A Study Of The Reasons Of Lesser Retail

Investor Participation In Indian Financial

Markets

DISSERTATION
Submitted in partial fulfillment of the requirement of

B.A. / B.B.A. (Hons.)

by

Raj Ranipa
18BABBA036

Under the guidance of

Dr. Sanjay ku. Pradhan

School of Liberal Studies

Pandit Deendayal Energy University

Gandhinagar-382007.Gujarat -India

May-2022

i
i
 Approval Sheet

This thesis / dissertation / report entitled A Study Of The Reasons Of Lesser Retail Investor
Participation In The Indian Financial Markets by Raj Ranipa is recommended for the degree
of BA/BBA (Hons.)

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Date:

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 Student Declaration

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represents my ideas in my own words and where others’ idea or words have been included,
I have adequately cited and referenced the original sources. I also declare that I have
adhered to all principles of academic honestly and integrity and have not misrepresented or
fabricated or falsified any idea / data / fact / source in my submission. I understand that any
violation of the above will be cause for disciplinary action by the PANDIT DEENDAYAL
ENERGY UNIVERSITY and can also evoke penal action from the sources which have
thus not been properly cited or from whim proper permission has not been taken when
needed.

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iii
 Acknowledgements

To conduct a research of this magnitude is impossible without a dedicated effort and perfect

guidance. I would like to express my deep feeling of gratitude to the under mentioned

officials for their assistance, guidance and inspiration before and throughout the project.

I would like to thank Dr. Sanjay ku. Pradhan, my project faculty, for showing me a proper

way to walk on, for providing help and guidance throughout the project. They have always

been the source of encouragement. They have ceaselessly guided me in all the aspects of the

project, with his abundance of experience and finer ideas.

Conducting research needs hard work and concentration. What made it possible is the support

I received from those around me. I thank all the faculties of my college for giving me

guidance, encouragement and the right path to work on. I thank everybody who has directly

or indirectly helped me in the project to make it successful.

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 Abstract

There has always been a considerable amount of interest in the investing habits of

people. There are serious social and economic implications of investments made by

the collective. Individual investors (which include both retail as well as high

net-worth investors) are increasing their relative contributions across asset classes and

are becoming a serious force. On the one hand, the standard of living and the ability

to withstand shocks is linked to the wealth created by individuals due to their

investments while on the other hand, the availability of capital and allocation of

resources in the economy is affected by the choice of investments. A simplistic

illustration of the latter would be the case of an investor who chooses to “save” his

money in bank accounts rather than invest in stocks. If every investor (or saver)

behaved in this manner then at a collective level this will translate into an oversupply

of debt from banks while the same funds are not available in the equity market for a

company. This further affects the nature and cost of funds for the company and

eventually the return of equity or capital and ultimately the growth rate of an

economy.

This study takes the viewpoint of a marketer and attempts to understand a specific

issue regarding a category of financial products. It borrows concepts and principles

from economics and finance but applies a marketer’s lens to the problem. Introducing

a special issue of the Journal of Marketing on Consumer Financial Decision-Making

John G. Lynch (2011) Financial goods should be studied in deeper depth by

researchers from a variety of disciplines, as customers tend to focus on a single aspect

of their finances at any one moment. They make judgments based on a complex mix

of personal attributes and talents, the context in which they operate, and social

v
reasons. It's a symbiotic relationship between public policy makers, employers, and

self-interested merchants.

vi
 TABLE OF CONTENTS

CHAPTER 1 INTRODUCTION 1

1.1 BACKGROUND 1
Table 1-1: India and the World: Direct Participation in Equity Markets 7

1.3 OBJECTIVES OF THE RESEARCH 8

1.4 SIGNIFICANCE OF THE RESEARCH 10

1.5 SCOPE OF THE STUDY 11

CHAPTER 2 LITERATURE REVIEW 13

2.2 THEORETICAL FRAMEWORKS 13

2.2.1 CONSUMER BEHAVIOUR 14
Figure 2-1 A model of consumer behaviour (Hawkins & Mothersbaugh, 2010)
15
2.2.2 ATTITUDE RELATED THEORIES 15
2.2.3 THEORY OF REASONED ACTION 17
2.2.4 THEORY OF PLANNED BEHAVIOUR 18
Figure 2-3 Theory of Planned Behaviour 18
2.2.5 CONSUMER SOCIALIZATION THEORY 22

2.3 APPLICATIONS OF THE THEORY OF PLANNED BEHAVIOUR TO FINANCIAL

SERVICES 24
2.3.1 THEORY OF PLANNED BEHAVIOUR AND INVESTMENTS 24

2.5 FACTORS INFLUENCING STOCK MARKET PARTICIPATION 26

2.5.1 FINANCIAL LITERACY 27
2.5.2 ROLE OF GOVERNMENT AND REGULATORS 34
2.5.3 THE CONCEPT OF RISK 42
Figure 2-6: Conceptualisations of Risk in the domain of investments 45
2.5.4 PERCEIVED INVESTMENTS OF SIGNIFICANT OTHERS (PISO) 48
2.5.5 PERFORMANCE PERCEPTION 51
2.5.6 BARRIERS TO INVESTMENTS 54
2.5.7 FINANCIAL WELLBEING 57
2.5.8 FINANCIAL INTERMEDIARY SUPPORT 61

2.6 RESEARCH GAPS 67

CHAPTER 3 RESEARCH METHODS 69

3.1 APPROACH 69

3.2 CONTEXT OF THE STUDY 70

3.2.1 MIDDLE CLASS 70
3.2.2 RETAIL INVESTORS 71
3.2.3 CHOICE OF URBAN CENTRES 72

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4.4 QUALITATIVE DATA COLLECTION 74
4.4.1 OBJECTIVES OF THE QUALITATIVE RESEARCH 74
4.4.2 DATA COLLECTION 75
4.4.3 PREPARATION FOR THE RESPONDENT INTERVIEWS 76
4.4.4 PROFILE OF RESPONDENTS 76
4.4.5 PROCEDURE FOR RESPONDENT INTERVIEWS 77
4.4.6 PREPARATION FOR THE EXPERT INTERVIEWS 78
4.4.7 PROFILE OF EXPERTS 80
4.4.8 PROCEDURE FOR EXPERT INTERVIEWS 81

4.7 QUANTITATIVE RESEARCH 81

4.7.1 DATA COLLECTION AND SAMPLING METHOD 82
4.7.2 SAMPLE FRAME 82
4.7.3 SAMPLE SIZE 83

4.8 MODELS AND METHODS 83

4.8.1 EXPLORATORY FACTOR ANALYSIS 84
4.8.2 CONFIRMATORY FACTOR ANALYSIS 84
4.8.3 STRUCTURAL EQUATION MODELLING 84
4.8.4 INVARIANCE ANALYSIS 85

4.9 SUMMARY 86

CHAPTER 5 DATA ANALYSIS & FINDINGS 87

5.3 QUANTITATIVE DATA ANALYSIS 87

5.3.1 RESPONDENT CHARACTERISTICS 87
5.3.2 DEMOGRAPHIC AND SOCIO-ECONOMIC VARIABLES AS MODERATORS 89
5.3.3 COMMON METHOD VARIANCE 90
5.3.4 DATA PURIFICATION 90
5.3.14 MODERATING EFFECT OF DEMOGRAPHIC AND SOCIO-ECONOMIC
VARIABLES 91
Table 5-35: Goodness-of-fit Statistics for Tests of Invariance for Demographic
and Socio-economic clusters on the Structural Model 92

5.4 SUMMARY 95

CHAPTER 6 DISCUSSION 96

6.1 CHAPTER OVERVIEW 96

6.2 KEY FINDINGS 96

6.3 DISCUSSION OF RESULTS 98

Table 6-2: Predictors of Investment Intention 99
Table 6-3: Statistics for Attitude to Investment Behaviour from final model 100
6.3.2 INTENTION AND BEHAVIOUR 103
6.3.3 OBJECTIVE FINANCIAL LITERACY AND INTENTION 103
6.3.4 SUBJECTIVE FINANCIAL LITERACY AND INTENTION 104
6.3.5 FINANCIAL WELLBEING AND INTENTION 105
6.3.6 SUBJECTIVE NORM AND INTENTION 106
6.3.7 OBJECTIVE FINANCIAL LITERACY AND EQUITY HOLDING 106

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 Table 6-4: Objective Financial Literacy and Equity Holding 108
6.3.8 FINANCIAL WELLBEING AND EQUITY HOLDING 109
6.3.9 SUBJECTIVE FINANCIAL LITERACY AND EQUITY HOLDING 110
6.3.10 SUBJECTIVE NORM AND ATTITUDE TO INVESTMENT BEHAVIOUR 110

6.5 FINALISATION OF THE CONCEPTUAL MODEL 111

6.6 SUMMARY 113

CHAPTER 7 CONCLUSION 113

7.1 CHAPTER OVERVIEW 114

7.2 SUMMARY OF THE RESEARCH 114

7.3 KEY CONCLUSIONS FROM THE RESEARCH 116

7.3.1 STOCK MARKET PARTICIPATION IN THE SAMPLE 116
7.3.2 VOLATILITY AND THE STOCK MARKETS 117
7.3.3 HASSLE FACTOR 118
7.3.4 REGULATORY PERCEPTION 120
Figure 7-1: Investor Protection across the world 121
7.3.5 NEED FOR RISK SAVVY INVESTORS 123
7.3.6 FINANCIAL LITERACY 124
7.3.7 SOCIAL INFLUENCE AND STOCK MARKET PARTICIPATION 124
7.3.8 THE GENERATION GAP 125
7.3.9 FINANCIAL SECURITY 126

7.8 LIMITATIONS OF THE STUDY & RECOMMENDATIONS FOR FUTURE RESEARCH

127

7.9 ENDNOTE 129

vii
CHAPTER 1 INTRODUCTION

1.1 BACKGROUND

The importance of making sound investments cannot be overstated in today’s world.

A considerable portion of the lives of people is spent in generating income, which is

usually from a job or a business. This income becomes the primary source of money

which can be utilised for fulfilling all the requirements of a household – essential as

well as those not so essential. A portion of the income after expenses – also called the

surplus - is saved in various ways.

Broadly, the surplus is channelled into either Financial or Non-Financial avenues.

Non-Financial avenues refer to physical savings, the most common among which are

real estate and commodities (which include gold – a perennial favourite in India).

Financial savings refer to avenues like bank accounts/deposits, securities, currency

amongst others.

According to Halan (2014), the ten most common scenarios in which a household's

financial journey might be made easier by a financial product are listed below. These

include short-term, medium-term, and long-term investing goals, as well as retirement

savings, as well as managing cash. Banks, the government's savings vehicles,

insurance (health, car and home), investment plans and pension plans from insurance

companies and mutual funds are only a few of the options available on the market to

suit these demands.

1
Savings and investments are often used interchangeably though one could argue that

they are two completely different concepts. Savings refer to simply accumulating

money in a safe place while investing is about putting the money to work. Investing

usually connotes that the goal is to attain a certain rate of return with an attendant risk

of losing part of the invested money. The most common method of financial saving

across the world is to deposit funds in a bank account. Investments on the other hand

are made into a variety of instruments like Mutual Funds, Stocks (or equity), bonds,

derivatives, debentures amongst others.

There has always been a considerable amount of interest in the investing habits of

people. There are serious social and economic implications of investments made by

the collective. Individual investors (which include both retail as well as high

net-worth investors) are increasing their relative contributions across asset classes and

are becoming a serious force. On the one hand, the standard of living and the ability

to withstand shocks is linked to the wealth created by individuals due to their

investments while on the other hand, the availability of capital and allocation of

resources in the economy is affected by the choice of investments. A simplistic

illustration of the latter would be the case of an investor who chooses to “save” his

money in bank accounts rather than invest in stocks. If every investor (or saver)

behaved in this manner then at a collective level this will translate into an oversupply

of debt from banks while the same funds are not available in the equity market for a

company. This further affects the nature and cost of funds for the company and

eventually the return of equity or capital and ultimately the growth rate of an

economy.

2
Traditionally, investment habits are studied as a part of finance or economics. This

could be due to the fact that investment products are financial products. The

underlying principles used to create investment products are economic and financial

principles. It is somewhat akin to soaps being made by using principles of chemistry.

However, the task of marketing soaps is rarely left in the hands of chemical engineers

or chemists. By the same token, a large number of marketing professionals have been

working within financial services firms in order to help them reach their customers

more effectively with the right products and the right communication.

This study takes the viewpoint of a marketer and attempts to understand a specific

issue regarding a category of financial products. It borrows concepts and principles

from economics and finance but applies a marketer’s lens to the problem. Introducing

a special issue of the Journal of Marketing on Consumer Financial Decision-Making

John G. Lynch (2011) Financial goods should be studied in deeper depth by

researchers from a variety of disciplines, as customers tend to focus on a single aspect

of their finances at any one moment. They make judgments based on a complex mix

of personal attributes and talents, the context in which they operate, and social

reasons. It's a symbiotic relationship between public policy makers, employers, and

self-interested merchants.

The specific problem which is the subject of this study refers to the low penetration of

equity linked products in the Indian market. This has always been a conundrum for

marketers, policy makers and financial institutions. Despite forward looking

regulations and systems which rival the best in the world, the average Indian is still

wary of investing in equity products.

3
During his first television appearance after taking leadership of SEBI, India's capital

markets regulator, U K Sinha, the Chairman, noted that the low retail participation in

the stock market is worrisome. Subsequently SEBI has organised a large program of

investor awareness and education along with a slew of measures to improve retail

participation. A press release from Axis Securities (Pandey, 2014) put the equity

ownership of Indian households under 6% of the overall financial wealth, excluding

real estate. The corresponding figure from the US was 45%.

In 2012, the Government announced the Rajiv Gandhi Equity Savings Scheme

(RGESS) which was another incentive laden scheme primarily designed to attract

first time investors into the stock market. The RGESS by all accounts is an

unmitigated disaster (Adajania, 2013). At the time of writing this, the RGESS has

been all but abandoned as a scheme.

The seriousness of the issue of low participation however is not in doubt. As per a

recent press release [1] SEBI has been tasked by the Finance Ministry to present a

roadmap for increasing investor participation in the capital markets. A panel

discussion on consumer protection at the highest level also underscores the

importance of this aspect. FPSB's. annual financial planning congress 2012-13 in

Mumbai focused on the empowerment and protection of customers. (Viswanathan,

2013).

The appropriateness or suitability of the product has never been in question. The

returns from the Indian market can be estimated by calculating the returns from

4
investing in the Bombay Stock Exchange’s (BSE) sensitive index (Sensex). The

Sensex in the last two decades has grown by over 26% (Pandey, 2014).

Regardless of the manner in which the calculation is done, returns have exceeded

10% over the last 20 years which is equivalent to or more than returns from other

asset classes. The quantum of returns on a post-tax basis will be higher due to the

favourable tax rates on capital gains from stocks and the dividends. This mirrors the

returns provided by stocks in developed markets. In a recent issue of Forbes India

which featured interviews with India’s top 20 investors and market mavens, investing

in stocks for the long run would eventually pay off, was a familiar refrain. [2]

Though aggressive savers, Indians are conservative in investing their savings.

Consumer financial savings have fallen to their lowest level since 1989-90, according

to Reserve Bank of India's Annual Report (2011-2012). For the previous three years,

it averaged 11%.

According to a Credit Suisse survey (2014, p. 67), where 2500 representative

households across India were surveyed, only 2% of households said that they used

stocks as a means of saving while 3% said that they used Mutual Funds for the

purposes of saving.

This is also reflected in the number of dematerialised share accounts (also called

demat accounts). Shares and securities necessarily can be traded in the Indian markets

5
only in the dematerialised form. And these dematerialised shares are stored in demat

accounts. Demat accounts are roughly 25 million[3] (in a population exceeding 1.25

billion). According to industry estimates nearly 35% of the accounts do not have any

securities. This reduces the number of active dematerialised accounts to 1.3% of the

total population. Also, a lot of demat accounts in the recent past have been opened to

enable the purchase of commodities and other securities rather than equities. (BS

Reporter, 2012)

Mutual Funds are another route through which the retail investor can participate in

the stock market. Mutual Funds are pooled investment vehicles which relieve the

investor of the burden of picking stocks or holding a demat account. The number of

retail and high net worth Mutual Fund Folios (customer ids) was at 40 million in

December 2014, as per the industry body, Association of Mutual Funds of India

(AMFI). If one were to remove duplicate and inactive folios, as per industry

estimates, there are only 20% (i.e. 9.2 million) unique and active Mutual Fund

investors. In matter of fact according to AMFI, the number of Mutual Fund accounts

have been falling since 2009 by 2% per annum which has only recently seen an

increase in December 2014.

Participation in the stock market is an important economic indicator. If you don't

participate in the stock market, you might lose out on a lot of money in the long run

because of the equity premium (Cocco et al. 2005). Individual stock market

involvement varies widely even within Western countries, with many families not

owning any shares at all (e.g. Campbell 2006, Guiso et al. 2008).

6
 Corporate ownership trends in India for the period of 2001 and 2011 showed two

striking developments: an increase in the share of promoters and institutional

investors, Especially in the management-controlled section of domestic private sector

management businesses. These advances were obtained at the expense of

non-institutional retail shareholders in both cases, whose shares therefore saw a

significant decline in value. (Balasubramanian & Ramaswamy, 2013).

A comparison of various countries and the number of demat accounts provides an

indication.

Demat Accounts in Million Population in Million Demat/Population (in %)

India 16.8 1,173 1.4

China 125 1,330 9.4

Russia 3 139 2.2

South Korea 3.55 48 7.4

UK 10 61 16.4

USA 54.8 310 17.7

Table 1-1: India and the World: Direct Participation in Equity Markets

Sources: India: NSDL & CDSL, 2009, China: SIPF China, 2010, Russia: MCD, South Korea:

KSD, UK:UK Shareholders’ Association Press Release, 2007, USA:ICI& SIFMA report,

2008; Population Statistics: CIA World Fact book

7
As can be observed, India compares poorly with most other countries with regard to

penetration of demat accounts which is an indicator of the low participation of retail

investors in the equity markets.

1.3 OBJECTIVES OF THE RESEARCH

The study's major goal is to figure out what influences stock market involvement.

Stock market participation despite lots of attempts has not been fully explained by

either a single factor or multiple set of factors.

Researchers have identified factors and attempted to draw correlations. Several

factors have been found to significantly influence stock market participation across

the world. This includes financial literacy, financial risk tolerance, demographic

factors, social factors, choice of intermediary, use of information sources amongst

others.

One more objective of this research is to develop a comprehensive framework to

understand the relationship between the various factors and stock market

participation. There is no unifying theory in either economics or finance for the stock

market participation (non-participation) puzzle (SMPP) as it is often called in

literature. There are very few studies linking mainstream Marketing or Consumer

Behaviour theories to the SMPP. This study will attempt to apply marketing or more

specifically consumer behaviour frameworks to understand this problem. As

8
mentioned earlier, it borrows concepts and principles from economics and finance but

applies a marketer’s lens to the problem.

An additional objective is also to investigate whether demographic and

socioeconomic characteristics affect stock market participation. According to Kabir et

al. (2011) Many investors have no equities at all in their portfolios. Despite the fact

that many non-stockholders may not have the financial wherewithal to invest, the

dilemma of not owning any stocks is not limited to those with modest means. Stocks

beat other assets by "an unusually" big margin, however even among households with

higher income and wealth, the amount of their assets devoted to stock remains

modest.

Stock market participation can be studied at several levels. If you want to invest

directly in the stock market, you have two options: (through stock brokers) wherein

the choice of the stocks purchased is their own or they can indirectly invest through

pooled investment vehicles (like Mutual Funds) where the choice of stocks purchased

is not their own.

Investing in the stock market is one thing, but the amount of equity an investor has in

their portfolio is just as significant as whether or not they do so. It's unlikely that a

low-equity investor will receive the rewards of stock investments.

In addition, other related concepts studied included level of diversification across the

portfolio in terms of stocks or other instruments and time of holding.

9
Investing intentions (direct and indirect) and the amount of equity in an investor's

savings portfolio are all that this study examines.

1.4 SIGNIFICANCE OF THE RESEARCH

For a financial climate in which consumers are expected to take control of their own

pension and investing decisions, the findings of this study are important to consider.

There seems to be sufficient research and evidence to suggest that education improves

financial decision making and financial literacy also enhances the quality of decisions

taken by investors. Research on learning and education, on the other hand, reveals

that people cannot develop rational preferences, especially when it comes to

hazardous financial decisions, in experimental settings. In order to arrive at a sensible

equilibrium, learning involves an infinite number of failures and triumphs.

Consumers also have a variety of other influences which act on them.

The salience of all these factors is vital to understand. This will help in allocating

precious resources in the right direction. It is expected that the study will throw light

on the decision making process of the Indian public with regard to moderately risky

to high risk financial products.

10
In addition to adding to the literature on marketing risky financial products, this study

is expected to be of great interest to several constituencies which include:

• Financial Institutions which offer moderate to high risk instruments like

Mutual Funds, Insurance companies, stock broking firms.

• Intermediaries like Distribution houses and Financial advisors

• SEBI – the capital markets regulator - who may wish to safeguard investor

interest and at the same time ensure a balanced and healthy growth of the

securities market.

• PFRDA - the pensions regulator who have launched the National Pension

System and in the process trying to create products and marketing

communication which would enable a large section of the Indian population to

make prudent decisions regarding choice of instruments and deployment of

funds.

• Lay investors who wish to understand their own motivations and pitfalls in

thought processes and then make prudent decisions.

• Government policy makers in order to protect the social fabric of the country

and institute a robust social security cover for their citizens.

1.5 SCOPE OF THE STUDY

India has a long history of joint stock companies and the oldest stock exchange in

India was founded in 1875. Anecdotes abound regarding the beginning of the equity

11
culture with companies like Reliance Industries. Depending on who is spoken to the

promoters of the companies are either portrayed as angels or devils.

The same is also true of the stock as a means of investment.Despite all the gloom and

the scams, Indian stock markets in general have provided superlative returns to those

who persisted and this becomes more relevant with every passing year as inflation

shows no sign of abating and India’s population slowly ages.

The purpose of this research was to discover what influences Indian stock market

involvement. The scope of the study included the middle class, urban, retail

households who invest in financial and non-financial avenues. The study was

conducted on respondents in India who may or may not have invested in equity

products.

12
CHAPTER 2 LITERATURE REVIEW

2.2 THEORETICAL FRAMEWORKS

There is a lot of information out there on the numerous factors that influence

investors' decisions about saving and investing. Stock market participation and equity

holding as phenomena are generally studied along with portfolio asset allocation. It is

only since the 1990s that Stock market participation has been studied separately as a

construct by itself. Researchers from all over the globe have been working to figure

out what influences people's first decision to start investing in the stock market, as

well as how much of their money they end up investing in the stock market after that

initial decision.

In marketing literature, consumer behaviour, psychological and economic theories

have been used to explain and predict the purchasing behaviour across product

13
categories. Before delving deeper into the factors affecting stock market participation,

a few theories relevant to the study are recounted.

2.2.1 CONSUMER BEHAVIOUR

Hawkins et al. (2010) A consumer's behaviour is defined in their book as the process

of identifying a need and then acquiring a product, service, experience, or concept in

order to meet that need, as well as the consequences that these activities have on both

the customer and society.

Figure 2-1 pictorially depicts the various aspects of study under the field of consumer

behaviour. The decision process of the consumer has several influences on it which

could be internal or external to the consumer. It is important to understand these

influences well in order to get a better understanding of the decision-making process.

14
 Figure 2-1 A model of consumer behaviour (Hawkins & Mothersbaugh, 2010)

Rather than focusing just on the buyer and the immediate antecedents and effects of

the purchase process, this perspective of consumer behaviour considers a wider range

of factors. They are some of the most well-known and well-validated research

frameworks on consumer behaviour to date from the psychology literature that deals

with attitude, intention, and behaviour. It is founded on the notion that human

behaviour is impacted by attitude, which they introduced in 1975. Based on this

premise one can say that saving and investment behaviour can also be explored or

understood using the TRA framework.

2.2.2 ATTITUDE RELATED THEORIES

15
Investing and saving money are rarely done on the spur of the moment. Prior to

making an investing choice, there is a lot of contemplation and deliberation. The

editors Baker and Ricciardi (2014) remark in the introduction of a book on investor

behaviour that in practise people make assessments and decisions based on prior

occurrences, personal views and preferences. It can thus be said that influences on

decision making are not just factors that are in the immediate environment of the

investor but also those traits and influence which are more deeply seated. One such

key influence is an attitude. According to Daniel Katz's functional theory of attitudes,

which he developed in the 1960s, attitudes influence behaviour. Attitudes exist for a

specific reason, according to this idea. It is more probable for consumers to adopt an

attitude if they believe they will have to cope with comparable information in the

future (Fazio, Lenn, & Effrein, 1984). The term "attitude" refers to a person's

inclination to regularly act in a positive or negative manner toward a certain thing

(Schiffman & Wisenbilt, 2015) . The formation of attitudes and the subsequent

influences on behaviour have interested researchers across domains.

Theories regarding attitudes abound in literature but two major theories stand out

because of the nature of consumption they attempt to explain. Reasoned action theory

and its extension, the Theory of Planned Behaviour (TPB), relate to decisions that are

chosen voluntarily and for which justifications may be adduced. For the most part,

people don't use these theories when they have to buy something out of the blue,

whether it's due to social convention (like saving money or attending a party) or a

preexisting obligation (like having to buy gas after purchasing a new car), or when

there is little thought involved (like choosing which brand of gas to buy) (East, 1993).

Theories of attitude change claim that the influence of attitudes on behaviour is the

16
result of an intentional, thought-out effort. (Bagozzi, Baumgartner, & Yi, 1989) and

hence are quite suitable for investment decisions.

2.2.3 THEORY OF REASONED ACTION

According to Fishbein and Ajzen (1975), motivational impacts on a person's intention

may be explained using the Theory of Reasoned Action (TRA). The TRA identifies

two fundamentally distinct factors of intention in a sentence. One is a personal

component called attitude toward the behaviour, which relates to the degree to which

a person thinks the behaviour is good or bad. It is a social component known as the

subjective norm, which refers to the perceived social pressure to do or refrain from a

particular action. Behavioral intention is presumed to be influenced by both attitude

and subjective norm, weighted according to the relative relevance of both. It also

deals with the antecedents of attitudes and subjective norms, antecedents that

ultimately influence one's intents and behaviour. According to the notion, a person's

actions are influenced by their thoughts about what is significant to their actions.

Behavioural beliefs, which are thought to impact attitudes toward behaviour, and

normative beliefs, which form the foundation of subjective norms, are differentiated.

Figure 2-2 Theory of Reasoned Action

17
 2.2.4 THEORY OF PLANNED BEHAVIOUR

Consumer behaviour may be predicted using the Theory of Planned Behaviour (TPB).

Subjective standards and self-perceived control of behaviour are all factors that go into

predicting a person's behaviour, according to this hypothesis. Perceived behavioural control is

added to the TRA by Ajzen (1991) in his TPB. Self-efficacy refers to a person's belief in their

capacity to carry out the desired action.

Figure 2-3 roughly depicts two alternative TPB configurations. The first model is based on

the assumption that intentions are motivated by a person's perception of their ability to control

their behaviour; however, this link is not included in the model. Because they lack the means

and chances to execute a given behaviour, people who have good views toward the behaviour

and feel that important individuals would approve of their performance of the behaviour are

unlikely to generate strong behavioural intentions to engage in it.

Figure 2-3 Theory of Planned Behaviour

18
2.2.4.1 ATTITUDE TO BEHAVIOUR

For more than a century, the psychological idea of attitude has been central, and

hundreds of definitions have been offered. Definitions are almost always based on

how others see them. The difference between an attitude toward behaviour and an

attitude toward things has been established. As a result of this integration process,

consumers construct an overall opinion of a product or brand based on their

knowledge, meanings, and beliefs about it. (Peter & Olson, 2005).

Studies on “attitudes towards behaviour” on the other hand have been concerned

about consumers’ overt behaviour. Here the focus is on consumers’ attitudes towards

their own behaviour and actions. According to the theory of consistency in case the

action involves a brand or product the attitude towards the object in question may be

involved in the attitude towards behaviour.

There are two competing definitions of attitude which have been used extensively in

literature. Thurstone proposed the single unidimensional conceptualisation of attitude

where attitude was simply A person's emotional response to a given thing. Following

this, a more complex model of attitude was proposed: the three-component tripartite

model, in which cognition, affect, and conation are considered to constitute the three

components of attitude (intended or actual behaviour toward the object) (Zanna &

Rempel, 1988). Most researchers today are more inclined towards the former

uni-dimensional definition of attitude (Peter & Olson, 2005). The TRA and TPB have

been based on this definition though both the theories incorporate the cognitive,

affective and conative components. This study will also be adopting this definition.

19
According to Fishbein (1980) people form attitudes on the basis of their beliefs

(perceptions and knowledge) about the specific object or behaviour.

Attitude has been measured using several methods. The explicit method involves

asking questions directly regarding the specific attitude. This is usually along a single

dimension though there may be several questions used in the tool (Ajzen, 2005).

The implicit or indirect method involves measuring those constructs which may be

beliefs held by the respondent which in turn determine the attitude (Francis & Eccles,

2004). The indirect method may also employ a multiattribute model (Ajzen, 2002).

The multi-attribute model takes into consideration the process through which the

evaluations and strengths of significant beliefs are merged to generate an overall

evaluation or attitude.

2.2.4.2 PERCEIVED BEHAVIOURAL CONTROL

Perceived behavioural control is a concept used to describe how confident one feels

in one's own abilities to carry out the desired behaviour. According to Ajzen, a

person's resources and opportunities have a significant role in determining whether or

not he or she is able to attain his or her goals. The impression of behavioural control

and its influence on one's intentions and behaviours is of more psychological

importance than the actual control itself. According to TPB, perceived behavioural

control is critical to its success. While the theory of reasoned action also includes a

20
concept of perceived behavioural control, TPB does not. Peer judgement of how easy

or difficult it is for someone in the study group to accomplish the behaviour of

interest is consistent with an emphasis on elements that are directly connected to a

particular behaviour.

Ajzen discusses a wide range of elements that may influence a person's ability to

regulate their behaviour, including internal and environmental circumstances.

Elements that can be controlled include information, skill, and skills, but other factors

like stress or compulsion might be difficult to manage and may require more training

and experience. External variables may include elements that are beyond of the

individual's control. Depending on the results of these tests, the environment may

help or hinder a person's ability to do a behaviour.

2.2.4.3 SUBJECTIVE NORM

For the third predictor of intention, it is the person's impression of social pressure to

engage in or avoid the behaviour under study. It is referred to as a "subjective norm"

since it deals with how people interpret normative guidelines. Attitude toward

behaviour, subjective norm, and perceived behavioural control all play a role in the

relative relevance of these variables, according to the TPB model. While for certain

purposes, normative concerns take precedence, for others, attitudinal factors take

21
precedence. Also known as a "subjective norm," this term describes a person's

perception of social support for a certain behaviour, whether it is held by other

individuals or organisations (Ajzen, 1985, 1991; Fishbein & Ajzen, 1975).

It is not uncommon for people's parents and spouses to be the most important

referents for many behaviours. As a result, persons who feel that the majority of

people with whom they are inclined to comply and believe that they should do the

behaviour will perceive social pressure to do so Subjective normative pressure can be

exerted on persons who feel that most people with whom they are driven to comply

would disapprove of their performance of the behaviour. (Ajzen, 2005).

In most empirical studies subjective norm generally accounted for less variance than

the other two predictors (Ajzen, 1991; Bansal & Taylor, 2002; Conner & Armitage,

1998). There were other theories propounded to explain the effect of subjective norm

or social influence on intention or attitude.

2.2.5 CONSUMER SOCIALIZATION THEORY

According to Loudon and Della Bitta (1993) attitudes are developed through

information sources, personal experience, group associations and influential others.

A person's attitude is influenced by a variety of groups, including their family,

workplace, and peers. This is also borne by the use of actors who look similar to the

population of interest. People tend to form same judgements and use same criteria for

evaluating products (DeLozier, 1976).

22
Consumer socialisation theory claims that consumers' cognitive, emotional, and

behavioural attitudes are influenced by their interactions with other customers (Ward,

1974). It is via socialising that customers acquire market-related information, skills,

and attitudes. People's roles as consumers are defined by a commonly used

socialisation paradigm (e.g. Churchill, Jr. & Moschis, 1979; de Gregorio & Sung,

2010; Moschis & Churchill, Jr., 1978).

There are two theoretical approaches to consumer-to-consumer knowledge

transmission: a cognitive development model and social learning theory (Moschis &

Churchill, Jr., 1978). A cognitive/psychological approach looks at socialisation in

terms of the many phases of cognitive development that occur from birth to maturity

(C. Kim, Lee, & Tomiuk, 2009). The latter, on the other hand, stresses "socialisation

agents" (peers) who pass on norms, attitudes, motives, and behaviours to students

through "external, environmental, or social" sources of learning.

Socialization consequences for consumers include engagement, attitude, and

purchasing intent. Learning about consumption, such as brand preferences,

participation, or purchase intentions, is linked to peer communication. The

consumer's views and behaviours are largely shaped by the experiences and lessons

he or she has had with various socialisation agents.

According to this notion, the TPB's subjective norm may influence people's attitudes

about behaviour.

23
2.3 APPLICATIONS OF THE THEORY OF PLANNED BEHAVIOUR TO

FINANCIAL SERVICES

2.3.1 THEORY OF PLANNED BEHAVIOUR AND INVESTMENTS

East (1993) employed the Theory of Planned Behaviour to study investment decisions

with data from a sample of British consumers. Three studies of application for shares

in privatised British enterprises are given. In each case the application for shares was

properly anticipated by assessed intention. Intention was in turn explained by attitude,

subjective norm, perceived control and prior conduct.

The results give strong support for planned behaviour research as a technique of

identifying the major ideas that are relevant to this conduct. The three studies

demonstrated that the desire to apply for shares was highly impacted by family and

friends, the simple availability to cash and the effort of application, as well as by the

more ‘rational’ results of profit and investment security.

2.3.2 THEORY OF PLANNED BEHAVIOUR APPLIED TO CREDIT CARDS

The TPB has been utilised in studies pertaining to credit cards in two notable studies.

Rutherford et al. (2009) adapted the model to study the factors influencing

convenience use of credit cards.

24
 Figure 2-4 Adapted model of TPB for credit cards (Rutherford & Devaney, 2009) Their model is

shown in Figure 2-4 where they used the expansion suggested by Conner et al. (1998)

It distinguished between affective reactions and spontaneous influences on behaviour

while analysing behavioural beliefs. It is predicated on the individual's expected

remorse after doing a given behaviour, while spontaneous repercussions are the result

of prior discussions, reasonable reasoning, and meticulous preparation.

In a more recent study Xiao et al. (2011) extended the original model by including

two variables as external factors (Figure 2-5).

Figure 2-5 Adapted model of Theory of Planned Behaviour (Xiao et al., 2011)

25
2.5 FACTORS INFLUENCING STOCK MARKET PARTICIPATION

There have been several studies done throughout the world on various aspects that

influence share holding and the desire to invest in equities products. To come up with

a more complete explanation for these events, we should have incorporated all of the

probable contributing components into our investigation. Since a result, it was not

possible to integrate all of these aspects in a statistical model, as there were too many

variables and too many limitations involved. Thus, we had to choose between the

several factors studied. While it was attempted to include those variables that were

found to be strong predictors in literature we also had to include those factors which

were found in practice especially in an Indian context. Additionally, in order to

further knowledge creation we also felt the need to include constructs which had

strong empirical or theoretical foundations but were hitherto unexplored in the

context of investments or specifically equity investments. The factors that have been

reviewed at length below have been chosen based on all the above reasons.

A person's risk aversion, financial knowledge, and access to financial advisors were

found to be strong predictors in the research. As shown in this section, several studies

across the world have shown a strong linkage between our focal constructs and these

two factors. Equity holding has been studied in contexts other than investments but

has not been specifically studied in relation to factors such as wellbeing, product

performance perceptions and product usage barriers. Regulators play an important

role in protecting the lay people and encouraging good financial behaviour in India's

financial sector. Factors selected include a balanced mix of established predictors and

innovative concepts, as well as unknown variables.

26
Each of the subsection below introduces a factor and summarises the conceptual and

empirical research pertaining to the factor. The next chapter delves deeper into how

these factors relate to our focal constructs and describes how the hypotheses for the

research were formulated.

2.5.1 FINANCIAL LITERACY

Information processing and decision-making research places a high value on product

knowledge (Brucks, 1985; Raju, Lonial, & Mangold, 1995). Financial literacy is a

major topic of study in the financial industry. Throughout literature and popular

culture, financial literacy and financial knowledge have been employed

interchangeably. In certain instances, financial education and financial literacy have

also been treated as synonymous though there could be an argument made that

financial education implies a much greater involvement with the subject of finance

than merely that connoted by literacy.

In popular media, the incidence of financial literacy is far higher than other terms.

Industry experts keep bemoaning the state of financial literacy and consider investor

education an imperative (Mahajn, 2012). SEBI and the government have also made

financial literacy a priority. Recognising the need to improve investor awareness, in

2012, SEBI proposed a three pronged strategy comprising the use of mass media, as

part of a national plan for financial literacy, regulators and financial institutions

should work together (Kumar, 2012).

27
A wide range of studies have attempted to define the concept of financial literacy

throughout the years, with varying degrees of success. Financial literacy, according to

Mandell (2006), is the ability to make sound financial decisions for one's own benefit.

Financial literacy is described by Lusardi et al. (2011a) as the ability to do interest

rate calculations, as well as an understanding of basic financial investing principles

including inflation and risk diversification.

OECD's definition of financial education was expanded to include "the process by

which financial consumers/investors improve their understanding of financial

products, concepts and risks and develop the ability to make informed choices, to

know where to get help, and to take other effective actions to improv their financial

well-being," which includes "information, instruction, and/or objective advice."

OECD (2005: OECD)

Financial literacy has been shown to be a significant predictor of investment

behaviour. Investors with doctorate degrees, particularly those who are over 40, have

a greater level of financial literacy, according to a study done by Volpe and colleagues

(2002). According to Calvet et al. (2009b), an analysis of Swedish homes, the more

money a household has, as well as its size, the greater its financial sophistication.

While German investors with lower levels of financial literacy were less likely to

have invested in the stock market, and hence less likely to have lost money in the

financial crisis, they were also more likely to experience losses on the assets they

sold. In addition, a number of studies have revealed links between a person's level of

financial literacy and their investing decisions. A study by Yoong (2010) revealed that

28
the RAND American Life Panel (ALP) sample of older American respondents was

considerably less likely to hold stocks when respondents were unaware of stock

market investment expertise. Using data from Dutch surveys, Van Rooij et al. (2011)

discovered that financial literacy had a direct impact on stock market involvement.

According to a study by Abreu and Mendes (2010) and Guiso and Jappelli (2009),

greater levels of education and financial literacy had a beneficial influence on

portfolio diversification in Portuguese and Italian markets.

2.5.1.1 MEASURING FINANCIAL LITERACY

Existing research have employed a variety of financial literacy assessments. Some

researchers (Lusardi & Mitchell, 2007) used only three questions to measure financial

literacy, while others (Stango et al., 2009) used only one question. Surveys on

financial literacy that are more comprehensive frequently lack information on wealth,

saving or other significant economic effects.

By providing thorough measures of financial literacy and an evaluation of the validity

of the literacy data, Van Rooij et al. (2011) have solved the limitations of certain prior

research. Two modules were created by the researchers to gauge and assess people's

financial literacy. Two sections are included in the financial literacy questions. First,

we'll test your knowledge of the fundamentals of money management. From interest

rates and compounding to inflation, discounting, and nominal vs. real values, these

questions cover it all. This has been used in several studies over the years ever since

this was developed by Lusardi et al. (Agarwal, Amromin, Ben-David,

Chomsisengphet, & Evanoff, 2010; Lusardi & Mitchell, 2007, 2008, 2011b, 2011c).

29
More sophisticated financial knowledge is being tested with questions on topics such

as the distinction between stocks and bonds, the workings of risk diversification, and

how bond prices and interest rates are linked. Annamaria Lusardi and Olivia Mitchell,

who devised the HRS and the Rand American Life Panel's financial literacy

questions, were the primary inspirations for these inquiries.

Using a survey instrument developed by the OECD International Network on

Financial Education (INFE), persons from many walks of life and in a broad variety

of nations may be assessed for their level of financial literacy. The poll includes

questions culled from other surveys on financial literacy that are considered best

practises. All facets of financial literacy, from budgeting and money management to

short and long-term financial goals and financial product selection, are addressed in

the study. In order to assess one's total level of financial literacy, the survey asks

about a wide range of topics, including financial literacy knowledge, attitudes, and

behaviours. Access to financial services, current financial needs, and long-term

planning are all addressed in the survey.

Financial knowledge as defined and measured in OECD studies is equivalent to

financial literacy as defined in the studies done by Mandell (2006, 2007, 2009) and

Lusardi et al. (2008, 2011a, 2011, 2012).

The constructs of Financial Attitudes and Behaviour (as included by the OECD

within Financial Literacy) are treated as consequences rather than antecedents. Also a

far greater number of studies across the world have been published with the above

conceptualisation and will thus lend itself to comparison across geographies.

30
US RAND panel researchers discovered that many consumers lack even the most

basic understanding of economic principles needed to make sound savings and

investment decisions.. Financial illiteracy affects people of all ages in the United

States and elsewhere. (Lusardi & Mitchell, 2007). The authors connect their research

with other research done across the world and find similar levels of financially

illiteracy and more importantly, people are less likely to know that they do not know

much about financial matters. This is also a cause for concern since there is little

realisation of a gap in knowledge.

2.5.1.2 OBJECTIVE AND SUBJECTIVE FINANCIAL LITERACY

Consumer knowledge researchers frequently discriminate between consumers' real

knowledge and their perceptions of their actual knowledge when investigating

consumer knowledge (Carlson, Vincent, Hardesty, & Bearden, 2009; Moorman,

Diehl, Brinberg, & Kidwell, 2004). Investing is based on objective knowledge, which

is defined as the investor's real information. According to recent findings, objective

knowledge may be thought of as accurately preserved data. The investor's subjective

knowledge is what he believes he knows. To put it another way, one might think of

subjective knowledge as a belief in the existence of that state of knowing. As a result,

it's fair to say that subjective knowledge is a form of self-assessed knowledge

(Hilgert, Hogarth, & Beverly, 2003). It has been described as self-assessed literacy by

Van Rooij et al. (2011), who concluded that subjective and objective literacy are

strongly linked in their study of subjective knowledge.

31
In another study, Lusardi and Mitchell delve deeper into a particular segment of

population – women - to understand how they stand with regard to planning and

financial literacy. It was observed that older American women had poor levels of

financial literacy, and most women have no retirement planning at all. As a result, it

was observed that women who have a better understanding of finances are more

likely to plan and be successful planners (Lusardi & Mitchell, 2008).

Similar studies have been undertaken using this framework by the same authors and

others across the world (Lusardi & Mitchell, 2011c) (Agarwal, Driscoll, Gabaix, &

Laibson, 2009). In India as well, financial literacy levels were measured in a study in

Hyderabad (Agarwal et al., 2010).

Financial management activities such as cash flow management, credit management,

saving, and investing are examined by Hilgert et al. (2003) in their study of the link

between knowledge and behaviour. They observed that financial knowledge can be

statistically connected to financial habits related to the four activities indicated above.

In contrast to objective knowledge, which solely relates to what a person really

knows, one might think of subjective knowledge as the level of trust a person has in

his or her own understanding. Confidence may be more impacted by investors'

self-assessed subjective knowledge, keeping objective knowledge unaltered, whereas

accuracy depends on objective knowledge. Knowledgeable investors may better

understand, evaluate, and link financial data, increasing their abilities as investors.

32
They have a better conceptual grasp of financial data than beginners. As a

consequence, since objective knowledge and self-access knowledge have a positive

relationship, objective knowledge may help to improve subjective knowledge and

vice-versa (Hutchinson & Alba, 2000). Objective and subjective information, on the

other hand, may have differing effects on behaviour.

"Financial Literacy Overconfidence" was defined as the discrepancy between an

individual's subjective and objective financial literacy scores. Financial literacy

overconfidence was shown to have a positive correlation to stock market participation

in a study of data from the 2012 Chinese Survey of Consumer Finance.

The chance of investing in low-cost fund alternatives increases with increased

financial knowledge, according to a study conducted by Muller and Weber (2010) in

the German market.

According to a recent meta-analysis (Fernandes, Lynch Jr., & Netemeyer, 2014) that

looked at the association between the degree of financial literacy and financial

education and financial behaviour, just 0.1 percent of the variance in financial

behaviour was explained by such interventions. The authors categorise the studies in

the area under two broad heads. The first category is called “Manipulated Financial

Literacy” which includes experimental and quasiexperimental studies of the effects of

financial education interventions while the second category pertains to what is termed

“Measured Financial Literacy” Correlational and econometric studies have been used

to determine financial literacy through the percentage of test takers who got the

questions right and to forecast future financial behaviour. The study found nearly

33
1.8% of the variance in financial behaviours explained by measured financial literacy

as opposed to only 0.1% by manipulated financial literacy.

Apart from just “Objective Financial Literacy”, it becomes important to measure

“Subjective Financial Literacy” also to study their influence on Stock Market

Participation.

2.5.2 ROLE OF GOVERNMENT AND REGULATORS

For the financial markets to thrive and operate freely, governments must play a key

role. This role is often outsourced to independent bodies, such as market regulators,

in the majority of nations. Currently in India, there are five regulatory agencies that

have a substantial regulatory impact on the securities markets (Sabarinathan, 2010).

Among them:

● Previously, the High Court and the Central Government exercised certain of

the Act's quasi-judicial and judicial powers through the Company Law Board

(CLB), which is a quasi-judicial authority.

● The Reserve Bank of India (RBI) is largely in charge of banking and money

market regulation in India.

● Capital markets are regulated by SEBI and Department of Economic Affairs

(DEA), two government agencies that work together to ensure the orderly

operation of financial institutions.

34
 ● MCA, which sits at the top of a three-tier organisation, is responsible for the

registration and monitoring of incorporated businesses that come under the

Companies Act's regulatory scope.

● SEBI is the only one of the aforementioned organisations tasked specifically

with keeping an eye on India's capital markets. In 1988, the Government of

India formally founded SEBI. The Capital Issues (Control) Act, 1947, gave

the Controller of Capital Issues the ability to regulate before SEBI was

established. SEBI was originally a non-statutory agency with no legislative

authority. The Securities and Exchange Board of India Act 1992 was amended

in 1995 to provide the SEBI greater statutory powers, however "...to protect

the interests of investors in securities and to promote growth and regulation of

the securities market and for issues associated therewith or incidental thereto,"

reads the preamble of SEBI (SEBI website). SEBI must respond to the

demands of three distinct market segments:

a) The holders of securities

b) Involved parties

c) The market's facilitators.

The Regulator plays a disproportionately important role in India especially where

literacy rates and awareness are quite low compared to the rest of the world. The

regulator is given sweeping powers in order to achieve its objectives. In line with

securities market regulators in most developed markets, the SEBI performs three

major functions.

a) Regulates markets and drafts rules and regulations

35
 b) Quasi-judicial function punishes market intermediaries and

participants who do not follow rules or obstruct in free and fair

functioning of the markets

c) Monitors the market and investigates any market aberrations

It is common knowledge that there is considerable asymmetry of information in the

capital market. This is especially disadvantageous for retail investors. According to

the NCAER report (2011), low quality information and information asymmetry are

holding back Indian households' market engagement.

In order to correct this and to develop the markets SEBI has taken several measures.

These include measures to increase the allocation of IPO issues to retail investors.

Also, the removal of entry loads from Mutual Funds, capping the expenses of Mutual

Funds amongst others have all been investor friendly in the extreme so much so that

the consequences have led to significant strife for some financial institutions. Mutual

Funds in India are currently facing some of the toughest challenges with regard to

profitability. Well entrenched global players like Fidelity have sold off their

businesses due to the inimical conditions in India.

However, any discussion with an investor who invested during the 1990s and then

again in the 2000s (during the technology/internet boom) would bring forth stories of

scams. Every decade has its share of scams. If it was Harshad Mehta in the 1990s,

Ketan Parikh in 2000, then it was the Satyam issue and the numerous IPO scams in

recent times. The market has always seen run-ups which were unsustainable leading

to spectacular crashes where investors have suffered serious losses. And as most

36
market pundits would say, it is always retail investors who enter the market at the

height of a bull run and suffer the most during the market correction.

This has led to a considerable amount of mistrust in the system. SEBI has made a lot

of effort to try and educate investors and is continuing to do so. A recent spate of

communication efforts through print and audio-visual media is obviously an attempt

by SEBI to increase the faith of investors in the system and improve its own

perception amongst investors.

There should be a risk-free and low-cost system for trading securities and liquidity, as

well as the availability of risk management solutions for investors in the securities

market, so that their interests are not shortchanged by the opportunistic behaviour of

the issuer's managers (Sabarinathan, 2010).

To the government and the general public, it is expected that the securities market

would serve as a strong, stable, and secure fulcrum for the financial system as a

whole. The breakdown of the securities market might have a significant impact on the

whole financial system (Sabarinathan, 2010).

Studies of Peruvian securities markets by Glen and Madhavan (1998) and a

comparison of the Polish and Czech markets by Shleifer and Johnson (1999) have

confirmed the influence of regulation on the activity and value levels in the securities

markets. There is rising evidence that legislation and regulation have a significant

impact on financial markets.

37
These 30 principles were developed by the International Organization of Securities

Commissions (IOSCO) in 2003, which are based on three goals of securities

regulation: protecting investors; ensuring that the market operates fairly; and

decreasing the danger of systemic collapse.

While Thompson and Choi (2001) investigated the potential conflicts of interest

between mutual funds and their investors, La Porta et al. (1998) investigated the role

of laws governing investor protection, transparency of reporting, insider trading,

taxation, the quality of enforcement of laws, and the concentration of ownership

across several countries and their financial development. Small, diverse shareholders

are less likely to be influential in nations that fail to defend their rights, according to

La Porta et al. (1998), who discovered a negative correlation between the

concentration of ownership in the largest public businesses and investor protection.

According to Khorana et al. (2005), the mutual fund business is larger in nations with

stronger rules, laws, and regulations, particularly when mutual fund investors' rights

are properly safeguarded. This conclusion is in line with other relevant findings from

the law and economics literature. This can be extended to the stock markets as well.

Investors discount future cash flows more severely if they have poor confidence or

trust in the government as the counter-party to the transaction, according to a recent

research by Brown et al. People's views about government have a significant impact

on their own decisions. If you don't have faith in the government to deliver on its

promises, you're more inclined to accept a smaller, more frequent payment stream.

According to these findings, individuals' opinions about government can have a

significant impact on how they regard future benefit promises.

38
The worldwide financial crisis of 2008 is believed to have negatively affected

customers’ trust in financial service providers (Sapienza & Zingales, 2012). This had

unleashed a plethora of research on trust, financial institutions and related areas. One

of the relevant constructs that emerged was “broad scope trust”. Hansen (2012) built

on Sirdeshmukh, Singh, and Sabol's restricted scope trust model (2002).

Narrow-scope trust was defined as "the expectation held by the customer that the

service provider [i.e., the specific financial institution] is reliable and can be relied on

to deliver on its promises," while broad-scope trust was defined as "the expectation

held by the customer that companies within a certain business type are generally

reliable and can be relied on to deliver on their promises. There are two types of

Broadscope trust: official and informal. Formal broad-spectrum trust is the conviction

that the right impersonal institutions are in place to enable one to predict a successful

future undertaking. (McKnight, Cummings, & Chervany, 1998). The term "system

trust," which refers to customer confidence in the structured regulation of a specific

activity system, is also used to describe formal broad-scope trust (Grayson, Johnson,

& Chen, 2008). As Humphrey & Schmitz, 1996) put it, "if the entities in a system can

be trusted, no matter what industry or environment they are in." It is more closely

linked to the behaviour of firms than formal trust, which also involves faith in legal

standards and governmental authorities.

From a financial industry perspective, broad scope trust would rely heavily on the

regulator. When broad-scope confidence in financial services is low, financial service

providers should allocate greater resources to delighting their consumers and/or

improving their financial health, according to Hansen (2012). Thus, broad scope trust

39
becomes essential to ensure that financial service providers do not have to spend on

aspects which are not their core competence.

It can be said that as the appointee of the Government the Regulator discharges the

duties on behalf of the government. Thus, extending the finding in the above study,

investor attitudes towards the regulator are an important determinant of how investors

view investments in the stock market. Especially since stock market investments are

always considered long term investments. Moreover, with no form of insurance (like

in banks) or any overt guarantees (like in traditional insurance plans) the role of the

regulator to ensure fair play is paramount.

The SEBI to a great extent has been designed in the mould of the SEC (Securities and

Exchange Commission) of the US. In 2012 there were significant changes undertaken

by the SEC in the regulation of investment advisers and the securities industry

generally. The SEC continues to lobby for proposed federal legislation that would

empower the SEC to seek more extensive disgorgement and more severe financial

penalties for violations of securities laws and regulations (Wood & Marx, 2013).

According to Guiso et al. (2008), trusting persons are more inclined to invest in

equities and risky assets, and they put a bigger percentage of their money in them.

Research on retail elements of Indian securities markets is scarce compared to the

literature on market efficiency, which is widely studied. Certain features of company

governance, ownership structure, and so on have recently garnered attention from

investors.

40
NCAER in their study sponsored by SEBI (2011) attempted to understand the

perception of investors with regard to SEBI and other aspects of the market. The

questions were more about the specific activities of SEBI rather than the broad

functions. Some of the key findings from this study were that about 40 percent of the

investors (a sub-category of the respondents who had invested in the stock markets)

felt that the prices of the IPOs (Initial Public Offerings) The entry into the market was

not transparent, and ordinary investors lack basic awareness of SEBI's function in the

industry. An overwhelming majority of those in attendance also said that SEBI, the

government agency in charge of resolving shareholder disputes, should take extra

measures. In spite of SEBI's apparent responsibility in investigating the reasons of

major price changes, around 21% of investors were unclear about the regulator's role

in reducing unexplained volatility.

De-listing non-performing companies is the job of the regulator, yet only 24% of

investors are aware that the stock exchange and regulator have a part in this process.

Sebi was anticipated to act against poor information on investment options by over

39% of those polled. In order to guarantee that the market functioned well, over half

of all market participants agreed that exchanges/SEBI should take the necessary

precautions.

On the topic of investor impressions of the regulator, there is very little scholarly

research. The retail investor's belief in the Regulator's ability and inclination to keep

41
the markets secure from fraudulent activities is critical to the success of the

Regulator's efforts to protect her investments.

2.5.3 THE CONCEPT OF RISK

Human beings have been faced with risk through the ages. The reaction to risk is

hardwired into us as “flight or fight” instincts. These instincts have been instrumental

in the survival of the human race, for the past many millennia. However, in today’s

modern world where technology has affected the way we live in most spheres of life,

even the handling of risk requires a change. According to Bernstein (1998), mastery

of risk is a revolutionary principle that divides the present era from the past.

We have as human beings learnt to master many risks. There are however primeval

instincts in us to avoid dangers and at another end, to seek out thrills. This is reflected

in the manner in which we deal with money. At one extreme, people would only

invest in tangible goods like real estate, gold, jewellery and other commodities and at

another extreme, there are people who would invest in derivatives which are at least

twice removed from any tangible good. And right in the middle are investments like

fixed deposits, stocks and bonds which are just a step away from a tangible

investment. There are investors who if they invest in stock markets would spend

sleepless nights pondering their investments while there are those who would treat the

stock markets like a roulette wheel.

42
Italian risicare, or "to dare," is the origin of the word 'risk'. When you think at it this

way, danger is something you can choose to do rather than something that happens to

you. The tale of risk is all about the acts we dare to take, which rely on how free we

are to make our own decisions (Bernstein, 1998). And the story of investment risk is

no different since there are people who can take risks and not suffer a debilitating loss

while for others a small turn of fate could spell disaster for generations.

Risk is thus one of the most important concepts which is discussed in the domain of

savings and investment. Financial product decision-making is difficult since the

goods are intangible, the consequences are unpredictable, and the financial risk after a

poor decision is substantial (K. Byrne, 2005).

Warneryd (1996, p. 766) says that risk attitude measures that were directly tied to the

topic of interest were superior to the more generic assessments of risktaking attitudes

for explaining portfolio compositions. According to him, this is a typical phenomenon

in psychology research: tests that are tailored to the circumstance perform better than

more general exams. Research by Vlaev and colleagues (2009) found that people's

perception and understanding of information about retirement investing risks is

influenced by a variety of factors. Despite the fact that the correct questions may

elicit consistent risk preferences in people, the results showed that people's risk

preferences were very domain-specific. Context thus becomes a very important factor

in assessing risk. So a person who is risk taking in one domain may be conservative

in other domains. It is thus imperative to study risk related behaviour in the

appropriate domains (Hallahan, Faff, & Mckenzie, 2004; Riley & Chow, 1992).

43
According to Quattlebaum (1988), financial risk is generally associated with the term

loss. When it is that an investor is risk averse, it actually means she is loss averse. As

per Quattlebaum a discussion of risks and its measurement must contain three

elements:

1. To describe and measure the investor’s economic tolerance for sustaining loss

2. To describe and measure the investor’s psychological tolerance for sustaining

loss

3. To describe and try to measure the probability of a particular investment

producing a loss

There are thus three broad conceptualisations of risk as it relates to investments.

Refer Figure 2-6; the first amongst these three conceptualisations refers to what is

called the Risk Capacity (Cordell, 2002) which is a reflection of the wealth and

income conditions of an investor and is the assessment of the actual situation of an

investor. This is also referred to as objective risk tolerance (Hanna & Chen, 1997).

The second conceptualisation is much broader in scope since it refers to a latent

psychological condition of the investor which can be described in simplistic terms as

the level of comfort with risk for an investor. This is also referred to as risk attitude

(i.e., a feeling of risk) (Grable & Roszkowski, 2008) and subjective risk tolerance

(Hanna & Chen, 1997). The inverse of subjective risk tolerance is also referred to as

risk aversion (Barsky, Kimball, Juster, & Shapiro, 1997) or risk avoidance (Douglas

& Wildavsky, 1982). The third conceptualisation is about the specific nature of risk

pertaining to an investment product (referred to as Instrument Risk in the figure).

This can be decomposed further into objective and subjective risks. The objective risk

of an investment product is a financial construct which is closely related to the return

44
of an asset class and is used in the capital asset pricing model (Markowitz, 1952). The

subjective risk of an investment product is a perception of the investor.

Figure 2-6: Conceptualisations of Risk in the domain of investments

2.5.3.1 RISK CAPACITY OR OBJECTIVE RISK TOLERANCE

To put it another way, a person's ability to handle risk may be influenced by his or her

overall wealth, as well as the present allocation of that portfolio, which includes

human capital, and its link with financial assets (Campbell & Viceira, 2002). This is

usually assessed by experts like financial planners for their customers and to a great

extent will depend on the economic circumstances and the environment of the

investor. The information required to make this assessment is highly confidential and

perhaps unethical to elicit from a customer unless there are suitable safeguards. There

are also limits to the accuracy of such data.

2.5.3.2 RISK AVOIDANCE OR SUBJECTIVE RISK TOLERANCE

45
In economics, finance, marketing, psychology, and sociology, there is a wide range of

literature on subjective risk tolerance.

Risk tolerance has been defined as "the readiness of an individual to engage in a

behaviour when there is a desirable objective but accomplishment of the goal is

unclear and accompanied by the prospect of loss" by academics interested in

consumer and personal finance (Kogan & Wallach, 1964).

Personal financial decisions are heavily influenced by a person's risk tolerance

(Snelbecker, Roszkowski, & Cutler, 1990). Financial planning models, investment

appropriateness assessments, and consumer choice frameworks all include risk

tolerance as an underlying element. Financial risk tolerance may impact a person's

debt vs savings decision, the mortgage type they choose, and the way they use and

manage their credit cards (Campbell, 2006).

A person's financial risk tolerance is typically characterised as the highest level of

volatility they are prepared to endure while making a financial choice. Risk tolerance

has been recognised as a significant aspect in saving and investing for retirement or

other household objectives in education, professional practise and empirical study.

Asset allocation plans and portfolio accumulation techniques have been linked to risk

tolerance in investing decisions (Grable & Lytton, 1999).

46
Researchers have distinguished between avoiding risk and having a negative view of

risk (e.g. Weber & Milliman, 1997). To Douglas and Wildavsky (1982), risk

avoidance was considered as an attitude or disposition to avoid danger, whereas risk

perception was seen as a situation-specific response to an external stimuli (such as a

product or service) (Weber, Blais, & Betz, 2002). As a result, it was hypothesised that

differences in risk preference could be explained by differences in risk attitudes or

differences in the way risk was perceived (Weber & Hsee, 1998).

They have put together a thorough examination of the distinctions between Risk

Perception and Risk Tolerance in Roszkowski and Davey (2010). Risk tolerance,

according to one perspective, is a fixed trait, like blood type, that does not need to be

reassessed during one's life. If risk tolerance is a variable, like mood, it may be

pointless to try to develop an investing strategy around this attribute. While many

academics prefer the characteristic explanation of risk tolerance or risk avoidance,

this is not the case for everyone.

"Risk perception and risk tolerance are linked and frequently muddled variables," as

stated by Hunter (2002) in a study of aircraft pilots, although each of them can

independently contribute to risk-taking behaviour.

According to Hunter, "Risk perception may...be viewed as largely a cognitive process,

including the appropriate evaluation of external and internal circumstances. Risk

perception may be viewed as a temporary response to a stimulus (e.g., a product or a

service) that was situation-specific (e.g. (Weber et al., 2002). When it comes to risk

aversion, it's best to think of it as a characteristic. How much risk an individual is

prepared to take in order to achieve a goal may be characterised as their risk tolerance

47
(Hunter, 2002). While it comes to making a financial choice, risk tolerance is the

amount of risk that an individual is willing to take when making a financial

investment. (Roszkowski & Davey, 2010).

Risk tolerance or its inverse “Risk Avoidance” becomes an important variable which

would influence the types and quantum of investments made by a retail investor.

2.5.4 PERCEIVED INVESTMENTS OF SIGNIFICANT OTHERS

(PISO)

Observed social behaviour has a long history of influencing later social behaviour, as

various experts have proven (Cialdini, 2005; Festinger, 1954; Milgram, S., Bickman,

L., & Berkowitz, 1969). People's favourable self-perceptions are maintained through

their identification with and adherence to highly regarded social groupings, according

to research (Brewer & Roccas, 2001; Cialdini & Goldstein, 2004; Pool, Wood, &

Leck, 1998).

Consumer buying decisions are heavily influenced by social factors. Participants'

intentions to engage in health behaviours (Terry & Hogg, 1996) and household

recycling were significantly predicted by their reference group of peers and friends'

perceived norms, according to research (Terry & Hogg, 1996). (Terry, Hogg, &

White, 1999). Many studies have been done on this topic, especially in the financial

sector (Bertrand, Luttmer, Mullainathan, Economics, & Bertrand, 2000). According

48
to a new study, coworkers' retirement plans can impact an employee's decision to join

in an employer-sponsored retirement plan (Duflo & Saez, 2002; Madrian & Shea,

2000).

The key socialisation agency for children's first experiences with money management

is the family, which continues into adolescence (Bowen, 2002; Koonce, Mimura,

Mauldin, Rupured, & Jordan, 2008; Volpe et al., 2002). Peer groups have also been

found to aid in the successful acquisition of financial values and social motivation

(Hayta, 2008; Moschis & Churchill, Jr., 1978)

It has been found that social contact can both boost stock market involvement and

enhance correlated securities decisions among linked investors (J. R. Brown, et al.,

2008; Guiso & Jappelli, 2005; Liu, Meng, You, & Zhao, 2013; Shive, 2010).

Intuitively, it is quite easy to picture that many decisions to invest in the stock market

may be triggered by casual conversations amongst friends or relatives of possible

returns from specific stocks. These kinds of conversations usually abound during a

bull-market and impel a hitherto naive investor to take her first tentative steps

towards investing in the stock market.

In his famous book Irrational Exuberance, Shiller (2000) devotes a chapter “Herd

Behaviour and Epidemics” to the exposition of word of mouth effects in the stock

markets.

49
Hong et al. (2004) operationalised the distinction between social vs. nonsocials by

using interaction with neighbours or attending church as proxies for level of

socialization. When wealth, race, education, and risk tolerance were taken into

account, the researchers discovered that social households were far more likely to

invest in the stock market than non-social families. It was observed that mutual fund

managers in the same city are more likely to purchase (or sell) a specific stock in any

given quarter if other mutual fund managers in the same city are doing the same. An

epidemic model was used to explain the data as investors disseminated stock

knowledge through word of mouth.

When the stock ownership of one's community (neighbourhood) rises by 10%, an

individual's likelihood of stock ownership rises by 4%.

Individuals' stock market involvement decisions are influenced by their family,

according to Hellstrom et al. (2013), a Swedish research. In the wake of a parent's or

partner's favourable or bad stock market experience, the chance of future engagement

increases or decreases, according to the researchers. Individuals with lower levels of

financial literacy and higher levels of interpersonal trust are found to have a bigger

impact on the impact of social interaction. Families have a favourable effect on both

male and female engagement, but communities have a more significant impact on

males. According to Kaustia and Knüpfer (2012), good stock market outcome

experiences are more likely to be shared within the community than bad experiences.

50
There is thus considerable evidence to conclude that the investment proclivities of

people around the subject will influence her investments.

2.5.5 PERFORMANCE PERCEPTION

Investors seldom invest without an end goal in sight. If there is an outlay of funds in a

particular asset class then expectedly there is also an anticipation regarding a specific

return or a range of return. This expected return is something that is arrived at based

on all the inputs received by the investor regarding the asset class. These inputs could

be from a variety of sources. Friends, colleagues, family, TV, newspapers, personal

finance magazines, finance professionals (like advisers or distributors) amongst

others could be contributors. Ultimately this leads to a return expectation in the mind

of the investor (Chenhall & Juchau, 1977).

This return expectation has been studied in several contexts including that of

investment methodologies followed by investor – whether portfolio rebalancing or

return chasing (Bohn & Tesar, 1996; Phillips, Pukthuanthong, & Rau, 2014).

Expectations form an important part of performance from several perspectives. In

marketing literature, models like the performance model, the disconfirmation model,

the rational expectations model, expectations-artifact model (M. Johnson, Nader, &

Fornell, 1996) have been used extensively to relate expectations and performance

which in turn is related to satisfaction. Woodruff et al. (1983) offered a model of how

51
prior experience influences confirmation/disconfirmation. This, in turn, leads to

performance norms that subsequently lead to perceived brand performance (through

formation of brand attitudes, brand expectations and performance norms). Customers'

opinions of brands are influenced by a variety of factors including their own usage of

the products, the opinions of others, and the marketing activities of the firms

themselves. Experiential expectations, performance norms based on experience, and

brand attitudes are all outcomes of such events.

The second output is of interest in our research since it suggests that experience is a

necessary antecedent to formulation of a performance expectation. For consumers

who have had previous service experiences and expectations, Bolton and Drew

(1991) established a model of how they evaluate service performance and value. In a

service environment, it was observed that perceived performance levels had a

significant impact on value judgments (telephonic services).

Many researchers have shown a clear relationship between previous experience and

intention, and it is probable that a person's prior experience often influences their

goals, as demonstrated by Bentler and Speckart (1979) and Bagozzi (1981).

A well-known fact is that investors' present decisions are heavily impacted by their

investments' prior success (Coval & Shumway, 2005; J. Johnson & Tellis, 2005;

Wilcox, 2003). The phrase "hot hand effect" is used to explain the bias that arises

when an observed trend that may be random is projected into the future (Andreassen,

1988). By highlighting the fund's prior success, many mutual funds marketing

52
reinforce this prejudice (J. Johnson & Tellis, 2005). In India, Mutual Funds have

forbidden this practise.

Past performance is likely to impact investors' fund views, investment plans, and

expectations for future performance (Kozup et al., 2008).

We know that financial markets rely heavily on subjective expectations because of

evidence acquired in laboratory experiments, from agent-based computational

algorithms and from survey data (Greenwood & Shleifer, 2014, among others).

Bacchetta et al. (2009) in their study used a survey of US investors regarding return

expectations. This was used to understand the predictability of expectational errors

amongst market participants.

Dominitz and Manski (2007, 2011) elicited private households’ expectations of stock

market returns. What percentage of respondents think that a diversified mutual fund

will deliver a positive nominal value in the year ahead? The research indicated that

when the perceived possibility of a favourable mutual fund return climbs from 0% to

around 90%, the likelihood of stock ownership increases significantly. Despite this,

the likelihood of retaining stocks drops when the probability of a good return rises

from 90 to 100 percent.

East (1993) mentions the possible reward or profit that a customer expects from

investing in shares as a significant predictor of intention along with past experience.

53
“Performance Perception”, thus, becomes an important variable which is likely to

determine the attitude of a retail investor.

2.5.6 BARRIERS TO INVESTMENTS

It is often mentioned in media articles that ease of transacting and gathering relevant

and useful information remains an abiding issue when concerning most financial

services. According to a recent article by Nilesh Shah (2014), a renowned fund

manager, Despite the fact that it warrants more attention, the complexity of financial

product transactions has received little of it. Opening a demat account or submitting a

paperwork for an IPO is still a challenge, despite several efforts to make it easier

(IPOs). An investor may be deterred from making an investment selection because to

several obligations and jargon-laden language in the tiny print, Shah explains. There

is also the issue of numerous KYC regulations at the time of entrance across several

industries, such as banking, insurance, and mutual funds, which necessitate

hand-holding for newcomers.

In their seminal article on consumer resistance to innovation Ram and Sheth (1989)

mention several barriers to adopt new innovations. The usage barrier seems to be the

most relevant in our context. The usage barrier refers anything that leads to

incompatibility with existing workflows, practices, or habits.

Perceived Difficulty (PD) of committing a behaviour has been a much researched

construct for several decades even before the TRA and the TPB were propounded.

54
Kukla (1972), example: in this case, it was hypothesised that the individual's

intention to try to do an instrumental task would vary depending on the perceived

difficulty of the activity in question. There is an intention to try if the task is viewed

as simple, an intention to attempt if the work is tough, and an intention not to try if

the task is impossible or exceedingly difficult (Brehm, Wright, Solomon, Silka, &

Greenberg, 1983). The TRA and TPB subsumed PD in one of the two or three

constructs respectively that the theories used to predict intention.

The term “hassle factor” has been used extensively across different products and

services including medicine, airline services, education and security services amongst

others. The term “hassle factor” also makes its appearance in Financial Services

literature as well. Becket et al. (2000) found that several respondents cited this as a

major reason for not switching financial service providers. In this qualitative study,

the “hassle” was related to charges, filling forms and searching for a (alternative)

service provider. Another economist has defined hassle factor as relating to the

amount of time and effort required to make a decision relative to the benefit being

sought (Anderson & Mapp, 1996).

With regard to financial products and services this is an unexplored area of research.

However, most experts and lay investors seem to highlight this as a crucial area of

improvement in the financial sector.

Information costs are frequently taken into account in studies of portfolio allocation

(Guiso & Jappelli, 2006). Poor information quality is noted in the NCAER research

55
(2011) as a key contributor to the decline in stock market participation by households.

Individuals' reluctance to engage in the stock market, according to Bogan (2014),

may also be due to knowledge about the market's perceived high cost. There is a

strong preference for riskless assets rather than stock investments among American

families because they believe that the costs of market involvement outweigh their

projected advantages, according to Bertaut (1998). Guiso also found this to be the

case in European markets (2003).

Frictional expenses (K. Little, 2014) which include brokerage fees, transaction costs,

taxes, research expenses also seem to play a part in deterring investors. As argued by

Vissing-Jrgensen (2003), investing in stocks (as opposed to relatively risk-free assets)

can come at a price, including time and money spent learning the basics of investing

and acquiring sufficient knowledge of the risks and rewards to figure out the optimal

mix of stocks and risk-free assets for a household. Costs associated with establishing

accounts, as well as the time spent deciding whether or not the allotment is ideal,

must also be taken into consideration Vissing-Jørgensen also mentions tax which is

not very relevant in an Indian scenario since the long term capital gains on equity

linked products are not taxable. In addition there are the costs of trading like

brokerage commissions in case of direct equity or loads in case of Mutual Funds.

Working on a dataset in the US covering the period 1998-2002, Vissing-Jørgensen

found a significant negative impact of participation costs on the stock market

participation of families at the lower-mid levels of wealth.

Most theoretical finance models assume there are no market frictions, although they

are a fact of life, according to Bogan (2014). brokers in India charge anywhere from

56
0.05 percent to almost 1 percent in fees. Smart clients with higher negotiating power

are expected to be able to secure more favourable pricing from their brokers.

This phenomena of environmental and man-made obstacles to investment is well

documented in the literature.

This has been termed as “Hassle Factor”.

2.5.7 FINANCIAL WELLBEING

The amount of money an individual has is likely to have a significant impact on the

investment and savings options he or she chooses. There are research that link income

with investing propensity. High-income households in Korea tend to own the bulk of

the company shares on the Korean stock market, but poor and middle-income

families have relatively low stock market participation rates, according to Cho

(2006). Financial wealth in the context of one's own home may be characterised as a

person's ability to accumulate money and other possessions. Households with a lack

of financial resources are more likely to have little equity. It's been proven to be true

around the globe, but even among the wealthiest families, involvement isn't universal

(Heaton & Lucas, 2000; Mankiw & Zeldes, 1991).

Data on income and wealth is often difficult to come by (Campbell, 2006). These

factors impact how income, wealth, and net worth are compared between households.

In addition, financial services companies seldom have access to precise data of this

type for marketing purposes. Marketers would be able to better target their messages

to those with various views of their circumstances if they had access to attitude data.

57
When it comes to investors' perceptions of their financial well-being, the concept of

financial wellbeing might be applied.

In the early days of consumer trend surveys, one of the key arguments for include

them was that they may have an impact on how people make financial decisions.

Consistently differing subjective assessments and the findings of objective metrics

used to describe a household's financial state might lead to wildly divergent financial

actions under certain conditions. There's a chance this has something to do with the

fact that subjective and objective measures of household financial uncertainty

measure uncertainty differently. In the socioeconomic literature, objective indicators

are based on monetary evaluation, whereas subjective ones are based on survey

questions concerning the financial condition of the surveyed individuals.

Happiness or a more robust and all-encompassing concept, well-being, has been a

component of human nature that has eluded the application of any theory. Wellness is

often characterised as a condition of being well and joyful and not having to worry

about anything in particular (Zimmerman, 1995). The phrase "financial wellness" is

increasingly being used to describe a person's financial well-being as the importance

of financial health grows. It is possible that financial well-being may be defined as a

condition of financial health, happiness and freedom from concern, and this is the

idea that has to be addressed.

Financial well-being may both be a result of and a factor in making the best financial

decisions possible. Financially secure investors may be more willing to take chances

58
with their investments, according to the theory. A person's sense of safety may be

bolstered by measurable assets, such as money or real estate. This sense of security

might sometimes be a matter of personal preference. At various degrees of affluence,

people feel safe. Well-being, which is typically seen as a subjective notion, may be

used in the same way. "how individuals perceive their lives and includes elements

like as life and marital happiness, lack of despair and anxiety, and pleasant moods and

emotions" is the definition of subjective well-being (Suh, Diener, Oishi, & Triandis,

1998, p. 25). It is possible to consistently evaluate subjective well-being across time

using self-reported data (Winter et al., 1999).

Many people use the terms "economic well-being" and "financial security"

interchangeably. When it comes to financial well-being, the term "economic

well-being" is most commonly used to refer to a person's income level (e.g. Porter &

Garman, 1993). It may therefore be characterised as "a condition of being financially

well, cheerful, and free from stress," which is based on subjective evaluations of one's

financial circumstances. " (Joo, 2008, p. 21). However, financial health encompasses

both subjective and objective (e.g., income) indicators in addition to the more

traditional financial metrics.

According to Draughn et al. (1994), the three components of economic contentment

are financial sufficiency, a person's perception of their financial well-being, and their

level of contentment with their standard of life. The term "financial adequacy" refers

to the ability to satisfy one's basic financial obligations without going into debt. A

person's subjective judgement of the entire economic position is what is meant by

"perceived economic well-being." According to this theory, a person's happiness with

59
their standard of life is a reflection of their confidence in their capacity to satisfy their

financial obligations.

Individuals' subjective financial well-being has been described in a variety of ways.

For example, this includes a person's sense of financial well-being (Walson &

Fitzsimmons, 1993), their own financial well-being and satisfaction (Joo & Grable,

2004; J. Kim, 1999), their perception of their own income sufficiency (Danes &

Rettig, 1993), financial strain (Aldana & Liljenquist, 1998), financial stress (Bailey &

Woodiel, 1998; (Voydanoff, 1984). While some have used phrases like "wellbeing,"

"satisfaction," and "distress" to describe the concept, others have used terms like

"strain," "stress," and "distress" to describe it (Voydanoff; Garman, Leech, & Grable,

1996).

According to Prawitz et al. (2006), objective financial measurements are less

beneficial in determining the appropriateness of intervention. For example, two

people who earn the same amount of money are likely to have quite different views of

their financial well-being because of their differing consumption values and spending

patterns. Furthermore, although one family member may be quite dissatisfied with

their financial situation, another family member with an equal salary may be quite

content. When it comes to determining how much money a person has available, this

concept is known as perceived financial sufficiency in the academic literature (Danes

& Rettig, 1993). Subjective measurements, on the other hand, give a wealth of

information that objective measures do not, because they allow researchers to

investigate not only how the financial state is viewed, but also how it impacts people

60
and families. A person's reaction to the financial situation, however, is a little more

difficult to gauge objectively.

Buying behaviour, financial perception, financial future perception, and attitude

toward long-term care insurance were all considered by Malone et al. (2009) when

describing the financial well-being of women. An Indian study on Financial

Satisfaction conducted in Delhi found that characteristics such as age, marital status

and employment have a significant influence on an individual's financial satisfaction

levels (Sahi, 2013).

It will be useful to understand the financial wellbeing of participants versus

non-participants in the stock market. This is likely to provide useful marketing and

communication cues.

2.5.8 FINANCIAL INTERMEDIARY SUPPORT

The complexity of modern day financial products, the overriding necessity of

effectively managing one’s own finances and the general paucity of time may suggest

that a retail investor would be better served by approaching and seeking help from a

financial specialist.

When an investor wishes to make investments in stocks directly she has to approach a

Brokerage Firm. The Brokerage firms who deal with consumers are either directly

licensed by the stock exchange or are sub-brokers to other brokers. Until the late

nineties, most brokerage firms used to offer their services over the phone. With the

61
computerisation of most stock exchanges, brokerages also started offering internet

broking. An investor today has the option to purchase or sell shares by phoning up a

broker or placing his orders over an online portal.

Brokers generally recommend specific trades but have never taken responsibility for

any advice. The brokers are always remunerated through commissions earned on buy

and sell transactions. Thus a broker earns only when customers buy and sell shares.

The depiction of brokers in popular media is usually negative and follows a typical

stereotype of a person who has little concern for his customers and is only interested

in encouraging transactions. Brokerage firms generally do well during bull markets

since there is widespread interest in stocks. The mainstay of brokerage firms are

usually the day-traders, those who spend a considerable part of the day trading on the

stock market. Day traders along with institutions make up a large portion of the

volumes on the market.

The most natural and obvious financial intermediary that would occur to an investor

is a bank. This is the reason why a large majority of banks have transformed

themselves from mere providers of deposits and loans to become one-stop shops

providing wealth management and financial advisory services. Many private sector

and foreign banks have embraced this model and sold mutual funds, insurance and

other investment products aggressively. This has made banks prominent distributors

of these products. At one level, this has increased penetration of financial products

and helped customers diversify their holding across asset classes. At another level

many customers also have been sold products unsuitable for them while banks and

their employees have enriched themselves.

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According to an RBI statement from May 3, 2013, "Banks delivering wealth

management services are subject to reputational issues as a result of mis-selling of

goods, conflict of interest, lack of understanding and clarity about products..." RBI

highlights bank mis-selling and its rising danger.

It was found that banks did not always clearly separate the roles of marketing

professionals from other branch operations, and as a result, bank workers were

getting direct incentives from third parties such as insurance companies, mutual

funds, and other entities for selling their goods. This might lead to mis-selling and a

distorted incentive system for employees," he says.

However, despite the fact that the draught rules on wealth management have not yet

been implemented, most banks have taken the message from the RBI and have ceased

or at least limited the direct incentivization of workers by third parties. Some banks

even went so far as to separate the responsibilities of personnel who dealt directly

with consumers and aided them with financial transactions. (Nagpal, 2014a, 2014b)

In a recent article, Monika Halan (2014)– a personal finance columnist – mentioned

that after 20 years of experience in the area, her conclusion was that it was not

possible for an average retail investor to buy financial products without advice.

According to Halan, in order to be able to take sound decisions regarding their

finances, retail investors will need to have degrees in finance and law. The skill of

working a spreadsheet, knowledge of concepts of present and future value, inflation,

taxes and costs are all required. Investors should be able to utilise these tools to

evaluate hundreds of goods and select the ones that best suit their financial goals.

63
The complexity of decision making thus necessitates the presence of an informed,

educated and properly motivated third party who can guide an investor, especially a

retail investor. The standard response recommended by most policy makers has been

to increase competition however this does not seem to have translated into sound

business practices. Companies conceal information that does not lead to a low-cost

equilibrium in a market with a mix of savvy and ignorant clients, according to Gabaix

and Laibson (2006). Having more competition does not guarantee better outcomes for

the client, though.

Because advisors may distribute the expenses of information gathering over a large

number of investors, delegating portfolio management choices to advisors opens up

economies of scale in portfolio management and information acquisition. Delegating

financial choices to a financial adviser, as well as benefiting from economies of scale

and maybe improved financial practises, can help individual investors enhance their

portfolio performance. Nevertheless, the costs of commissions and fees, as well as the

potential for conflicts of interest between advisors and their clients, have to be

considered when delegating responsibilities. Inderst and Ottaviani (2009) found that

advisors and their clients face agency problems when they have to sell financial

products and advise customers on what is best for them to do. Much of the current

research on financial literacy, the potential role of financial advice, and the

justification for regulating financial advisers is predicated on the idea that investors

who are less knowledgeable or sophisticated will turn to financial advisors.

Investment in financial advisors has been found to lower portfolio returns net of

direct costs, to worsen risk-return profiles, as measured by the Sharpe ratio; and to

increase account turnover and investment in mutual funds, consistent with incentives

built into the commission structure of both financial advisors. Bank financial advisors

64
(BFAs) had worse negative effects on portfolio performance than independent

financial advisors (IFAs) (IFAs). Because of this, BFAs have fewer goods to choose

from and fewer options for providing financial advise to their consumers. Women and

senior investors were also found to be more likely to work with financial advisors

than younger and less experienced male investors. Advisors, like babysitters, are

paired with well-off parents, perform a job that parents themselves might do better,

and charge for it, yet observed kid progress is not improved by babysitters but by

favourable family qualities. When it comes to babysitting, there are no concerns since

everyone engaged knows exactly what they're doing and how much they contribute.

Bluethgen et al. (2008) found that older people, families with a greater net worth, and

women are more likely to seek financial help. Findings from research into the value

and usefulness of financial advice may come as a surprise to many people. According

to the findings of other research, receiving financial guidance has little impact on an

investor's ability to make money (see Hackethal, Inderst, & Meyer, 2010; Jansen,

Fischer, & Hackethal, 2008).

However, there are opposing viewpoints that do not take selection effects into

account. However, the authors of Guiso and Jappelli (2006) failed to account for

selection effects when they found that investors' risk-adjusted returns increased when

they sought financial assistance from professionals. Investors may benefit from a

fee-only adviser's recommendations of index funds, Haslem (2013) found when

comparing advisor accounts to non-advisor accounts. Because guidance enhances

risk-adjusted equity returns and minimises risk, Kramer and Lensink (2012) conclude

that advisory interventions benefit retail investors. In addition, financial advisors limit

65
their clients' trading. A study by Cici et al. (2014) found that financial advisers

provide actual advantages for their clients by providing good tax advice. When it

comes to tax savings, financial advisers assist their clients avoid taxable fund

distributions, which can possibly boost their after-tax profits.

According to Hung and Yoong (2010), participants can choose to accept or reject a

participant's unsolicited counsel. For example, the study's experimental design allows

researchers to assess both treatment intent and treatment outcomes, which is a classic

experimental strategy for addressing selection bias. According to the researchers,

unsolicited advise does not have an impact on behaviour. On the other hand, guidance

that was chosen willingly was associated to better outcomes for clients. They argue

that selection effects are detrimental because those with the lowest financial

capabilities are more inclined to accept advice from financial experts. When it comes

to financial capacity-building, the majority of research have found the opposite to be

true: customers with the highest financial capability are less inclined to engage.

Compulsory financial counselling is unlikely to be helpful, but Hung and Yoong

(2010) argue that more people should have access to choice financial assistance.

Gerhardt and Hackethal (2009) in their study found that professional investment

advisors lead to less speculative trading and better diversified portfolios while not

pushing investors into fee-intensive products. The study concludes that it is indeed

worthwhile for most investors to hire an investment advisor.

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The financial advisor is thus an important intermediary in influencing investments

into various avenues and would be of relevance in any study involving retail

investors.

2.6 RESEARCH GAPS

Stock Market Participation as a construct has been studied extensively across the

western countries. There are very few studies pertaining to the emerging markets.

This is perhaps due to the lack of datasets. One of the key requirements for

conducting a household financial study is high quality data which is hard to obtain

(Campbell, 2006). Many researches in the western markets have access to high

quality data. For instance in the US the Survey of Consumer Finances and the Health

and Retirement Survey provide good datasets for analysis and research. In Sweden,

the government has detailed records of household’s financial assets. Other European

countries also have access to datasets that are usually representative of the entire

population and provide sufficient level of details with regard to wealth and

breakdown of wealth into relevant categories. Amongst emerging markets, there has

been a study done in China which explores stock market participation amongst

investors (Z. Wang & Liao, 2013).

In India, organizations such as NCAER, the NSSO and several other organizations

carry out consumer surveys and their surveys do have questions related to savings and

investment patterns of the households but do not throw light on why people have

savings in specific asset classes or their investment intentions. The recent NCAER

67
study (2011), though rich in data, lacks information on several key issues identified in

the literature including the Financial Literacy levels of the respondents. Another

study sponsored by the

Society for Capital Market Research and Development (L. C. Gupta & Jain, 2008)

studied the urban middle class and ascertained the investment preferences but did not

delve into the factors affecting the same.

However, no research have sought to examine the participation links in a single study,

despite the fact that several components have been investigated in the West. The

quantitative assessment of the relative relevance of the various components is also

critical. Rather, the scholarly view is based on information gleaned through various

assessments. There are still unsolved issues about whether or not the connections are

maintained and if they are constant across degrees of engagement.

Despite the lack of a dataset covering a representative sample of the entire population

(which is still awaited), it will be useful to understand from a limited survey data the

key factors affecting investment intentions and equity holding amongst the investors

in India. This research attempts to fill this gap.

For the most part, there is little scholarly research on how investors in India and

throughout the world see the regulator. Studying whether retail investors have faith in

the regulator's ability and motivation to protect the markets against fraudulent acts

that might significantly harm their investment returns is critical and the safety of their

investments. There is no published study linking the perception of regulator to stocks

68
in an investor’s portfolio. Hence, this research is meant to fill up certain information

gaps about financial goods. In addition, there is relatively little study on how

investment problems impact investment intentions in the long run and to what extent.

Frameworks from Consumer Behaviour or Psychology like the TPB have not been

utilized to study these phenomena. Consumer perceptions and the consequent

behaviour are vital to the understanding of the purchase and consumption of a variety

of consumer products. Marketing literature is replete with examples dealing with

consumer products and services like Airlines, Banking and the like. There is a paucity

of literature on investment products from a marketer’s perspective. There are no

published studies which have linked the consumer’s perception of the regulator and

financial wellbeing to stock market participation. This research will help in extending

theories in Consumer Behaviour and Marketing of Financial Services.

CHAPTER 3 RESEARCH METHODS

3.1 APPROACH

In the preceding chapters the objectives of the research were outlined and a review of

existing literature was presented. Key constructs were identified based on past

conceptual and empirical research and the qualitative research specifically conducted

as part of this research project. A model was conceptualized and hypotheses were

proposed to examine the relationships between the various constructs. The study's

instrument was created by modifying already-existing measuring scales and by

developing new scales where necessary.

69
Methods for this study include a combination of qualitative and quantitative

approaches to ensure the broadest and deepest knowledge possible, as well as the

ability to corroborate findings (R. B. Johnson, Onwuegbuzie, & Turner, 2007).

Key constructs were identified and a conceptual model was developed using both

investor and expert interviews as part of an exploratory sequential strategy. The

study's survey instrument was created, and then the quantitative phase began in order

to gather the study's initial set of data. This data was utilised to test the study's

hypotheses experimentally and to determine the correlations between the constructs

discovered during the research.

3.2 CONTEXT OF THE STUDY

3.2.1 MIDDLE CLASS

Rama Bijapurkar (2013) in her book “A never-before world” mentions that there is

considerable confusion over what or who comprise(s) the so called Indian Middle

Class. According to her by most of the standard definitions of the middle class, only a

small portion of the top of the Indian income ladder gets classified as “middle class”.

Bijapurkar actually suggests using the term consumer class rather than middle class to

what is traditionally conceptualised as middle class. This is also the position of the

Using the NCAER data, NCAER users commonly use the words "middle class,"

"consumption class," and "middle-income families" interchangeably.

70
NCAER (2005) defines the middle class as families earning between Rs 2 and 10

lakhs per year in 2001-02 pricing, as stated in "The Great Indian Middle Class."

When it comes to defining a "middle class," the World Bank has a significantly

smaller range than the NCAER definition (US$4,000 to US$21,000 at 2001–02

prices), which McKinsey Global Institute utilised in its research "The Bird of Gold"

(2007).

Consequent to the presence of multiple definitions of the middle class, the strength of

the Indian middle class has attracted a lot of debate. This figure according to both

Indian and foreign media has traditionally ranged from 200 million to 600 million. As

per the NCAER definition, this figure is nearly 30 million households. Most of the

Indian middle class lives in the cities.

Gupta et al. (2008) in their study of household investing studied middle and upper

classes stating that for a survey of investment options it was meaningful to cover

households who had the voluntary savings to invest. For our research we set the

minimum income at ` 300,000 instead of ` 200,000 taking into account a modest rate

of inflation. The upper limit for household income is kept a little flexible to allow for

more variance in data and also to study effects with increasing income.

3.2.2 RETAIL INVESTORS

There are different definitions of the retail investor. One of the most widespread

misconceptions is that a person who buys stocks for his or her own account rather

71
than on behalf of a business is a stockbroker. Institutional investors, such as mutual

funds, pension plans, and university endowments, often trade in far larger sums than

retail investors. By this definition even High Net Worth individuals should be retail

investors. SEBI defines retail investors as those individuals who invest below a

certain amount for purchase of stipulated securities. The maximum amount has been

increased from ` 100,000 to ` 200,000 recently. For the purposes of this study, the

broad definition of individual investors is applied for retail investors.

3.2.3 CHOICE OF URBAN CENTRES

After much consideration, the cities selected for data gathering were finally decided

upon. As part of the overall goal, it was important to ensure equal representation

throughout metropolitan areas while also considering the limitations imposed by data

collecting.

It was decided to limit the collection to only four locations in India due to lack of

funds and infrastructure. In order to maintain an equitable distribution of cities across

the country, one city from each of the four zones was selected.

If penetration of Mutual Funds can be taken as a proxy for all investments into

financial products, the top 15 cities contribute nearly 85% of the retail corpus. The

two largest contributors to any business in India were the two cities of India – the

National Capital and the Commercial Capital. Delhi and Mumbai were thus chosen

72
for this reason and the fact that one city was fairly representative of north India and

other of western India. The equity culture is pretty well established in these cities

with the presence of stock exchanges. However, both cities have different cultures in

terms of savings and consumption habits.

Having chosen these cities, there was a requirement to pick a city from Southern

India and one from Eastern India. The RK Swamy BBDO Guide to Urban Markets

for 2012-13[4] was consulted for this purpose. The RK Swamy BBDO Guide draws

from a variety of sources to rank purchasing power potential of 784 towns with

population of over 50000 across India.

The RK Swamy BBDO Guide defines two measures – the Market Potential. The

Market Potential Value (MPV) and the Market Intensity Index (MII) are both

indicators of the quality and wealth of consumers and markets, respectively. To

summarise, the MPV indicates the amount of business, whereas the MII shows the

level of market quality.

There were three broad categories of urban areas mentioned in the guide. The first

one was defined as comprising those towns with MPV exceeding 50 and MII

exceeding 120 – Mumbai and Delhi belonged to this category. The second category

was those towns where MPV was greater than 50 but MII was between 100 and 120 –

Coimbatore is a city in South India which fulfilled this criteria. The third category

was those towns where MPV was less than 50 and MII was less than 100 – Ranchi a

city in the Eastern part of India fulfilled this criteria.

73
Thus, the final mix of cities chosen to conduct the data collection for the quantitative

phase of this research consisted of the two largest and arguably diverse cities

belonging to the North and Western parts of India, a mid to large sized city in South

India and mid-sized city in East India.

4.4 QUALITATIVE DATA COLLECTION

To test hypotheses in conventional research, which is generally referred to as

quantitative research, one must use the qualitative technique (Auerbach & Silverstein,

2003).

To put it simply, Bogdan and Biklen (1998) describe qualitative data analysis in terms

of working with data, putting things together in a way that's understandable to a

non-expert, finding patterns, and determining what you'll tell people. Rather of

drawing conclusions from the data, qualitative researchers tend to rely on data

analysis that is inductive in nature (Patton, 1990).

4.4.1 OBJECTIVES OF THE QUALITATIVE RESEARCH

Interviews with specialists and academics in the fields of Finance, Economics, and

Marketing were conducted during the qualitative phase. In-depth interviews with

investors were also used to round out the research.

The goal of the investor interviews was to gain a first-hand look at what it's like to be

a retail investor. For the researcher, this was an opportunity to better understand the

challenges encountered by investors, particularly those in the Indian market.

The objective of the interviews of experts was to garner as many different

perspectives as possible. The other objectives included understanding the challenges

74
faced by finance professionals when dealing with retail customers, their marketing

and selling practices and other consumer insights that they would have collected. The

interviews with academic experts were expected to yield insights from their research

and also specifically their views on the proposed research model and research

methodology.

4.4.2 DATA COLLECTION

Qualitative data in the form of interview transcriptions was collected from two broad

sets of respondents. The first set comprised investors and non-investors (referred

collectively as respondents) belonging to the respondent profile. Experts comprised

the other sets of interviewees.

The interviews for both the respondents and experts were conducted over a period of

six months. Interviews were conducted either in person or over phone. Taping of

interviews which is a standard practice in qualitative research was attempted initially.

However, several interviewees objected to the same. This was attributed to the

sensitive nature of information (financial information) being disclosed during the

interviews. After a few interviews where interviewees were requested and declines

for taping were received it was decided to not pose the question of taping interviews

at all. This was done to ensure that there was no unpleasantness or discomfort at the

beginning of the interview process since building rapport was crucial to the process.

Thus, interview notes had to be transcribed from memory and notes made during the

interview process. To the extent possible, transcriptions were made right after the

interview or within a few hours of each interview.

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 4.4.3 PREPARATION FOR THE RESPONDENT INTERVIEWS

Investors were contacted for a short pilot survey which sought their demographic

details and asset allocations. In an effort to gather as many viewpoints as possible.

and since interviews could be conducted telephonically it was decided to get

respondents from a larger number of cities and towns. Finally, it was possible to get

interviews done across respondents from 16 cities. The respondents were chosen from

a list of references generated by the researcher and students of the researcher. This list

had basic demographic details that were used to make a shortlist. Out of an initial list

of 200, a shortlist of 80 based on respondent profile was created. The criteria used for

selection at this stage were based on having as widely distributed a sample as possible

in terms of education, occupation and age. This was based on the principle of

maximal variation sampling. There are a variety of characteristics that may be used to

maximise differences, including colour, gender, degree of education, or any other

aspect that differentiates participants. (Creswell and Clark, 2007, p. 122)

The pilot survey was administered to these investors. This provided their asset

allocation which was then used to arrive at a list of 55 possible respondents who were

then contacted for scheduling interviews. 42 respondents agreed for the interviews.

Data saturation was reached by the 23rd interview and it was decided to complete 30

interviews to ensure that no new information or perspective was missed out on.

4.4.4 PROFILE OF RESPONDENTS

Non-equity product investors comprised 12 of the 30 participants in the survey. The

rest of the group had varied degrees of equity product investment. Average

investment level amongst the investors was 23%. The lowest was a 10% level of

76
investment while the highest was 35%. Details of the respondents are given in

Appendix 2.

4.4.5 PROCEDURE FOR RESPONDENT INTERVIEWS

They were conducted in a semi-structured manner. In a semi-structured interview,

there may or may not be adherence to pre-formulated questions. During the

discussion, new questions may arise (Flick, 2010; Myers, 2008).

By this stage in the research the researcher had conducted extensive secondary

research and had already formulated a few hypotheses regarding the factors affecting

stock market participation. This was used to prepare the first draft of an interview

guide. To ensure that no biases affected the interview process, the guide had open

questions regarding the subject matter. The interview usually opened with simple

questions regarding details of the respondent and some introductions to put the

respondent at ease. The open questions were asked immediately thereafter. Once the

open questions were done with, the theorydriven, hypotheses-directed questions were

asked.

This was first tested with a few pilot respondents. Based on their responses the guide

was modified. The modified guide was also read by a panel of academic experts in

the fields of finance, economics, marketing and research. Certain changes were

suggested at this stage and were incorporated into the guide. The advice from most

experts was to allow for certain modifications during the interview rather than strictly

adhere to the set of questions. This initial and final interview guides are provided in

Appendix 3. Face-to-face interviews were performed in Mumbai, while phone

interviews were undertaken in the other places.

77
As mentioned earlier it was decided not to tape the interviews due to the sensitivity of

the topic. The interviews were transcribed from memory and notes made by the

researcher during the interview process. The transcriptions were then organised and

coded. The procedure of open coding was followed. In open coding, data is broken

down and examined, compared, conceptualised, and categorised (Strauss & Corbin,

1990, p. 61). The term "process for producing categories of information" was coined

by Creswell These "salient categories of information" were found by reading and

studying each piece of literature. As a result of interviewing, these ideas, thoughts,

and assertions arose from the research questions and other ideas that surfaced. In

order to exhaust the topics, the researcher collected and analysed data repeatedly.

"Looking for cases that reflect the category and to continue looking...until fresh

information collected does not further give insight into the category" was the method

used here (Strauss & Corbin, 1990, p. 150).

4.4.6 PREPARATION FOR THE EXPERT INTERVIEWS

The expert interview is a type of semi-structured interview that is used to interview

experts (Meuser & Nagel, 2009). According to Bogner and Menz (2009) experts

have technical process oriented, accessible specialist knowledge and practical

knowledge in large parts. For the purposes of this study it was decided to choose

experts who would have knowledge about the Financial Services market especially

the investments and savings market. This would qualify those executives who work in

banks, mutual funds, brokerage houses, insurance companies, distributor companies,

individual financial advisers, regulatory agencies, industry associations amongst

others. An initial list of experts was drawn up based on discussions with the TAC.

Again, the goal was to gather as many various points of view as possible. Product

experts were important since they created products based on consumer insights. Sales

78
 personnel were also essential since they dealt with retail customers on a regular basis.

Regulators and policy makers also may have access to data which enabled them to

formulate rules and regulations and policy. Table 4-1 shows the profiles of experts

and the numbers targeted along with the rationale for their selection.

Anticipating that there would be considerable time pressures on experts it was

decided to keep the interview guide short and specific. In cases where more time was

available with the expert, an expanded interview guide could be used.

Ten expert interviews were conducted before commencing the investor interviews.

This was to ensure that the investor interviews could be tailored based on inputs

received from experts. The other 21 interviews were conducted after completion of all

the 30 investor interviews. Thus, in these expert interviews, discussions could be held

based on the preliminary findings of the investor interviews.

Profile Nos. Reasons Nos.

targeted Achieved

Fund/Portfolio 4 Due to the fact that Fund 3

Managers Managers also interacted with

consumers, they were able to

better grasp the demands of

those customers and other

insights.

MF/Broker Sales 5 To learn more about consumer 6

Heads reluctance and sales methods.

Financial Advisors 5 To get a better understanding of 6

how financial advisors and

distributors approach marketing

to retail consumers and the

79
 investment decisions they

make.

Professionals in 8 Principles of product design, 9

Financial Services customer outreach and

firms like banks, marketing strategies, consumer

Mutual Funds, research findings, and the

NBFCs, Distributors, reasons for customer reluctance.

Brokerage houses,

Insurance Companies

Finance, Economics 5 In order to learn from their 5

and Marketing study and get any new insights

Faculty into the conceptual model and

research procedure.

Profile Nos. Reasons Nos.

targeted Achieved

Persons working with 2 To have a better understanding 2

regulators or in policy of the macroeconomic concerns

making positions and any possible solutions for

retail investors.

Table 4-1: Rationale and numbers of experts

4.4.7 PROFILE OF EXPERTS

There were 31 experts with whom interviews could be held. Details of the experts are

given in Appendix 2. In many cases, interviews could not be taped due to

confidentiality reasons and to elicit frank and forthright views. Interviews were

transcribed from memory and notes made by the researcher. Interview lengths varied

based on availability of time of the experts. Only three fund managers were met

despite having an initial target of four because of difficulties in getting appointments.

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 4.4.8 PROCEDURE FOR EXPERT INTERVIEWS

Similar to the investor interviews the interviews were semi-structured in nature. The

process of commencing the interview with open questions was continued to make

sure that there were no biases introduced in the interview. This was necessary to make

sure that a substantial universe of opinions was collected.

Like it was done for the investor interviews, the interview guide was pretested and

subsequently modified based on feedback. The initial and final interview guides are

provided in Appendix 3. The expert interviews were conducted across Mumbai and

Bangalore and were conducted face to face.

4.7 QUANTITATIVE RESEARCH

The theoretical constructs' domains were reliably captured using a typical survey

design (DeVellis, 1991). In this study, the primary data was gathered using a survey.

When a question is posed or a problem is observed and a need is determined or an

objective has been established and met, survey research is used to answer the

question, determine if the objective has been met, establish a baseline against which

future comparisons can be made and analyse trends over time (Isaac & Michael,

1997).

Survey research has three distinct qualities, according to Kraemer (1991). As a first

step, survey research may be used to quantify the characteristics of a certain

community. These factors typically need a look at the connections between variables.

Second, because the information needed for survey research is gathered from

individuals, it is inherently prone to human bias. It's important to note, however, that

81
survey research employs only a small sample of people from whom results might be

extrapolated.

Only respondents who provided complete replies were considered for inclusion in the

study's analysis. Hair, Anderson, Tatham, and Black (1998) used 506 respondents as

an useable sample for their research, which was suitable for Structural Equation

Modeling (Jöreskog & Sörbom, 1989; Kelloway, 1998).

4.7.1 DATA COLLECTION AND SAMPLING METHOD

Structured questionnaires were used to obtain primary data for the investigation.

Possible respondents were initially met at malls, offices, entertainment centres and a

short screening questionnaire was administered to ascertain whether they belonged to

the required respondent profile. Individuals with an annual income of more than three

million rupees (about $17,500) were regarded as typical respondents. Post screening,

an appointment was set at a place convenient for the respondent. Through a

one-on-one encounter, questionnaires were distributed. Everyone who took part in

this research did so voluntarily. Screener questionnaires were sent to over 1650

potential responders. More than 1300 were given out. It was determined that over 900

of the people who applied were qualified. In the end, 605 surveys were taken. After

removing outliers and incomplete replies, the final sample size was reduced to 506

individuals.

4.7.2 SAMPLE FRAME

Individuals with an annual income of more than three million rupees (about $17,500)

were regarded as typical respondents. Equity-linked products may or may not have

been a part of their investment strategy.

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 4.7.3 SAMPLE SIZE

The size of a study's sample is a critical component in determining the validity of its

findings. According to the research proposal, this study's sample size (N=506) is

larger than that which was accepted (N=500).

For Multivariate Analysis, this sample size surpasses the minimal criteria for the

analysis (Hinkin, 1995). It is suggested that a sample size of 150 be used for

Exploratory Factor Analysis and a minimum of 200 for Confirmatory Factor

Analysis, according to Hinkin (1995). For SEM analysis, a sample size of at least 200

(n> 200) should be used (Fan, Thompson, & Wang, 1999).

The sample-to-parameter ratio should be more than 5:1, according to Bentler and

Chou (1987). Rummel (1970) recommends an item-to-response ratios of 1:4. All the

above requirements are met with a sample size of 506.

4.8 MODELS AND METHODS

Individual investors are the focus of this study since it is based on the investor's point

of view, while household-level data on savings and income is sought. Preliminary

data analysis was used to detect the outliers before testing the model (Hair et al.

2010). Both Exploratory Factor Analysis, which is used to identify tentative

dimensions of a scale and identify which items should be omitted from the scale, and

Confirmatory Factor Analysis, which can be used to establish construct validity to

test hypotheses, are recommended by Flynn et al. (1990) as ways of establishing

construct validity: The study's moderating variable was tested using Invariance

Analysis.

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 4.8.1 EXPLORATORY FACTOR ANALYSIS

The survey data was subjected to Exploratory Factor Analysis (EFA) in SPSS 17 in

order to fine-tune the measurement model. There were several things that were

reduced by the EFA to an easier-to-manage and more realistic quantity (Gerbing &

Anderson, 1988). In order to do more research, items with low factor loadings and an

unclear factor structure associated with certain dimensions were removed (L. A.

Clark & Watson, 1995). Items having a factor loading of 0.5 or more were kept in the

final analysis. As stated by Hinkin (1995), the elimination of items with poor

correlations to other items on a scale can be achieved by using EFA.

4.8.2 CONFIRMATORY FACTOR ANALYSIS

Measurement theories are tested using Confirmatory Factor Analysis (CFA).

Predetermined factors and variables are used in CFA, therefore there is no room for

error. CFA was performed on all the latent constructs to ensure that the final

measurement model was reliable and valid.

4.8.3 STRUCTURAL EQUATION MODELLING

Using Structural Equation Modelling (SEM), the assumptions were evaluated by

determining the linear structural links between latent variables (Kline, 2011). To test

hypotheses while simultaneously assessing the structural relationships among

variables, SEM looked to be the finest statistical approach currently available

(Nidumolu, 1995). (Kline, 2011).

The statistical tool AMOS 20 was used to conduct the SEM.

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 4.8.4 INVARIANCE ANALYSIS

Invariance analysis is used to determine the effects of demographic and

socioeconomic variables in the research framework. A cluster analysis was done

based on four variables. Two distinct clusters of 151 and 355 respondents each were

created. This is described in detail in the next chapter.

4.8.4.1 CONFIGURAL INVARIANCE

An important initial step in establishing measurement invariance is establishing

configurational invariance, which is achieved if participants from various groupings

conceptualise the same notions in the same way, regardless of their location.

Individual CFAs can be conducted in each group to test for configurational

invariance. MGCFA is still important, even if the model fits well in each group,

because it serves as the comparison benchmark for the future tests. Factorial structure

is standardised across groups in order to evaluate the model.

4.8.4.2 METRIC INVARIANCE

Metric invariance examines whether the strength of the relationships between specific

scale items and their respective underlying constructs are the same across groups

when it comes to how various groups respond to the items. It is possible to compare

ratings between groups if there is metric invariance, and this comparison will reveal if

there are variations in the latent construct between groups. Several studies have

proposed that at least partial metric invariance must be proven before moving on to

the next step in the testing process (Vandenberg & Lance, 2000). All factor loadings

are required to be the same across groups in order to test this model.

4.8.4.3 STRUCTURAL INVARIANCE

85
Prior to evaluating any additional invariance model, Vandenberg & Lance (2000)

propose that configural invariance and partial metric invariance must be proven. A

multi-group study of the suggested theoretical model was conducted when the

primary impacts of the proposed theoretical model were determined to be sufficiently

substantiated. The structural invariance of the model was tested by doing a

multi-group analysis of the two groups of respondents, assessing the structural

relationships invariance. For comparison, the fit indices of CMIN/DF, RMSEA, and

CFI were presented for the structural model invariance.

4.9 SUMMARY

The study's research technique was examined in this chapter. Also highlighted was

how to design and evaluate tools, as well as how to pick relevant statistical techniques

for data analysis and hypothesis testing in light of the study's research aims as well as

the dataset's unique characteristics.

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CHAPTER 5 DATA ANALYSIS &

FINDINGS

___________________________________________________

5.3 QUANTITATIVE DATA ANALYSIS

The collection of data was described in the last chapter. As mentioned, the survey

resulted in 506 usable responses. This was arrived at after removing sample outliers

and incomplete responses. Measurement models, structural models, and groups based

on moderating factors were all derived from this sample.

5.3.1 RESPONDENT CHARACTERISTICS

The study's participants were 506 middle-class retail investors from metropolitan

areas. Most of the replies (500 men, 6 women) were men since the person being

sought was a financial decision maker. Respondents to this survey include any and all

potential retail investors, whether or not they have invested in the stock market

(directly or indirectly). The chosen respondent profile included people who were

decision makers in their respective households with regard to investing.

Age, gender, education, employment, and income were some of the demographics of

the responders (Appendix 4).

5.3.1.1 AGE

Respondents in the sample ranged in age from 30 to 65 years old. Nearly 39 percent

of respondents were between the ages of 40 and 49, while 36 percent were between

87
the ages of 30 and 39. Over a quarter of the sample was made up of those 50 and

older.

5.3.1.2 GENDER

The respondents were predominantly male (99%) since the decision makers in the

family were chosen to respond to the questionnaire.

5.3.1.3 HIGHEST EDUCATION LEVEL

Most respondents had attended college (nearly 92%) with graduates being the largest

(44%). There was almost an equal proportion of post graduates (22%) and

respondents who had attended college but did not graduate (26%).

5.3.1.4 OCCUPATION

In terms of occupation, the respondents were predominantly salaried (54%) followed by

business persons (41%) and the remaining were self employed professionals.

5.3.1.5 INCOME

The largest number of respondents was in the income range of ` 0.6 to ` 1 million per

annum (59%).

5.3.1.6 FINANCIAL ADVISORY SUPPORT

27% (135) of the respondents did not have access to an intermediary to assist them in

their investments. 48% of the respondents were using their banks as intermediaries

while 22% had access to financial advisors. Interestingly, 5% (24) of the respondents

had access to both a bank and a financial adviser.

5.3.1.7 STOCK MARKET PARTICIPATION

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21% (187) of the respondents did not have any allocation to equity in their savings.

55% (492) of the respondents had allocations less than or equal to 10%.

5.3.2 DEMOGRAPHIC AND SOCIO-ECONOMIC VARIABLES AS

MODERATORS

Though several demographic and socio-economic variables were collected for the

respondents, there was an acceptable distribution between various categories of only

the following variables and these were thus considered for further analysis.

a) Age

b) Income

c) Education

d) Occupation

While it may be possible to study the moderating effect of each of the above variables

on the model, it was felt that studying clusters would be far more instructive. This

would enable the formation of sub-groups based on multiple factors and test the

model on these sub-groups.

A cluster analysis was performed on the data based on the above four variables and

two distinct clusters emerged. While there was a clear difference in age between the

two groups, the differences in education and income were subtle. However the

clusters had equal distribution of respondents of different occupations. The

differences between the two groups are summarised in Table 5-5.

Age Average Income Education Cluster Name

(in INR Millions)

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Cluster 1 48-65 1.414 87.4% college and “Older Affluents”

above
N=151

Cluster 2 30-47 1.142 93.8% college and “Younger

above Educateds”
N=355

Table 5-5: Demographic and Socio-economic clusters

5.3.3 COMMON METHOD VARIANCE

Since the data for the quantitative phase of the data largely came through a single

survey instrument, albeit administered personally and over internet, there was a

possibility for common method variance (Podsakoff, MacKenzie, Lee, & Podsakoff,

2003). According to the findings of the unrotated factor solution for the Harmon one

factor test (Podsakoff & Organ, 1986), the extracted factor explained only 30.76% of

the variance (50%). Our analysis thus did not indicate a single-factor structure and it

can be suggested that common method variance did not affect the significance of the

relationships.

5.3.4 DATA PURIFICATION

Outliers were identified using Hair et al(2010) .'s univariate technique. There were no

notable outliers in the data, according to the findings. In Little's (1988) test for

missing data occurring fully at random, data was found to be completely absent. To

avoid include questionnaires that had more than 10% missing data, we followed

Newman (2003) and used maximum likelihood (ML) estimate to impute the

remaining missing values. Linearity, multivariate normality, heteroscedastic,

multi-collinearity, and autocorrelation were examined to see if they were consistent

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with multivariate regression analysis assumptions. There were no major discrepancies

from these predictions in the data.

5.3.14 MODERATING EFFECT OF DEMOGRAPHIC AND

SOCIO-ECONOMIC VARIABLES

Prior to evaluating any additional invariance model, Vandenberg & Lance (2000) propose

that configural invariance and partial metric invariance must be proven. It was determined

that the proposed theoretical model's primary impacts were well-supported in the preceding

portion of this article. In order to acquire more information, the model is subjected to a

multi-group analysis.

As part of the multi-group study, structural invariance of the model was tested across these

two groups and the structural linkages were tested for invariance.

Table 5-35 shows the results of the structural model invariance test. CMIN/ DF, RMSEA,

and CFI are listed for comparison.

MODEL CMIN DF P CMIN/DF RMSEA CFI RESULT

GROUP 1 451.958 170 0 2.659 0.105 0.871

GROUP 2 672.658 170 0 3.957 0.091 0.906

UNCONSTRAINED

MODEL 1125.065 340 0 3.309 0.068 0.896

METRIC

INVARIANCE 1150.141 354 0 3.249 0.067 0.894 Accepted

STRUCTURAL

WEIGHTS 1170.508 363 0 3.225 0.066 0.893 Accepted

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 Table 5-35: Goodness-of-fit Statistics for Tests of Invariance for Demographic and Socio-economic clusters on the

Structural Model

From the invariance analysis, the study concludes that the structural model was invariant.

Using invariance testing on the structural connections, 5 hypotheses are supported and 4 are

not supported, according to the findings. The outcomes of the multi-group hypothesis are

reported in the following table. At a relationship level the following are the results of the

hypothesis testing:

Attitude to Investment Behaviour has a negative effect on Investment

Intention (H7). Objective Financial Literacy has a positive effect on

Investment Intention (H9a). This relationship is significant in case of the “Younger

Educateds” and not in the “Older Affluents”. Financial Wellbeing has a negative effect on

Investment Intention (H9b). This relationship is significant in case of the “Younger

Educateds” and not in the “Older Affluents”. Subjective Financial Literacy has a positive

effect on Investment

Intention (H9c). Investment Intention has a positive effect on Equity Holding (H10). This

relationship is significant in case of the “Younger Educateds” and not in the “Older

Affluents”. Objective Financial Literacy has a positive effect on Equity Holding (H11a). This

relationship is significant in case of the “Older Affluents” and not in the “Younger

Educateds”. Financial Wellbeing has a positive effect on Equity Holding (H11b). This

relationship is significant in case of the “Older Affluents” and not in the “Younger

Educateds”. Subjective Financial Literacy has a positive effect on Equity Holding (H11c).

This relationship is significant in case of the “Older Affluents” and not in the “Younger

Educateds”. Perceived Investment of Significant Others has a negative effect on Attitude to

Investment Behaviour (H12).

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At a structural level, four hypotheses are not supported which means that the structural model

is not invariant only in case of four relationships.

93
94
5.4 SUMMARY

The data analysis results reveal that out of the six variables considered

(Performance Perception, Risk Avoidance, Hassle Factor, Perceived Investments of

Significant Others, Financial Wellbeing and Financial

Advisory Support) only four variables (Risk Avoidance, Hassle Factor, Perceived

Investments of Significant Others and Financial Wellbeing) were found robust after the

assessment at a measurement level. These along with the indices for Objective Financial

Literacy and Perception of Regulator and the single item construct of Subjective Financial

Literacy were taken further for analysis at a structural level. From the nine structural

hypotheses proposed seven were fully supported. The results of the invariance analysis

suggested that from the nine hypotheses for moderating effect of the demographic and

socio-economic clusters, five hypotheses found support. Therefore, at an overall level the

data collected in the study using survey methodology provided robust support for the

proposed research model.

CHAPTER 6 DISCUSSION
___________________________________________________

6.1 CHAPTER OVERVIEW

With the help of previous studies, the results of the current study may be compared to those

from the past. The chapter is divided into six sections: an introduction; a brief description of

the most important findings; and , discussion of the results in detail which includes the

results of testing of the finalised overall structural model of the study; followed by the

discussion of the results in detail of the testing of the moderator variable; finalisation of the

conceptual model and concludes with a summary of the chapter.

The conceptual model of the study was based on two major theories – the Theory of Planned

Behaviour and the Consumer Socialization theory. It used empirical and theoretical correlates

of stock market participation that emerged from the extensive literature review and the

qualitative research. The chapter reviews the hypotheses and provides the logic based on the

empirical research for support or rejection of the hypotheses. It also presents the results from

past studies pertaining to the relevant areas.

6.2 KEY FINDINGS

The study's goal was to identify the most important elements impacting stock market

involvement using a comprehensive model. . The proposed model was empirically

investigated in a sample of middle class, urban, retail investors through 18 hypotheses (9 for

96
the main effects and 9 for the moderating effects). In order to examine these relationships and

evaluate the model fit between all the above structures concurrently, the SEM approach was

applied. In this investigation, the proposed overall structural model had satisfactory fit

indices.

In the context of equity-linked products, it was discovered that Investment Intention was a

strong predictor of Equity Holding. Financial Well-being, Objective Financial Literacy, and

Subjective Financial Literacy all predicted Investment Intention, which in turn was predicted

by Attitude to Investment Behaviour, and factors relating to Perceived Behavioural Control.

Financial Wellbeing and Objective Financial Literacy directly impacted behaviour as

measured by Equity Holding as well.

ATIB evolved as a multi-dimensional variable during the research and testing process.

Negatively impacting Intention was the result. This means that ATIB had the effect of

making people less likely to invest their money in the stock market, or serving as a

disincentive to do so. In the ATIB, risk avoidance, the perception of the regulator, and the

hassle factor were all included. Perception of Regulator was giving the positive effect,

therefore reducing the impact of Risk Avoidance and Hassle Factor, which combined resulted

to a negative attitude.

Financial Wellbeing had a negative correlation with Intention, but a positive correlation with

Equity Holding.

Perceived Investments of Substantial Others, a measure of Subjective Norm, had a

significant impact on ATIB. An additional benefit of this is that it reduces the unfavourable

impact of the anti-inflammatory drug (ATIB).

The results of the analysis of moderating effects revealed a few differences in relationships

between the variables depending on which demographic cluster was considered. Some of the

relationships are significant only in case of the “Younger Educateds” cluster. Objective

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financial literacy has been shown to have a negative correlation with intention, whereas the

opposite is true for financial well-being. "Older Affluents" were also shown to have a

substantial correlation between equity holding and subjective financial literacy.

6.3 DISCUSSION OF RESULTS

AMOS 20 was used to run the structural model through its paces on all of the study's data.

The model as a whole was a good match for the data in this study. .

Table 6-1 summarises the results of the specific hypotheses tested in the study, which are

discussed in this section.

Hypothesis Relationships Result

No.

H1 Attitude to Investment Intention S

Behaviour
🡪

H3a Objective Financial 🡪 Intention S

Literacy

H3b Financial Well being 🡪 Intention NS

H3c Subjective Financial 🡪 Intention S

Literacy

H4 Intention 🡪 Equity holding S

H5a Objective Financial 🡪 Equity holding S

Literacy

H5b Financial Well being 🡪 Equity holding S

H5c Subjective Financial 🡪 Equity holding NS

Literacy

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 H6 Perceived Investments of 🡪 Attitude to S

Significant Others Investment

Behaviour

S- Supported; NS- Not Supported

Table 6-1: Summary of Findings based on Hypotheses

This hypothesis was also fully supported by the model. Attitude to Investment Behaviour

(ATIB) which emerged as a robust second order latent construct has three dimensions and is

measured by Regulatory Perception and Risk Avoidance. Intention suffers greatly as a result

of ATIB. Standardized coefficients, according to Hair and colleagues (2014, p. 563), are an

indicator of how important a variable is to a specific concept. This has been often employed

in literature as well (e.g. Farooq, Payaud, Merunka, & Valette-Florence, 2013). Second only

to Financial Well-Being, the ATIB variable has the most significant influence on Intention,

according to Table 6-2.

Hypothesis Relationships Standardised

No. Estimate

H1 Attitude to Investment Intention -0.324

Behaviour

H3a Objective Financial Literacy Intention 0.157

H3b Financial Wellbeing Intention -0.469

H3c Subjective Financial Literacy Intention 0.118

Table 6-2: Predictors of Investment Intention

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 Table 6-3 provides the statistics of the construct Attitude to Investment Behaviour as gleaned

from the model. As can be seen, It's risk avoidance that ATIB affects the most, followed by

hassle factor and perception of regulatory authority, all in that order.

Standardised Factor Construct

S.E. a C.R. a AVEb
Estimates Loadings Reliabilityc

Attitude to

Investment

Behaviour

Risk Avoidance 0.877 1

Hassle Factor 0.797 0.691 0.062 11.185

Perception of
-0.641 -0.898 0.066 -13.614 0.67 0.55
Regulator

Notes: a. The first λ path for FWB 1 was set to 1; therefore, no SEs or C.R.-values are provided.

b. (ΣStd. Loadings2) /n

c. Σ(Std. Loadings )2 /(ΣStd. Loadings2) + Σεj

Table 6-3: Statistics for Attitude to Investment Behaviour from final model

Risk avoidance was defined as a way of life or a consistent inclination to stay away from

danger (Douglas & Wildavsky, 1982). This conclusion is in line with previous research

showing that a rise in Risk Avoidance reduces the amount of money invested in equities

products. Individuals with higher risk tolerance and lower risk avoidance, as per Xiao (2008),

are more likely to invest aggressively.

Loss aversion theory has shown that loss-averse households would either not engage in stock

markets or will allocate much less of their wealth to equities compared to families with

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conventional preferences (e.g. Barberis & Huang, 2001; Benartzi & Thaler, 1995). Moreover,

our findings are in line with Modern Portfolio Theory, which asserts that the risk avoidance

score and the percentage of respondents' portfolios comprised of risky assets such as stock

are inextricably linked This is reflected in studies done by Grable (2003) and Yook and

Everett (2003) in the US, Guiso and Paiella (2008) in Italy, Dimmock, and Kouwenberg

(2010) in the Netherlands and Lim et al. (2013) in Singapore. The Risk Avoidance measure

used in this study is very similar to the Risk Control measure used by Lampenius and Zickar

(2005) where it was found that with increase in the Risk Control, allocation to risky

investments like equity reduced. This was also found to be true in an Indian study which has

used the Risk Control measure. Respondents who scored lower on the Risk Control measure

were more likely to show preference to invest in equity (Sahi, Dhameja, & Arora, 2012).

Using the VSB[5] panel data in the Netherlands Warneryd (1996) found that though a risky

attitude explained that a household had tried investing in more risky assets but the proportion

or quantum of risky investment was less explained. Since our study uses a measure of

proportion of portfolio, the results are a little more definitive.

Hassle Factor has emerged as an important dimension of Attitude to Investment Behaviour.

Interpreting this result one might say that investors who have a negative attitude towards

investing in the equity markets may find procedures cumbersome. New construct Hassle

Factor was designed in light of the many challenges experienced by Indian investors and

would be applicable to many other emerging economies. It's not just in developing countries

that non-monetary fixed costs like time spent in marketing meetings or the mental effort

required to fully comprehend a product are a factor. have been studied. Guiso and Jappelli

(2006) find that quality of information is significant in investors being confident enough to

invest in the stock markets. Procuring quality information is however challenging for a retail

investor as mentioned earlier. In our research though Hassle Factor was initially

conceptualised to comprise six dimensions including documentation, procedural complexity,

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expenses, time, acquisition of knowledge and finding somebody to help, the final measure

had only three retained items. These were related to procedural complexity, expenses and

time. These were found to be acting as deterrents to investments. This is an important finding

since it can help in devising interventions to address these issues.

Investment Behaviour Attitude has a detrimental impact on the perception of regulators

dimension. This is an important discovery because it suggests that a favourable view of the

regulator may help temper investors' attitudes about investment behaviour. Research on the

influence of regulators on retail investors' attitudes and equity involvement is scarce. This is

consistent with La Porta et al. (1998), who showed that the concentration of ownership in the

largest public corporations had a detrimental impact on investor protection. Additionally, this

supports the findings of Khorana et al. (2005), who found that nations with more stringent

rules, laws, and regulations had a greater business for mutual funds. Regulators' Perception in

many respects are synonymous with "system trust" for retail investors, emphasising that it is

related to the consumer's opinion of formalised regulation of a certain activity system

(Grayson et al., 2008). "System trust," also known as "wide scope trust," is vital for the

financial markets to attract more investors and for financial service providers to be able to

deliver services successfully and efficiently (Hansen, 2012). Perception of Regulator has a

negative association with Attitude to Investment Behaviour, which has a negative impact on

Investment Intention. This study confirms that As a result, risk aversion and inconveniences

are lessened when people have a favourable view of the regulator.

According to Hansen (2012) in a system with low broad scope trust, financial service

providers will have to spend more on outreach to customers and customer service. This will

increase the costs of operation for all service providers. Thus smaller and more innovative

financial institutions (FIs) may be crowded out of the market leading to a situation where

only large FIs will survive. This could lead to complacency and typical oligopolistic

behaviour where there could be implicit price fixing mechanisms. This will further dissuade

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retail investors from accessing the market. There is thus a clear tradeoff, spend resources in

improving enforcement and enhancing “broad scope trust” or let the investors and economy

foot the bill.

6.3.2 INTENTION AND BEHAVIOUR

This hypothesis was fully supported in the model. Equity Holding is found to be strongly and

positively linked to intention. Nearly 58% of the variation in Intention can be explained by

the model, whereas only 9% of the variation in Equity Holding can be explained by the

model (or actual behaviour of investing in equity products). The Theory of Planned

Behaviour holds that intention is a reliable predictor of actions (Ajzen, 1991). This supports

the findings of East (1993), who utilised the TPB to explain investors' behaviour in a similar

way.

People who have a strong desire to invest in equities goods may be more likely to do so,

according to this empirical hypothesis. ATIB's influence on Intention and other variables that

affect Intention (as explained below) become much more critical.

6.3.3 OBJECTIVE FINANCIAL LITERACY AND INTENTION

The model significantly supports this theory. With order to achieve objective financial

literacy, one must be conversant in the fundamentals of personal finance. Basic and

Advanced Financial Literacy are the two components of objective financial literacy. One sort

of advanced financial literacy is revealed to be a significant predictor of investment intention

when compared to the other.

Objective Financial Literacy was shown to be positively associated with investment

intentions, which is in line with the majority of studies looking at product knowledge in

general and investment intentions in particular. An investor's decision-making is likely to be

103
influenced significantly by his or her level of product knowledge (Brucks, 1985; Raju et al.,

1995). The more individuals know about a product, the less reliant they are on information

and the more confident they are in their capacity to make smart judgments (Bearden,

Netemeyer, & Teel, 1990). Consumer decision-making research has demonstrated that

information impacts the various stages of the decision-making process (Bettman & Park,

1980; Brucks, 1985). However well-versed the customer is, everything has an impact on how

he or she searches for and processes information (Brucks, 1985). This, in turn, may influence

the ultimate decision.

A number of previous research in the financial services industry have confirmed our

findings. Using an insurance product knowledge test A study by Lin and Chen (2006)

indicated that product knowledge has a substantial beneficial influence on the likelihood of

making a purchase decision. Product knowledge had a significant impact on Singaporean

investors' investment intentions, according to a study by Lim et al. (2013) on Singapore's

stock market.

6.3.4 SUBJECTIVE FINANCIAL LITERACY AND INTENTION

This hypothesis is also strongly supported by the model. While accuracy is dependent on

objective knowledge, investors' self-assessed subjective knowledge may have a greater

impact on their confidence, leaving objective knowledge essentially untouched.

Confidence and purchasing intentions have been the subject of several research, and our

conclusion is consistent with those findings. Customers' trust in their own abilities to

evaluate brand features was found to be positively correlated with their intention by

researchers Bennett and Harrell (1975). Confidence in a brand and purchase intention were

found to be linked by Laroche et al. (1995). When a brand is recognised to the consumer,

they feel more confident about it, which in turn increases their desire to purchase it.

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(Laroche, 1996). When it comes to equity-linked products, the term "brand" can refer to both

individual items and the entire product category.

Investors appear to have a considerable lot of volitional influence over their investments

based just on their subjective financial literacy. As a result, investors are able to put their

faith in the stock market. Confidence is thus an important prerequisite to investing in the

stock markets. Laroche et al. (1995) in their study also found an indirect route from

confidence to intention where there was an intervening role played by Brand Attitude. This

needs to be tested in further research.

Subjective financial literacy must also be included in interventions aimed to promote

objective financial literacy.

6.3.5 FINANCIAL WELLBEING AND INTENTION

Hypothesis 3b: Financial Wellbeing will positively influence Investment Intention.

This hypothesis was not supported by the model. Although there is no published research

linking Financial Wellbeing to either Investment Intention or Equity Holding it was posited

that Financial Wellbeing being a proxy for wealth might predispose investors towards risk

taking and thus may positively impact Investment Intentions. Study after study has shown

that those who have more money participate in stock markets more often. However, despite

their affluence, some families do not invest in the stock market (Campbell, 2006; Guiso &

Sodini, 2013). While Italy has a lower stock market participation rate than the United

Kingdom, per capita income in both nations is around the same. Only 28 percent of the

richest investors in the Netherlands, 39 percent in Germany, and 75 percent in Spain own any

stock at all. A household's income (self-reported) is available in our dataset, however there is

no association between income and intentions.

This will be discussed further along with the findings of the moderator analysis.

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 6.3.6 SUBJECTIVE NORM AND INTENTION

This was the hypothesis which was relevant while testing Model A which used the Theory of

Planned Behaviour without any changes. This model however did not meet the requirements

of adequate fit and was rejected.

Subjective Norm represented by the variable PISO does not have an impact on intention

directly (as per the TPB) which is an important finding. The link between subjective norms

and intentions is the lowest in the TPB, according to a number of experts. According to a

number of theories, the relationship between subjective norm and intention appears to be less

than previously thought. For example, Ajzen (1991) himself finds the key drivers of intents

are personal characteristics (attitude to behaviour and perceived control over behaviour) yet

there are some who have intentionally excluded subjective standards from data analysis (e.g

Sparks, Shepherd, Wieringa, & Zimmermanns, 1995).

Sheeran et al. (1999) experimentally investigated the relative predictive effectiveness of

attitude vs subjective norms on intents, and found that attitude was a considerably more

powerful predictor than subjective norms. Attitude and intention are much stronger than the

subjective norm-intention and perceived behavioural control-intention correlations,

according to Armitage and Conner's (2001) meta-analysis. Attitude-intention correlations

were found to be two times greater than those between subjective norms and intents.

6.3.7 OBJECTIVE FINANCIAL LITERACY AND EQUITY HOLDING

The model substantially supported this notion. With this study, researchers have found that

objective financial literacy has a good impact on financial behaviours.

While participants' BFL scores (3.2) were significantly higher than non-participants' (3.02) at

a 95% confidence level, BFL was not a significant factor in explaining equity holdings.

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German investors who lack basic financial literacy are less likely to invest in the stock

market, according to Bucher-Koenen et al. (2011), who observed this correlation. BFL, on

the other hand, may be important in persuading non-investors to invest, but it has no effect on

equity holding levels in our sample. Interest rates, numeracy, inflation, and diversification

were all tested in Basic Financial Literacy. While 38% of the respondents answered all 4

questions correctly, cumulatively 85% of the respondents answered 3 or more out of the 4

possible questions correctly. More over 92 percent of the respondents had attended college,

ensuring a minimum of 12 years of education for all participants. As a result, the high degree

of financial literacy among the general public was not a surprise. A study on Financial

Literacy conducted in Hyderabad (Agarwal et al., 2010) amongst customers of a brokerage

firm found nearly 70% of respondents answering at least 2 out of the possible 3 questions

correctly. Our results seem to be in line with the results of this study.

In the Dutch study (Van Rooij et al., 2011) which had a much larger number of respondents

(1508) and a far greater disparity of education (only 35% having some college), only 40% of

the respondents managed to answer all 5 questions correctly while 70% got 4 out of the 5

questions correct.

On the other hand, advanced financial literacy (AFL) was revealed to be a strong predictor of

equity holdings. There aren't a lot of research out there looking at the AFL of investors

because of the evident difficulty in administering this measure. In one of the few published

research, Van Rooij et al. (2011) found that AFL improves the likelihood of stock ownership.

Participants in our study had an average AFL score of 7.65, whereas non-participants (those

with no stock ownership) had an AFL score of 6.85, making the difference statistically

significant at a 95% confidence level. However, there is no information on equity holdings in

the Dutch study.

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A study done in China by Xia et al. (2014) used a 6 item scale to measure objective financial

literacy. The items in the scale were a mix of the BFL and AFL tools used in this study. This

study also concluded that objective financial literacy was a significant predictor of stock

market participation. There have been no studies linking AFL to equity holding that we could

find. If we were to split the sample into three distinct groups on the basis of their Equity

Holding we find that both the BFL and the AFL monotonically increases with Equity

Holding.

No. of Average Average Equity

respondents BFLS Average AFLS Holding (in %)

169 2.98 6.75 1.75

169 3.21 7.69 13.22

168 3.29 7.92 36.37

Table 6-4: Objective Financial Literacy and Equity Holding

Based on our findings, there is considerable merit in improving Financial Literacy, more

specifically Advanced Financial Literacy since we find that it is significant in a model with

various other factors and by itself as well, there seems to be a significant positive correlation

with Equity Holding.

One possible explanation for a lack of stock ownership is that many households are

unfamiliar with stocks and the stock market (Van Rooij et al., 2011). No obvious correlation

between education levels and equity holding or AFL, which suggests that just spending a few

years in college does not transfer AFL knowledge. There needs to be a separate strategy for

improving AFL of retail investors. This will be discussed in the concluding chapter.

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 6.3.8 FINANCIAL WELLBEING AND EQUITY HOLDING

This hypothesis is strongly supported by the model. According to the TPB, a Behavioural

Control variable has a positive correlation with Behavior.

Cho (2006) revealed that in Korea, the stock market involvement rates of poor and

middle-income families were extremely low. Small-asset households are more likely to have

little equity in their homes. Investing in high-risk assets is associated with higher income,

according to a research by Haliassos and Bertaut (1995). Investing in the stock market was

more popular among those with a greater disposable income. However, even among homes

with affluence the engagement is hardly ubiquitous (Heaton & Lucas, 2000; Mankiw &

Zeldes, 1991).

One definition of financial well-being is "a condition of being financially well, cheerful, and

free of stress," and it relies on an individual's subjective assessment of his or her financial

circumstances (Joo, 2008, p. 21). According to the findings of this study, households who are

financially stable are more willing to accept investment risks. According to the model, this is

the case.

According to the Theory of Planned Behaviour, an important component of behavioural

control is the individual's belief in his or her own abilities to carry out the desired behaviour.

According to the TPB, investigations aimed at predicting people's intentions and behaviours

should incorporate assessments of people's views of the existence of behavioural restraints

and facilitators, in addition to measures of attitude and subjective norm. The more resources

and possibilities people believe they have, the more control they believe they have over their

own behaviour (Madden, Ellen, & Ajzen, 1992).

In case of investments, self efficacy and ability would involve knowledge which is

operationalised through Financial Literacy and the investible surplus but should also be

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supported by a positive subjective evaluation of one’s financial situation. One could expect a

positive correlation between this subjective evaluation and wealth but this is likely to be true

only up to a point. However this is emerging as an important behavioural control variable in

the context of investments especially those which are risky in nature. This was also echoed in

the interviews with respondents many of whom mentioned financial security as a key

antecedent to investments in equity. Higher Financial Wellbeing thus indicates having the

necessary comfort before embarking on a slightly risky venture.

Any comparison with the study by East (1993) will only be at a theoretical level since East

uses direct measures of the constructs of the TPB unlike this study where we have used

indirect measures of the constructs. So at a theoretical level this is contrary to the results

achieved by East (1993) who had only found a relationship between PBC and Intention

rather than the direct link between PBC and Behaviour. Our study thus confirms Ajzen’s

original position regarding the relationships in the TPB.

6.3.9 SUBJECTIVE FINANCIAL LITERACY AND EQUITY HOLDING

This hypothesis was not supported by the model. Interestingly, Subjective Financial Literacy

positively impacted Intention but not Equity Holding. Thus, confidence alone is not

sufficient. The result seems to suggest that only actual knowledge helps the investor

overcome the barrier of low Equity Holding. This is discussed further in conjunction with the

results of the moderator analysis.

6.3.10 SUBJECTIVE NORM AND ATTITUDE TO INVESTMENT

BEHAVIOUR

This hypothesis is fully supported by the model. This hypothesis was formulated with the

emergence of the second order construct Attitude to Investment Behaviour.

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PISO and Attitude to Investment Behavior have a high negative correlation, according to our

research. As a result, the detrimental impact of Attitude to Investment Behaviour on Intention

can be mitigated. Only in models where it is linked to ATIB, and not to intention, can the

impact of PISO become apparent.

As a result, this can be explained by a socialisation impact that influences attitude

development before influencing intent. It's in keeping with the notion of Consumer

Socialization, which says that consumer communication has an impact on their cognitive,

emotional, and behavioural views (Ward, 1974). Engagement, attitude, and desire to purchase

are all results of consumer socialisation. Consumer behaviours and attitudes are often the

outcome of interactions between the consumer and socialisation agents, which are

characterised by learning. Longitudinal research may be required to verify this.

In light of this conclusion, the TPB may need to be tweaked to take into consideration the

influence of Subjective Norm on Attitude toward Behavior. This finding is critical from a

theoretical standpoint. Strong equity holdings among important referents also appear to

contribute positively to the development of an equity culture.

6.5 FINALISATION OF THE CONCEPTUAL MODEL

Based on the Hypothesis of Planned Behavior and the Consumer Socialization theory, the

study's conceptual model was developed. Stock market involvement was studied using both

empirical and theoretical correlates that derived from the literature review and qualitative

research

In order to develop the final model for the study there were three levels of analysis which

were conducted. A fourth level of analysis was subsequently carried out using the final

model to test the moderating effect of the clusters that were derived from the sample.

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The first level of analysis was conducted on the qualitative data collected through interviews

of two broad categories: a) respondents (investors and noninvestors) and b) experts.

The second level of analysis was conducted on the various factors identified to be part of this

study which were categorised under the three broad constructs of the Theory of Planned

Behaviour – viz. Attitude to Behaviour, Subjective Norm and Perceived Behavioural Control.

Attitude to Behaviour was proposed to be measured by Risk Avoidance, Performance

Perception, Perception of Regulator and Hassle Factor. Subjective Norm was sought to be

represented by only Perceived Investments of Significant Others. The third variable

Perceived Behavioural Control was proposed to be measured using Financial Wellbeing,

Subjective and Objective Financial Literacy and Financial Advisory Support. This involved

using the data collected during the quantitative phase of the research and assessing the

measurement models for the constructs using Exploratory Factor Analysis and Confirmatory

Factor Analysis. Two constructs – Financial Advisory Support and Performance Perception –

were not found to be statistically robust and were excluded from further analysis.

The third level of analysis involved the assessment of the structural model. This revealed a

second order construct measured by the three variables – Risk Avoidance, Perception of

Regulator and Hassle Factor. These were found to be correlated and combined into the

second order construct which was named “Attitude to Investment Behaviour”. The other

factors identified to be affecting Stock Market Participation did not have to be combined into

second order constructs and were allowed to freely influence the focal constructs, Investment

Intentions and Equity Holding as suggested by the theory.

In addition to the original model which was purely based on the Theory of Planned

Behaviour an alternative model was posited due to the emergence of the Attitude to

Investment Behaviour construct and was based on combining Consumer Socialization theory

with the TPB. Upon testing the competing models led to the second model being found to be

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statistically acceptable. This was then treated as the final model for the research and was

used to test the hypotheses H1 through H6.

The fourth level of analysis involved testing the moderation effect of the two distinct clusters

of respondents through invariance analysis on the measurements of all the reflective

constructs in the research study and the structural model of the relationships. This was the

stage where hypotheses H7- H12 were tested.

6.6 SUMMARY

This chapter of the thesis started with brief summary of the key findings. As was mentioned

earlier, from the nine structural hypotheses proposed seven were fully supported. This

chapter presented discussions around the findings of the research based on the assessments of

the constructs and the testing of the proposed hypotheses.

The results of the invariance analysis suggested that from the nine hypotheses for moderating

effect of the demographic and socio-economic clusters, five hypotheses found support. This

chapter also presented and discussed the results of the invariance analysis.

Past studies were quoted where applicable while explanations were presented for the

phenomena and relationships observed. Subsequently the manner in which the conceptual

model was finalised was presented.

CHAPTER 7 CONCLUSION
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7.1 CHAPTER OVERVIEW

It was the major goal of this study to determine what influences retail stock market involvement in

urban, middle-class areas. Based on substantial literature analysis and qualitative investigation, a

theoretical model was built. Hypotheses were constructed and tested to evaluate the impact of various

factors on investment intentions and stock holdings as a percentage of overall savings, and theoretical

and empirical gaps were discovered. It gives a summary of the study's findings, explains how the findings

may be applied in practise, and outlines the contributions and implications of the research.

7.2 SUMMARY OF THE RESEARCH

Three major goals guided our investigation. Findings from the study focused on the

characteristics that influence stock market involvement among urban, middle class, and retail

investors..

After an extensive literature review where several factors were identified, a qualitative

research was undertaken where experts and investors were interviewed. A thorough

conceptual model was constructed to empirically evaluate the correlations between the

variables based on the review and findings. Accordingly, a questionnaire was devised and

delivered to a sample of retail investors in four locations in India, based on validated

measurements of the study's components. The four cities were chosen based on their

geographical locations and certain other characteristics which provided sufficient coverage of

different types of investors within the sample frame. Prior to gathering sample data, the

questionnaire was created, pre-tested, and piloted. There were 506 people in the final sample

after outliers and incomplete responses were removed.

Seven variables were retained in the study after initial statistical analysis.

These included Risk Avoidance, Perception of Regulator, Hassle Factor,

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Perception of Investments of Significant Others (PISO), Objective and Subjective Financial

Literacy and Financial Wellbeing. During the analysis it was found that three of the variables

could be combined to create a multidimensional variable – Attitude to Investment Behaviour

(ATIB). ATIB was found to be a strong predictor of investment intention, along with

Objective and Subjective Financial Literacy and Financial Wellbeing. Equity holdings were

shown to be significantly predicted by both objective financial literacy and financial

well-being. ATIB was found to have a negative effect on Investment Intention while PISO

was found to have a negative (and ultimately mitigating) effect on ATIB.

Financial Wellbeing was found to have a negative effect on Intention while being positively

related to Equity Holding. Subjective Financial Literacy was found to be related only to

Intention and not Equity Holding.

The second objective of the research was to develop a framework outlining these

relationships. The conceptual model developed was based on the Theory of Planned

Behaviour which is a well-known psychological model used to explain behaviour. The final

model explained 58% of the variation in Intention to Invest and 9% of the variation in Equity

Holding. An interesting facet of the model was how contrary to the TPB, Perceived

Investments of Significant Others (which represented Subjective Norm) did not directly

influence Intention but had a direct effect on ATIB. This was explained by the Consumer

Socialization theory.

The final objective was to investigate the moderating effect of demographic or

socio-economic characteristics on stock market participation. This research also assessed the

moderating effects of demographic and socio-economic variables using two broad clusters.

We named the two clusters “Older Affluents” and “Younger Educateds” depicting some of

the characteristics of their constituents. The results revealed some differences in relationships

between the variables across the two clusters. Some of the relationships are significant only

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in case of the “Younger Educateds” cluster. Objective financial literacy has been shown to

have a negative correlation with intention, whereas the opposite is true for financial

well-being. "Older Affluents" were also shown to have a substantial correlation between

equity holding and subjective financial literacy.

7.3 KEY CONCLUSIONS FROM THE RESEARCH

For several years now, financial institutions, regulatory bodies and policy making institutions

have been trying to increase the participation of retail investors in financial markets. The

outcomes of these measures have been a mixed bag. In order to make our research relevant

the findings have to be analysed in the backdrop of all these measures which have been

instituted in the Indian markets. The conclusions given below are drawn based on the current

realities in the Indian market, the measures that have already been instituted and findings of

the research.

7.3.1 STOCK MARKET PARTICIPATION IN THE SAMPLE

This research was conducted on a sample of middle class, urban, retail investors in four cities

across India. There are no definitive figures on the number of stock market participants in

India or their level of Equity Holding. However, some imputation from macroeconomic data

like dematerialised share account numbers and mutual fund folio numbers would make both

these numbers much lower than 10%. Our sample was collected from people who upon

asking were willing to share their financial data and could give us their time for the data

collection. This by itself could have made the sample slightly skewed towards people who

were more financially sophisticated. These were likely to be more educated and English

speaking. Additionally, since we were looking for respondents with a minimum age of 30 (to

ensure that they had financial surplus to invest), this also increased the likelihood of the

respondents having higher incomes than the broader population.

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Out of 506 respondents, 122 had no allocations to equity products. This was only 24% of the

sample. There were however 250 respondents who had equity investments lower than or

equal to 10%. The average age of the sample was 44 years and the average reported income

was 1.23 million per annum. However, since the objective of the research was to understand

the factors affecting Stock Market Participation it was essential to have a sample of

respondents who would have the necessary surplus to invest but were consciously choosing

not to. Thus, this was an appropriate sample to study stock market participation because

clearly they had the wherewithal to invest in equity products. There were factors other than

wealth and income which were deterring them from investing more into equity products.

Sound investing norms, based on the age heuristic, would suggest that this sample should

have average equity investments over 50% (100-40). However the average investment into

equity was only 17% for the sample. This highlights the problem of low equity holding even

amongst a sample of the population which is relatively more educated than the norm and has

the inherent capability to invest.

This further underscores the importance of this research and how the findings can be used to

design interventions to improve stock market participation in the population of interest.

7.3.2 VOLATILITY AND THE STOCK MARKETS

According to Nimesh Shah, CEO of ICICI Prudential AMC, frequent volatility is beneficial

for the markets because it keeps the herd mentality in check; this is a positive thing. Investors

that are looking for strong entry points, which only appear during tumultuous times, can take

advantage of these possibilities (2015).

Shah may be echoing the thoughts of savvy investors who are looking for suitable entry

points into the market but retail investors are simply looking for above average returns

without too much anxiety in the bargain. Simply speaking, for all its so called merits,

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volatility also scares investors. And this fear could lead them to develop a lasting negative

attitude towards investing in the stock markets. This is one of the chief findings of this study.

Unfortunately, volatility in stock markets is not a phenomenon that can be controlled. Thus,

there will always be a certain level of anxiety. The question is how to mitigate this anxiety.

Since Risk Avoidance is correlated with both Hassle Factor and Perception of Regulator,

positive interventions on the other two variables might be the answer.

Together, these three variables form the construct which has been named Attitude to

Investment Behaviour since it was conceptually close to the Attitude to Behaviour variable in

the TPB.

7.3.3 HASSLE FACTOR

Since Hassle Factor was such a significant component of the Attitude to

Investment Behaviour – it becomes imperative to design interventions to reduce the negative

impact. This has been attempted in India by policymaking bodies but the effects have been

mixed.

In the past few years, it has been recognised that there were several infrastructural

bottlenecks wreaking havoc with processes in the financial investments system. This was

especially true for opening brokerage accounts (to invest in shares) and investing in mutual

funds. In 2012, an initiative was launched under the aegis of the regulator whereby Know

Your Customer (KYC) registration agencies (KRAs) were launched to create a centralised

pool of investor details. This could be used by brokerages, mutual funds and other financial

intermediaries. The expectation was that investors could get this process done just once and

all market intermediaries could access it. This centralised repository was planned to reduce

account-opening documentation. When KRAs were launched, a one-time exercise was

conducted to upload all client information related to identity and address in the system of at

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least one KRA. Inter-operability between the various KRAs made sure that the data would be

available across market participants.

However according to a recent press article[6] there were several problems with this system.

Market participants said KRAs collected the identity and address proofs of investors along

with a basic broker-client agreement. However, according to an intermediary the

documentation needed for the complete KYC and account opening is still offline and so, the

utility is limited. Many a times, even the identity and address data were outdated. Further, the

absence of standardized agreements between brokerages and clients has also reduced the

utility of KRAs. Brokerage officials say the utility of the KRAs is limited since a lot of the

KYC progress continues to be done manually as a number of physical documents still need to

be signed by clients. KRAs charge ` 25-75 per client for providing basic data to brokerages.

But since many brokerages fear that the information could be old, they prefer to go through

the KYC process themselves.

Mutual fund houses, however, are believed to be benefiting from KRAs as there is uniformity

in the documentation procedures in the mutual fund industry.

According to some experts, The equities market was completely transformed in the 1990s by

the process of dematerializing physical shares. As a result, the volume of transactions

increased considerably. This occurred as a result of the requirement for dematerialization. A

comparable revolution is now required for MF units as well.

There are various advantages to owning mutual fund units through demat accounts, including

less paperwork, the ability to keep track of different portfolios, a single nomination facility

for all financial assets, and a single nomination facility for all financial holdings. There are

also substantial advantages for asset management firms (AMCs), such as superior data

statistics on investor holdings to prevent the age-old problem of having several MF folios, as

well as greater access to the countrywide depository and stock exchange platform.

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One suggestion made in a media article by Sanjiv Shah (2015) was to follow the precedent

set in case of share transactions and set a date after which all transactions in Mutual Funds

would only happen in dematerialised mode. This means that AMCs will have the ability to

propose additional steps, such as eliminating the need for an MF-specific KYC requirement

by working with the regulator to instead depend on a single form of KYC that the depository,

insurance repository or banks complete. When financial advisors have a complete picture of

their clients' financial assets and can focus on providing value-added services like financial

needs analysis and portfolio planning, rather than document maintenance and administration,

they will be able to build a world class financial advisory business.

So while the solution for reducing hassles in investing in MFs could be demat accounts, the

issue of KYC and multiple brokerage agreements still remains. A possible solution could lie

with banks which are today tasked with doing regular KYC of their customers. Banks could

perhaps be linked with KRAs through the UID (Unique Identification) project. The UID

becomes the only identity to be constantly updated with the latest information regarding an

investor and all the other systems could, with appropriate permissions, draw their details

from this database.

While some of the above suggestions, if implemented could improve the ease of investing,

this may also in turn improve the Attitude to Investment Behaviour.

7.3.4 REGULATORY PERCEPTION

In our study, the variable Regulatory Perception was also found to be an important component

of Attitude to Investment Behaviour.

As part of the Ease of Doing Business study of 2014, the World Bank ranks countries out of

189 for their protection of investors. This is a key consideration for companies when

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deciding where to invest and influences foreign direct investment intensity. Most of the worst

ranked countries are located in developing countries.

Based on this information, Euromonitor published a datagraphic (Figure 7-1) where it has

formed 6 broad categories in terms of the protection provided to investors in countries across

the world. Categories vary from very low to extremely high. Investors in much of the

developed world enjoy extremely high protection. India ranks just below the developed

world and investor protection in India is classified as “very high”. This is creditable

considering that on several of the other developmental indices India hopelessly lags the rest

of the world.

Figure 7-1: Investor Protection across the world

(Source: Euromonitor International)

According to Ramadorai (2014), "sensible" individual investor engagement in equities and

equity derivatives markets was not encouraged by invasive regulation. On the other hand,

Ramadorai believes that developing trust in capital markets is critical to boosting retail

investors' confidence in financial service providers and companies.

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In nations with low stock market participation rates and relatively low average trust,

Georgarakos and Pasini (2011) discovered that the effect of generalised trust is considerable

and is particularly high for rich families. A affluent household in a low-trust region like

Austria, Spain, or Italy may nearly quadruple their chances of investing in stocks by moving

to a region with a greater level of generalised trust. As a result, a lack of widespread trust

among the well-off may account for their very low participation rates.

The Financial Sector Legislative Reforms Commission[7] also suggests that regulators need

to focus on consumer financial protection. The commission in its recommendations is very

clear that while all consumers should be provided with certain basic protections, a wider set

of protections need to be available only to retail consumers.

This is in line with the findings of our research since Perception of Regulator is found to be

an important constituent of Attitude towards Investment Behaviour. Moreover, the construct,

Perception of Regulator, which started with eight indicators was finally reduced to a

construct with four indicators. And the indicators are all about the enforcement of regulations

and protection of retail investors.

According to Ramadorai it may not be advisable to expect retail investors to invest directly in

equity. Two other modes would be far more suitable to improve participation. The first one is

the use of low cost collective investment vehicles like index linked Mutual Funds or

Exchange Traded Funds. But the charges of index funds in India are higher than those in

other developed equities markets throughout the world (up to 1.5% of the investment

amount) (0.30 percent - for Vanguard index funds in the US). Despite index funds' relatively

high prices in India, active mutual funds (expense ratio of 2.25%) that are actively pushed are

nonetheless more expensive.

The second mode of participation could be through Life Insurance companies or Pension

Funds. However, Life Insurance companies are under a cloud in India due to a rash of

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mis-selling complaints which again points to the lacuna in enforcement albeit by a different

regulator (IRDA). However, all this contributes to the mistrust in the system. In terms of

retirement funds, the largest fund is the Employees’ Provident Fund (EPF) which so far has

been investing in fixed income products. The government announced in April 2015 that it is

proposing to invest 1% of its EPF corpus into equity and related schemes and hike it

gradually to 5%. The other option is the NPS (National Pension System) which though

fledgling may be the answer to several of the woes of non-participation. The Tier-2 account

in the NPS, if embraced by the retail investor, could be an inexpensive and effective way of

entering the stock market. This would also reduce the issues on paperwork.

According to a recent article[8], SEBI intends to use the extraordinary powers granted to the

regulator to enlarge its investigation and enforcement team, speed up the adjudication

process, and improve enforcement. While this is laudable, a critical finding of our research is

that enforcement actions ought to be publicised so that retail investor perception regarding

the capital markets are enhanced. This requires a special marketing strategy which needs to

encompass traditional media and methods like print and public relations and the new age

social media networks.

7.3.5 NEED FOR RISK SAVVY INVESTORS

Risk aversion as conceptualised in this study has two elements to it - the risk of making

mistakes which may lead to loss of capital and the risk of not being able to predict returns

which is about volatility and unpredictability.

One school of thought is that people are generally incapable of making good decisions

considering the plethora of information available and hence have to be “nudged” (Sunstein &

Thaler, 2003; Thaler & Sunstein, 2009) towards the optimal decisions. The opposing view is

that there is the need to take heuristics (or simple rules of thumb) seriously and provide

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humankind with skills for dealing with the entire palette of uncertainty (Gigerenzer, 2014).

According to Gigerenzer, a “heuristic revolution” is required which will help people learn

how to deal with uncertain worlds with the help of smart rules of thumb.

Risk in financial instruments can never be completely eliminated but retail investors can be

taught how to handle this risk and not let it overwhelm them into making suboptimal

decisions. This is where financial literacy programs and education plays a role. Thus, any

financial literacy training program has to also help develop risk literacy in investors.

7.3.6 FINANCIAL LITERACY

Although Financial Advisory support could not enter the final model in this research due to

statistical issues and challenges in measurement, there is no denying the fact that it remains

an important variable in the context of stock market participation. According to a recent

study (Bachmann & Hens, 2014), Investors who are most prone to make costly blunders in

their financial decisions are also the ones who are least likely to enlist the assistance of a

professional advisor. Demand for financial guidance was strongly correlated with investment

expertise. Investors who know enough are also, ironically, the people who seem to reach out

for advice. This underscores the importance of Financial Literacy – both Objective and

Subjective. Our research has shown quite conclusively the importance of Financial Literacy

for Stock Market Participation.

7.3.7 SOCIAL INFLUENCE AND STOCK MARKET

PARTICIPATION

Peasant uptake of insurance contracts is greatly increased when the goods are sponsored by a

respected individual in the village, according to Cole et al. (Cole, Giné, and Tobacman,

2013), based on a field trial in Indian villages. Using a measure of the rate of spread of

illnesses and rumours through social interaction, Shive (Shive, 2010) predicted individual

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investor trading behaviour in Finland. . Shive found evidence for an epidemic like behaviour

where individuals were sharing useful information regarding stocks. This led to increased

trading in the stocks and improved returns.

The significant role of family, friends and co-workers in developing positive attitudes

towards investing in equity products is another important finding of our research. The

analogy of an epidemic is not far-fetched though the rate of transmission may be much

slower in case of simple participation. Building a vibrant equity investing culture becomes

imperative for developing positive attitudes towards equity investments which in turn may

lead to actual investments.

7.3.8 THE GENERATION GAP

As part of this research the model above was tested across two distinct clusters amongst the

respondents. While there was a clear difference in age between the two groups, the

differences in education and income were subtle. The results revealed several differences in

relationships between the variables across the two clusters and point to a generation gap.

1991 marked a significant landmark in India’s economic history since the country saw a

wave of economic reforms which brought lots of changes. This included the entry of foreign

companies in many sectors. Suddenly, over the following years there was greater demand for

skilled workforce and there were lots of opportunities for the youth entering the workforce.

Salaries increased manifold over subsequent decades and the middle class saw a significant

improvement in their standard of living.

There were other structural changes that occurred over the next few years. The advent of the

IT revolution enabled the modernization of the capital markets. This took the form of

dematerialisation of shares and the entry of foreign, professionally managed private Mutual

Funds. Physical shares and all the issues associated with them had become a thing of the

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past. Investors were more confident about the hygiene issues. Regulation was more stringent,

however the sophistication of the scams also increased.

The younger age groups in the respondent set (denoted as “Younger

Educateds”) would have entered the workforce only after 1991 (at the age of 25). Thus, there

is a clear distinction emerging between the middle class investors who enjoyed the fruits of

liberalization from the beginning of their work-life and those who had to make a transition.

The overhang of the past was difficult to shrug off for the older age group (denoted as “Older

Affluents”) as it seems from the evidence in this study.

7.3.9 FINANCIAL SECURITY

The findings regarding Financial Wellbeing are quite telling in that there is a clear positive

linkage between Equity Holding and Financial Wellbeing. This seems to suggest that

financial security may well be a precursor to equity participation.

For Guiso and Sodini (2013), restricted participation is not just confined to hazardous

financial products. Only a fraction of American households are in debt, according to statistics

from the US Survey of Consumer Finances. Some of the reasons why people avoid

hazardous investments might also be used to explain why people avoid insurance or the debt

market. Unfair insurance pricing, for example, might cause risk-tolerant people to forego

insurance, so shifting the market to those who are less risk-averse (Mossin, 1968).

This may also be true of India where a considerable population is under insured. Insurance

penetration in India[9] is at an abysmal 3.9% as compared to a world average of 6.3%.

Improvement in financial literacy indices could see an increased penetration of insurance

products as consumers learn to understand and appreciate the importance of managing

mortality risks. Also safeguarding themselves against unforeseen events and protecting their

dependents may enable them to take a few more risks with their investments.

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In addition to the problem of low penetration of insurance India also does not have formal

social security infrastructure. The National Pension System (NPS) introduced a decade ago is

a defined contribution plan which seeks to address this lacuna in India. However, the NPS is

beset with problems especially with regard to penetration into the target segment. A robust

social security mechanism especially for the middle class retail investor (both in the

organised and un-organised markets) will ensure a certain level of financial security which

could translate to greater penetration of investments in equity products.

7.8 LIMITATIONS OF THE STUDY & RECOMMENDATIONS FOR

FUTURE RESEARCH

The study's shortcomings, described in this section, also point to potential directions for

further investigation. The findings of this study might have important implications for future

emerging market research. Research on consumer behaviour or, more precisely, investor

behaviour and marketing of financial goods will benefit from this perspective.

Study participants were middle-class, urban, retail investors who had access to equity

investments (direct and indirect). As a result, extreme caution should be exercised when

extrapolating these results to other financial product or service categories or contexts. Prior

to extending the model to other categories or any other setting, it may be necessary to

validate the model. The study's replication would need the proper empirical testing.

Future study might also focus on determining when and for whom certain of the reasons are

more significant than others. It is possible that a dataset with a panel format might provide

more insight on the decision-making process of investors, given this study was conducted at

a certain period. Longitudinal studies can be conducted especially to study the socialization

effects and financial literacy interventions.

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As described earlier, some studies had found an indirect route from confidence to intention

where there was an intervening role played by Brand Attitude. This needs to be tested in

further research and might be an extension to the model developed in this research.

This study has attempted to develop a causal model. This can be validated in future research

using experimental methods. Researchers can also focus on studying antecedents of the

various constructs identified.

It is clear that attitudes and self-efficacy play a major role in influencing people's intentions

and actions, which may be examined experimentally to enhance the conclusions.

The current study explored the role of some demographic and socio-economic variables as

moderators in the model however effects of other variables such as occupation, wealth,

gender and community can also be explored.

The effect of intermediaries will continue to be salient and the effect on participation needs

to be studied. However in the current fluid situation this will be a difficult variable to

operationalise as was found in this research. Sources of information could also be an

important variable to study alongside a study of intermediaries.

Performance perception also had to be discarded in our research as a variable due to

statistical issues. The conceptualisation of the variable seemed to meet certain basic

requirements. This also can be operationalised and studied.

From a methodology perspective, The use of survey statement-based data eliminates the

possibility of comparing the variables under study to real-world behaviour. Based on an

international literature evaluation and its selection of an urban area sample, the outcomes of

this study have been confined to India's market and urban regions.

India has several contradictions in terms of a strong regulatory framework and a relatively

sound banking system but weak infrastructure and low literacy levels. Hence the effects

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observed may be specific only for emerging markets which are similar in nature and their

generalization to all developing markets would require specific empirical testing.

In spite of the limitations, Using this strategy, researchers have made a significant

contribution to the study of stock market participation in emerging markets.

7.9 ENDNOTE

The research undertaken and documented here meets the objectives set at the beginning of

the study of providing a better understanding of stock market participation and factors

affecting the same. The study aims to fill up the theoretical and empirical holes. In addition,

it adds to our understanding of consumer behaviour and financial services marketing and

may be used as a starting point for further studies. The research also lays down guidelines for

practitioners especially those involved in marketing equity products. This research provides

direction to financial institutions, policy makers and the capital market regulator on focus

areas to improve stock market participation. This also contributes to the investor behaviour

literature by restating the developing a model for investment products based on the Theory of

Planned Behaviour.

For several financial institutions and the economy as a whole this may be of strategic

importance to meet the growing challenges in a world where corporate debt is reaching

unhealthy levels, financial products are getting more complicated and retail investors are

more befuddled than ever.

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