stock exchange. If so, only little amounts as they prefer other forms of investment.
In the decisions on investment in addition to the ethical dimension there is also willingness to make ‘socially responsible investments’. This latter one can be assessed by ‘ethical investment’. ’Ethical investment’ is the possession of such portfolio with which we can surely reduce ‘bad’ things such as environment pollution and support ‘good’ cases (Winnett& Lewis, 2000). Empirical researches prove that ‘ethical investors’ put their money in such businesses that are identified with ethically acceptable forms of behaviour even if the expected gains are lower than that of the competitors (Webley et al., 2001). Such investors assess ethical issues in addition to the expected risks and profit when they make a decision on investment. Taking environmental and social responsibility is prioritised of the other considerations.
A Swiss representative examination of huge sample (N=1569) (Keller & Siegrist, 2006) wanted to find out how risk taking, stock exchange attitude (e.g. negative ethical attitude) and attitude to money (performance, power, obsession, budget-consciousness) ethical considerations and certain demographic factor influence investments on the stock exchange.
According to the results the amount of income, risk taking and the negative ethical attitude towards the stock exchange are good predictors to decide whether someone would go to the stock exchange or not. (The extent of risk taking was the best indicator!) The negative ethical attitude to the stock exchange negatively influences the willingness to invest on the stock exchange but it is not significant. The people who did not invest on the stock exchange would rather consider it unethical. (They think that this money is earned without work/efforts and in this way it is a non-ethical source). The ‘obsession’ oriented attitude to money can positively influence investing on the stock exchange. The amount of income will only go together with taking risks on the stock exchange significantly in the case of men.