Robo-advisors and the financialization of lay investors.
ABSTRACT: The burgeoning financial technology scene in Singapore has seen the emergence of robo-advisors, which aim to disrupt traditional financial advisories by using algorithms to automate client advising and investment recommendations. Using an ecologies concept to explore how lay investors are articulated into global financial networks through robo advisors, this paper contributes to studies on the "financialization of everyday life". It argues that investors are rendered passive by the disciplinary tools of algorithms, contemporary finance theories and elements of robo-advisor platforms that feed into these sociotechnological assemblages. The state's role in embedding citizen investors in these human-machine relationships is considered. The fragmented landscape of free, nonprofessional online financial advice and the opaque qualities of investing algorithms make investor subject formation incomplete and uncertain, especially when markets are highly volatile. This paper explores how both financial inclusion and exclusion operate simultaneously in robo-advisors and argues that robo-advisors may weaken efforts to promote financial literacy and education.
Project description:Private-sector investors could be key players in combatting global land degradation and realising the emerging concept of Land Degradation Neutrality (LDN). To better understand how to incentivize private-sector investors for LDN, we conducted an online-survey of 68 private-sector investors. Structural equation modelling based on the theory of planned behavior was performed to investigate how cognitive, social, emotional, motivational and financial determinants influence their intention and motivation to invest in LDN. Good knowledge and a positive attitude towards both LDN and investing sustainably were found to be main predictors for intention. In contrast, perceived social pressure had little effect on the intention to invest towards combating land degradation. The general motivation to invest sustainably was mainly triggered by a consciousness for sustainability and emotional attachment, less by the desire for short-term profit maximisation whilst prospects of long-term financial return are important. Overall, strong homogeneity in psychological determinants was found for both traditional and impact investors. As the determinants of the intention and the motivation to invest sustainably do not substantially differ across different investor types, our study implies that investors should be targeted as a uniform group when mobilising interest for LDN. Emphasis should be placed on the psychological determinants traditional and impact investors commonly share, rather than on the type-specific characteristics that may distinguish different investor types.
Project description:Financial attitude influences the financial behavior of retail investors. Although the extant research has acknowledged and examined this relationship, the measures of financial attitude and behavior still vary widely and are generally posed as a series of questions rather than statements. In addition to this, there is insufficient knowledge regarding retail investors' behavior in the face of a health crisis, such as the current COVID-19 pandemic. This study addresses these gaps in the prior literature by examining the relative influence of six dimensions of financial attitude, namely, financial anxiety, optimism, financial security, deliberative thinking, interest in financial issues, and needs for precautionary savings, on the trading activity of retail investors during the pandemic. Data were collected from 404 respondents and analyzed using the artificial neural network (ANN) method. The results revealed that all six dimensions had a positive influence on trading activity, with interest in financial issues exerting the strongest influence, followed by deliberative thinking. The study thus contributes important inferences for researchers and managers. Highlights • The study examined how financial attitude influences the financial behavior of retail investors.• Six dimensions were examined to explicate the financial attitude of individuals.• The dimensions and trading behavior had both linear and non-linear relationships.• Interest in financial issues had the highest relative importance in predicting the trading activity.• Optimism and financial anxiety had the least influence on trading during COVID-19.
Project description:We identify temporal investor networks for Nokia stock by constructing networks from correlations between investor-specific net-volumes and analyze changes in the networks around dot-com bubble. The analysis is conducted separately for households, financial, and non-financial institutions. Our results indicate that spanning tree measures for households reflected the boom and crisis: the maximum spanning tree measures had a clear upward tendency in the bull markets when the bubble was building up, and, even more importantly, the minimum spanning tree measures pre-reacted the burst of the bubble. At the same time, we find less clear reactions in the minimal and maximal spanning trees of non-financial and financial institutions around the bubble, which suggests that household investors can have a greater herding tendency around bubbles.
Project description:To overcome the limitations of neoclassical economics, researchers have leveraged tools of statistical physics to build novel theories. The idea was to elucidate the macroscopic features of financial markets from the interaction of its microscopic constituents, the investors. In this framework, the model of the financial agents has been kept separate from that of their interaction. Here, instead, we explore the possibility of letting the interaction topology emerge from the model of the agents' behavior. Then, we investigate how the emerging cobweb of relationship affects the overall market dynamics. To this aim, we leverage tools from complex systems analysis and nonlinear dynamics, and model the network of mutual influence as the output of a dynamical system describing the edge evolution. In this work, the driver of the link evolution is the relative reputation between possibly coupled agents. The reputation is built differently depending on the extent of rationality of the investors. The continuous edge activation or deactivation induces the emergence of leaders and of peculiar network structures, typical of real influence networks. The subsequent impact on the market dynamics is investigated through extensive numerical simulations in selected scenarios populated by partially rational investors.
Project description:Capital derived from immoral sources is increasingly circulated in today's financial markets. The moral associations of capital are important, although their impact on investment remains unknown. This research aims to explore the influence of principal source morality on investors' risk preferences. Three studies were conducted in this regard. Study 1 finds that investors are more risk-seeking when their principal is earned immorally (through lying), whereas their risk preferences do not change when they invest money earned from neutral sources after engaging in immoral behavior. Study 2 reveals that guilt fully mediates the relationship between principal source morality and investors' risk preferences. Studies 3a and 3b introduce a new immoral principal source and a new manipulation method to improve external validity. Guilt is shown to the decrease the subjective value of morally flawed principal, leading to higher risk preference. The findings show the influence of morality-related features of principal on people's investment behavior and further support mental account theory. The results also predict the potential threats of "grey principal" to market stability.
Project description:When making financial decisions bank customers are confronted with two types of uncertainty: first, return on investments is uncertain and there is a risk of losing money. Second, customers cannot be certain about their financial advisor's true intentions. This might decrease customers' willingness to cooperate with advisors. However, the uncertainty management model and fairness heuristic theory predict that in uncertain situations customers are willing to cooperate with financial advisors when they perceive fairness. In the current study, we investigated how perceived fairness in the twofold uncertain situations increased people's intended future cooperation with an advisor. We asked customers of financial consultancies about their experienced uncertainty regarding both the investment decision and the advisor's intentions. Moreover, we asked them about their perceived fairness, as well as their intention to cooperate with the advisor in the future. A three-way moderation analysis showed that customers who faced high uncertainty regarding the investment decision and high uncertainty regarding the advisor's true intentions indicated the lowest intended cooperation with the advisor but high fairness increased their cooperation. Interestingly, when people were only uncertain about the advisor's intentions (but certain about the decision) they indicated less cooperation than when they were only uncertain about the decision (but certain about the advisor's intentions). A mediated moderation analysis revealed that this relationship was explained by customers' lower trust in their advisors.
Project description:This study investigates which of four paradigms best portrays the risk profile manifest by investors in their financial asset investment decisions. The paradigms used to explain this profile were: prospect theory, investor profile analysis (IPA), the Big Five Personality Test, and the Cognitive Reflection Test (CRT). The choice of proxy for the risk preferences (profile) of a typical investor was defined by simulating investments in a laboratory setting. The results are analyzed using ordered logistic regression and show that people who have greater risk tolerance according to IPA, who violate prospect theory, and who have a high degree of openness to experience have the greatest probability of taking higher levels of risk in their investment decisions. With regard to the CRT, higher numbers of correct responses in this test has an inverse relationship with risk taking.
Project description:The data article describes self-assessments of 621 Vietnamese retail investors on their trading behavior, psychological attributes and socio-demographic characteristics. The dataset was obtained from a randomized survey of 3144 Vietnamese participants on financial attitudes and practice that has been used in Phan et al. . A supplemental material data contains the full text, codes and numerical values of survey instruments. Discussion of theoretical frameworks and the development of hypothesis and measurement of survey variables are found in the associated research article .
Project description:In the current age of commercial and financial openness, remote and poor local economies are becoming increasingly exposed to inflows of external capital. The new investors - enjoying lower credit constraints than local dwellers - might play a propulsive role in local development. At the same time, inflows of external capital can have negative impacts on local natural resource-dependent activities. We analyze a two-sector model where both sectors damage the environment, but only that of domestic producers relies on natural resources. We assess under which conditions the coexistence of the two sectors is compatible with sustainability, defined as convergence to a stationary state characterized by a positive stock of the natural resource. Moreover, we find that capital inflows can be stimulated by an increase in the pollution intensity of incoming activities, but also in the pollution intensity of the domestic sector; in both cases, capital inflows generate environmental degradation and a decrease in welfare for the local population. Finally, we show that a reduction in the cost of capital for external investors and the consequent capital inflows have the effect to increase wages, local investments and welfare of the local populations only if the environmental impact of the external sector is relatively low with respect to that of local activities. Otherwise, an unexpected scenario characterized by a reduction in domestic capital accumulation and the impoverishment of local agents can occur.
Project description:The investors' attention has been extensively used to predict the stock market. Different from existing proxies of the investors' attention, such as the Google trends, Baidu index (BI), we argue the collective attention from the stock trading platforms could reflect the investors' attention more closely. By calculated the increments of the attention volume for each stock (IAVS) from the stock trading platforms, we investigate the effect of investors' attention measured by the IAVS on the movement of the stock market. The experimental results for Chinese Securities Index 100 (CSI100) show that the BI is significantly correlated with the returns of CSI100 at 1% significance level only in 2014. However, it should be emphasized that the correlation of the new proposed measure, namely IAVS, is significantly at 1% significance level in 2014 and 2015. It shows that the effect of the measure IAVS on the movement of the stock market is more stable and significant than BI. This study yields important invest implications and better understanding of collective investors' attention.