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You searched Library Catalogue - Title: Lodging and food service industry / Gerald W. Lattin
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Call Number (WOU)
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SP CEMBA 2010 5
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Author
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Foo, Lee Li
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Title
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Are Malaysian investors rational or irrational? / Foo Lee Li
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Abstract
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The purpose of this paper is to examine the general behaviour of investors in Malaysia. The
traditional finance theory always assumes that investors are always rational that is they
would use all available information in the market before they make their investment.
However, many studies have also shown that investors tend to be more irrational than
rational in their behaviour when investing. Many investors are driven by their emotions such
fear, anxiety and greed when they make their investment decisions.
In this paper we want to investigate what are the factors that drive investors behaviour in
stock selection. We also want to find whether most investors in Malaysia “follow their heart”
when it comes to investment or whether they would follow a systematic and informed
decision. We would have to look into the role of behaviourial finance in investment
decisions. To investigate this issue, we would look into the different theories that have been
developed by economists to explain the reasons for the way investors behave. Among some
of the theories is The Prospect Theory, Regret Theory, Prospect-Loss Aversion Theory and
also the Efficient Market Hypothesis. Herding is also another phenomena of investors where
they tend to “ follow the crowd “ in their investment decisions. The decisions that these
investors take could affect the performance of stocks in the market. Investor sentiment is
what causes the Great Crash of 1929, the Black Monday Crash of October 1987 and the
famous internet or known as dot.com bubble burst of 1990’s. Our effort here is to prove that
investors make irrational decisions rather than following a rational path in making their
investments.
The research on behaviourial finance in developing markets are still very new and this
research could give a good insight on the role of human behaviour on the performance of the
stock market. The results of this research could highlight to investors the presence of
psychological factors that play an important part in their investment decisions. Knowing this,
they can become more aware of these biasness which in future could help them to make
better decisions. This would also help corporate investment manager to realize that human
behaviour could affect the performance of the stocks in the market even with the presence of
information. Exploring into these psychological attributes could help policy makers of
corporations in tailoring the information of future earnings of each stock that would be listed
in the stock exchange so that negative impact on market sentiment could be avoided. This
information could also help to prevent major upswings and downswings in the stock market.
As mentioned earlier, this research could also throw light into whether the Efficient Market
Hypothesis still alive in the real world.
From our findings we can conclude that majority of investors are irrational in their decision
making. Their tendency to use some past references as their guide makes them reference
dependence. This means that they tend to use the historical information and success as a
guide to their future gains. The presence of this attributes has caused investors to make errors
which would then result in deviation in stock prices. ( Sherin, 2000 )
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Notes
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Final project report submitted in partial fulfilment of the requirements for the Degree of Master of Business Administration (CeMBA)
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Publisher/Year
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Penang : School of Business and Administration, Wawasan Open University, 2010
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Physical Description
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38 p.; 30 cm.
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Subject
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Wawasan Open University -- Dissertations
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Subject
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Investments -- Malaysia.
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