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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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  • Number of pages: 2

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Abstract

    This study is aimed at giving insight into the interplay of factors that influence the decision-making processes that individuals in the United Arab Emirates (UAE) undertake when choosing whether or not to invest in the stock market. This constitutes the main drive for conducting this research because it will help finance and economics scholars, researchers and professionals to understand the investment decisions and processes of Emiratis. An investment, be it in stocks, real estate or other businesses, entails the commitment of money or a period during which it is expected to gain substantial returns. This means that any form of investment amounts to risking one's funds expecting that there will be significant returns, but with the knowledge that losses are also possible in any investment. For this reason, this study is designed to give insight into the reasons that impact the investment decisions of people, particularly in stock markets. The main objective of this study is to investigate the factors influencing individual investor behavior in the stock exchange market of the United Arab Emirates. From the analysis of the findings of the study, the five groups into which the variables were categorized were ranked from the most influential to the least influential group of factors affecting individual investment behavior in the UAE. According to the statistics, accounting information, relationship between personal-image/corporate-image relationship, neutral information, expert recommendations, and personal financial goals and needs. Contrary to prior expectations, two factors were demonstrated to have an unprecedentedly low level of influence on the individual investor behavior, namely the recommendations of relatives and the influence of religion. In a nutshell, financial information, neutral information, expert recommendations and personal financial goals are the main variables that determine the kind of investment behavior in the UAE

'Further analysis of the findings was done to sort and rank the factors regarding the factors with the least level of influence on the investment behavior of UAE residents. It was observed that most of the study variables that got rated by the participants as important were typical wealth maximization criteria including “get rich quick”, and “expected corporate earnings.” Importantly, this finding is consistent with the findings of Merika et al. (2003) who also found expected corporate earnings and getting rich quick schemes to have a less significant influence on people's behaviors. The wealth maximization criteria contain four main factors that were also seen to affect the investment behavior of people in the UAE. These factors included past performance history of a particular stock, the previous dividends paid to shareholders, the condition of financial statements and the expected dividends. The research indicates that these factors got the ranking of 4, 7, 8 and 9 respectively.

There are other factors also affected the behavior of individual UAE investors to a significant extent, including the high interest of the UAE individual investors in the marketability of a stock. This is expected to influence the policies that should be adhered to by business companies listed in the three stock markets based in the Dubai emirate. For instance, to increase the marketability of the stock, a listed company would need to review frequently and adjust accordingly the relationship between the price and the demand of their stock. In case the stock is too high, this would bring difficulties in marketing and selling it. It is recommended that companies can effectively adopt a policy that permits stock splitting to make costly stocks more marketable.

It is also important to note that government holdings form a significant factor influencing the stock investment behavior in the UAE. It was observed that over 50 per cent of the study participants considered this factor as the most influential element of their investment behavior. Moreover, it is critical note take note of the fact that there are a notable number of listed companies in which the UAE government owns some significant stake, which acts as a significant source of motivation and confidence for individuals to invest in. Also, it is notable that the respondents indicated that the creation of the organized financial markets in the UAE was a significant motivating factor leading them to invest in stocks. More than 50 per cent of the respondents reported that this factor was the most important determinant of their investment behavior, thereby revealing the importance of the establishment of the formal financial and stock trading markets, which did not exist before the year 2000.

On the flipside, it is important to take note of the observation that some of the factors that were investigated had the lowest level of influence on the investment behavior of UAE residents. For instance, there were only 26 (18.3 per cent) out of all the study participants who reported that religious reasons had a significant influence on their behaviors concerning investment in stock markets. This was an unprecedented finding considering that it was expected that almost all the respondents would point out religion as a major determining factor when it came to making investment decisions and developing particular individual investment behaviors. This expectation was informed by the fact the being a Muslim society; the UAE residents were expected to consider their religious law that prohibits them from storing their money or investing in channels such as conventional banking systems where the money earns interest.

Moreover, this research made another unexpected observation about the influence of family opinions and recommendations about investment in stock markets. In this case, only 13 respondents, equivalent to 9 per cent of the total study participants, considered the recommendations of their relatives as a major factor in the determination of their investment behaviors. These factors were seen to have the least effect in shaping the behavior of individual investors in the UAE.

Concerning the five categories of factor shaping the investment behaviors of the study population, it is striking to note that the most influential factors that stood as the most important determinants of the behavior were found to belong to the category of accounting information. The variables in this category, which influenced the investment behavior of the participants the most included the marketability of a firm's stock, the earnings a corporate expected in a given period, the previous performance history of a firm, the amount of dividends previously paid to shareholders, the status of a firm's financial statements, and the anticipated amounts of dividends to be paid to the shareholders of a potential investment option.

This research made it clear that companies listed in the Dubai Financial Market, Abu Dhabi Securities Exchange, and NASDAQ Dubai need to consider the findings of this survey and apply the recommendations thereof to ensure that they attract and fulfill the investment aspirations and desires of their actual and prospective investors. This is expected to attract larger investments from current shareholders and persuade more investors to put money into their companies' stocks.

It is also crucial to note that the second category of variables that was seen to have the highest level of influence, and which bears a high level of importance for companies listed in the UAE stock markets is personal-image/corporate-image relationship. This category contained the variables of getting rich quick, the reputation of a firm and the perceived company ethics of a candidate firm. These factors were found to have a highly significant level of influence in determining the investment behaviors of the UAE residents.

Furthermore, the third category of variables that was found to have a statistically significant level of influence on the investment decisions of the UAE individual investors was neutral information. This category was followed by expert recommendations in the fourth position and personal financial goals and needs in the fifth position. In essence, the investment behavior of individual investors in the UAE are mainly determined by the accounting information of a firm, self-image and corporate-image of a firm, neutral information, expert recommendations, and personal financial goals and needs.

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