determinants of portfolio choice of individual investor

7/28/2019 Determinants of Portfolio Choice of Individual Investor

1/16

Determinants of

portfolio choice of

individual investorPresented by:

Varun jindal (211161)

Durgendra singh (211172)TNVM ravindra mohan (211146)


2/16

Introduction

The traditional bulwark of the equitymarket place-the individual investor

has been an object of scrutiny only in

a very aggressive terms. The

individual investor has been asignificant contributor to the

allocation and liquidity function of

capital market. Accordingly, it is imp

to understand his concerns. In this

direction we tried to find what are thefactors that influence his choice of

portfolio.


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Methodology

Data was obtained by a questionnaire survey of arepresentation cross section of 200 individuals.

Representative cross section for sampling proposes was

taken only those household which are capable of

financial investment.Variables employed:

Age

Income

Risk tolerance Expected return


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Data collection and

preparation

Age :

Age of investing No. of respondents %

50-60 35 17.540-50 46 23

30-40 52 26

20-30 59 29.5


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Data collection and

preparation cont

Income :

Monthly income class No. of respondents %15,000-25,000 52 26

25,001-30,000 46 23

30,001-40,000 38 19

40,000-50,000 26 13

50,000-60,000 38 19

200 100


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Data collection and

preparation cont

Risk tolerance :

Risk tolerance No. of respondents %

more willingness 10 5less willingness 69 34.5

risk factor hs no influence 72 36

can't say 49 24.5

200 100


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Data collection and

preparation cont

Expected return:

Expected return No. of respondents %0-15% 52 26

15% - 30% 45 22.5

30% -50% 57 28.5

above 50% 46 23

200 100


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Data collection and

preparation cont

Age / Income :

Age/income level

25-35 35-45 45-55 >55 total

15,000-25,000 10 16 16 10 5225,001-30,000 14 15 12 5 46

30,001-40,000 9 11 11 7 38

40,000-50,000 4 12 6 4 26

50,000-60,000 6 11 18 3 3843 65 63 29 200


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Data collection and

preparation cont

Return / Income:

RETURN/INCOME LEVEL

0-15% 15%-30% 30%-50% >50%

15,000-25,000 20 15 10 7 5225,001-30,000 15 13 14 4 46

30,001-40,000 7 12 15 4 38

40,000-50,000 2 3 10 11 26

50,000-60,000 8 2 8 20 3852 45 57 46 200


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Determinant of portfolio

choice

To identify the factorsinfluencing the

portfolio of individual

in investors a

multiple regressionwas developed. The

expected return was

taken as a

dependent variable

and rest all thevariables was taken

as independent

variables.


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Regression table data

X1 X2 X3 Y1

Age in years(5) Income in '000(10,000) risk Expected return(%)

25 25 1 10

25 25 2 15

25 25 3 20

25 45 1 15

25 45 2 25

25 45 3 35

35 30 1 11

35 30 2 15

35 30 3 20

35 50 1 12

35 50 2 1735 50 3 20

45 35 1 10

45 35 2 13

45 35 3 17

45 55 1 9

45 55 2 13

45 55 3 16


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Regression analysis

Regression

Statistics

Multiple R 0.944086032

R Square 0.891298436

Adjusted R Square 0.85053535

Standard Error 2.885849095

Observations 12

ANOVA

df SS MS F Significance F

Regression 3 546.2916667 182.0972222 21.8653325 0.000328298

Residual 8 66.625 8.328125

Total 11 612.9166667


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Regression analysis cont

Coefficients Standard Error t Stat P-value

Intercept 2.013888889 5.137282735 0.392014416 0.705283891

X Variable 1 -0.322222222 0.111076383 -2.900906675 0.019864069

X Variable 2 0.408333333 0.083307288 4.901531968 0.001191462

X Variable 3 5.875 1.020301732 5.758100583 0.000425033

Lower 95% Upper 95% Lower 95.0% Upper 95.0%

Intercept -9.832706332 13.86048411 -9.832706332 13.86048411

X Variable 1 -0.578364822 -0.066079623 -0.578364822 -0.06607962

X Variable 2 0.216226384 0.600440283 0.216226384 0.600440283

X Variable 3 3.522179988 8.227820012 3.522179988 8.227820012


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Regression residual

Observation Predicted Y Residuals

1 10.04166667 -0.041666667

2 15.91666667 -0.916666667

3 21.79166667 -1.791666667

4 18.20833333 -3.208333333

5 24.08333333 0.916666667

6 29.95833333 5.041666667

7 5.208333333 3.791666667

8 11.08333333 0.916666667

9 16.95833333 -1.958333333

10 13.375 -1.375

11 19.25 0.75

12 25.125 -2.125


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Results

Dependent variable = Expected returnMultiple R = 0.944086032

Adjusted R2 = 0.85053535

Standard error = 2.885849095

F = 21.8653325 significant at 0.000328298

T STAT:

X1 = -2.900906675

X2 = 4.901531968

X3 = 5.758100583


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References

L.fisher and J.Lorie Rates of returns on investments in commonsock. Journal of business,41, July 1968, Pp 291-316.

V.Rangarajan, Chennai investor is conservative, business line,

FEB23, 1997 p20.

V.Rangarajan, investment size based segmentation of individual

investor, management researcher, 3-3&4, jan-june, pp21-28. Peter S.Yoo, age dependent portfolio selection, St. Louis : Federal

reserve bank of St. Louis, 1994.

L.C. Gupta, Indian share owner A survey , NEW Delhi, society for

capital market research and development, 1991.

determinants of portfolio choice of individual investor

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