Macquarie University
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Individual investor's behaviours, biases and opportunities: evidence from Australia

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posted on 2022-03-28, 18:36 authored by Zhini Yang
This dissertation examines individual investors' behaviours iin stock markets and identifies two opportunities of potential profitability for stock market participants. Existing literature has proven that investors suffer from behaviour biases rather than being perfectly rational. In addition, individual investors are more often than not the uninformed party in the stock markets, making them liable to being taken advantage of by the informed party. These behaviour biases and information asymmetry result in individual investors' underperformance compared to the market benchmark or institutional investors at least in the long run. Therefore, it is essential to understand the behaviours of individual investors and identify opportunities of potential profitability in the stock markets for them. The importance of understanding the behaviours of individual investors is also underscored by the high proportion of trades executed by them and the fact that even more individuals are making direct investments in stock markets in recent years. Each essay in this dissertation addresses research questions that are either unexplored or for which there are limited prior research findings, providing insights for investors, academic researchers, financial institutions and regulators to understand investors' behaviours and the potential market opportunities. The first essay (Chapter 3) introduces morningness-eveningness (M-E; that is human diurnal rhythm preference) into the field of behavioural finance. Employing proprietry stock trading data from a leading retail brokerage house in Australia, we are able to distinguish morning-type investors (M-type, or 'early birds') from evening-type investors (E-type, or 'night owls') based on their order submission time in stock markets. We examine whether demographic features (i.e., age and gender) contribute to the likelihood of being a particular M-E type, and whether M-E can predict investors' tendency towards market behavioural biases. Our analysis results reveal that older investors are more likely to be M-types and that there is no significant gender difference in being a certain M-E type. Further, we provide robust evidence that M-type investors are distinctly different from E-type investors in their proneness to stock market behavioural biases. M-type investors trade more frequently, are more subjected to home bias and have a stronger preference for stock market speculation. The second essay (Chapter 4) investigates socially responsible investing (SRI) among retail investors. The linkage between environmental, social and governance (ESG) preference, investors' characteristics and their account performance are examined. In addition, the impact of a company's ESG rating on their stock performance is tested. We find that females, older people and investors with a greater wealth (sophistication) level are more likely to take ESG into consideration in investment, while frequent-trading investors and those who prefer mental shortcuts are less likely to consider ESG attributes. Further, SRI can be a market opportunity for retail investors, as we find that a higher ESG score contributes to a company's improved stock market performance in the subsequent year, and that investors holding portfolioos with a greater weight of stocks with higher ESg scores are more likely to outperform other investors. The third essay (Chapter 5) proceeds from a market microstructure perspective and identifies another opportunity in the market that can bring potential profits to market participants: S&P/ASX 200 index rebalancing events. The price, volume, volatility and liquidity effects of such events for the stocks added to (and deleted from) the S&P/ASX 200 index are investigated. We find that both announcement day (AD) and effective day (ED) effects exist for additions and deletions. The price discovery for additions mainly occurs around AD, while for the deletions it mainly happens around ED. The liquidity of additions increases while it deteriorates for the deletions. This paper is pioneering in its finding of a negative (positive) correlation between the cumulative abnormal returns of index additions (deletions) during the AD-ED interval and the length of the interval. Specifically, Standard & Poor's (S&P) usually give a one- or two-week interval between the AD and ED of an addition or deletion; in that case, the added stocks with a one-week interval experience a price increase from AD until the day before ED, while the additions with a two-week interval experience a price increase until the fifth trading day after announcement after which the price starts to drop. For the deletions, those with a one-week interval experience a price drop upon the announcement until the day before ED, while for those with a two-week interval, the price starts to drop from four days before ED until ED. The price changes for the additions (deletions) with a shorter AD-ED interval (one week) are of greater magnitude, which amounts to an opportunity for investors: the expected excess return for buying (selling) the additions (deletions) at the end of AD and selling (buying) on the day before revision is up to 2.67% (4/48%).


Table of Contents

Chapter 1. Introduction -- Chapter 2. Literature review and research questions -- Chapter 3. Do early birds behave differently from night owls in stock markets -- Chapter 4. Does it pay to invest responsibly? A study of retail investors' ESG preference -- Chapter 5. Index rebalancing effects of S&P/ASX 200 -- Chapter 6. Conclusion -- Appendices


Thesis by publication. Bibliography: pages 179-191

Awarding Institution

Macquarie University

Degree Type

Thesis PhD


PhD, Macquarie University, Macquarie Business School, Department of Applied Finance

Department, Centre or School

Department of Applied Finance

Year of Award


Principal Supervisor

Grace Lepone

Additional Supervisor 1

Andrew Lepone

Additional Supervisor 2

Jeff Wong


Copyright Zhini Yang 2019 Copyright disclaimer:




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