Factors changing the investor behaviour

Chapter 4

Methodology

Introduction

The preceding chapter focused on conceptual clarification and exposition of related background of research. In this chapter effort is made in providing the research methodology that the researcher intends to employ in his research, which as identified by Jankowicz (2005), is "the analysis of, and rational for the particular method or methods used in a given study, and in that type of study in general". Consequently, to be able to carry this grandiose task effectively, the chapter opens with a brief description of the research aims and objectives the researcher intends to meet so as to help both the researcher and prospective readers comprehend the reasons for the research approach adopted. More so, mindful of the fact that the selection of a primary method of investigation of a problem is a key consideration to the success of the researched, the chapter also opens with the research philosophy section with the purpose of ensuring that a thorough knowledge of the basic methods of research is understood by the researcher. In addition to this, the section explored the relevant research approaches, the research strategy and the data collection method, presenting also the ethical considerations given as well as the merit and demerit of each of the approach examined.

Research Aims and objectives

As aforementioned the essence of re-presenting the research aims and objectives is to identify and reason whether research methodology applied is appropriate to the research mindful of the fact that all factual knowledge which is ascertained by the researcher may be classified in terms of the research methodology and techniques selected. To this end therefore, it would be necessary to restate the research aims and objectives so as to enable the researcher ensure that there exist a direct bearing between the research aims and objectives and the research methodology employed. On this note, it should be noted that the research seek to investigate the impact of economic and psychological factors in investors decision making. Therefore the main objective of this research is to identify analysis the most effecting factors which change the investor behaviour on share market activity under economical and psychological factors.

Research strategies

By research strategy which is also a subset of the research design, the researcher intend to make it known the element through which he intend to collect data so as to answer the research aims and objectives. Evidence from literature makes it possible to suggest that there is many research strategy used in conducting research that embraced the phenomenological research methodology. Saunders et al (2007) identified other strategies of which include: experimental, survey, grounded theory, ethnography, case study, action research among others.

Experimental research strategy

As noted by Bryman (2001) one the purpose of experimental strategy is to derive verified functional relationships among phenomena under controlled conditions. Simply put experimental research strategy is primarily meant to identify conditions underlying the occurrence of a given phenomenon. From an operational viewpoint, it consists of varying the independent variables. According to Collis and Hussey (2003) the experimental strategy owes much to the positivist methodology even though it features in some social science research and typically are conducted in a systematic way. Considering the core drive of experimental strategy, it would not be out of context to suggest that such a strategy is inappropriate to a study that is to a greater extent unscientific incline. This is because the experimental steps are essentially those of the scientific method. Bryman and Bell (2007) on this note stated that it consist of testing of hypothesis of which as a matter of fact is not the interest of the proposed research. In this research to identify the research problem, researcher fined it is not a suitable method for this analysis.

Survey research strategies

This type of research strategy is oriented towards the determination of any status of a given phenomenon. As expressed in the works of Bryman (2001) surveys are particularly versatile and practical especially for the researcher, in that they identify present conditions and point to present needs. Similarly, Collis and Hussey (2003) while categorizing survey as a positivist methodology stated that it is a situation whereby a sample of subjects is drawn from a population and studied to make inference about the population. According to them this type of strategy can be relevant in business research in the form of attitude surveys and also where the aim is to find out whether there is any relationship between different variables. In this manner, survey research focuses on the vital facts of people, their beliefs, opinions, attitudes, motivations as well as behaviour that one will be prompted the researcher to select it as the most suitable strategy.

Grounded theory research strategy

Although the grounded theory research strategy is mostly accepted as one of the most commonly used qualitative method that share the common research philosophy of phenomenology. This research strategy is often associated with research that consists of theory building of which is not the priority of the research understudy. However, considering the nature of grounded theory, the strategy was found inappropriate within this context based on the fact that grounded theory put much emphasis on generating theory from observation made.

Ethnography research strategy

The term ethnography depicts the writings about people. In a general sense it includes any study of a group of people for the purpose of describing their socio-cultural activities and patterns (Saunders et al 2007). Ethnography essentially involves descriptive data collection as the basis for interpretation. As a process ethnography could be seen as the science of cultural description. Nevertheless the strategy was rejected by the researcher based on some reasons among which include that its main method of collecting data is through participant observation and informant interviews (Collis and Hussey 2003). Therefore, in ethnography the ethnographer or researcher has to live among participants and collect data for long periods of time. This in other words imply that using such a research strategy will require not only an extensive period of time but more so, necessitate the researcher being a full time member of the host community and organization being investigated as well as doing the research. Consequently, considering the limited time available to conduct the research ethnography research strategy appears unsuitable within this context and thus will not be employed as a data collection method for the research understudy.

Case study

As described by Robson (2002) and re-affirmed by Saunders et al (2007) a case study is a strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence. This will involve collecting empirical data, generally from only or a small number of cases. It usually provides rich detail about those cases, of a predominantly qualitative nature. It may generate new understandings, explanations or hypotheses. However, it does not usually claim representativeness and should be careful not to over-generalise. The case study research design have evolved over the past few years as a useful tool for investigating trends and specific situations in many scientific disciplines, especially social science, psychology, anthropology and ecology. Therefore the researcher fined this strategy is not appropriate for this research problem.

Research instruments

Collection of data is an important part of research and as rightly envisaged by many scholars the technique used in the course of collecting the data is very much fundamental in research process (Bryman 2001; Saunders et al 2007). In literature there are two main types of data of which the researcher has appropriately configured as means of collecting his data: primary and secondary data (Saunders et al 2007). While primary data refers to those data collected for the specific purpose of the research project being undertaken, secondary data stands for data collected for other purposes like published summaries and through other means such as books, journals, scholarly articles, news papers, company documents, internet, e-journals and data base among others (Bryman 2001; Saunders et al 2007). On this note Saunders et al (2007) was of the view that primary data can be collected through semi-structured, interviews and questionnaires. This we shall briefly expose below.

Interviews

Interviews are one of the methods used in collecting qualitative data. The process consists of a purposeful discussion involving two or more people. This process as rightly stated by Saunders et al (2007) can assist in gathering valid data and can be structured, semi-structured or unstructured. While structured interviews make use of questionnaires that are predetermined, that of semi-structures and in-depth interview is informal. It is important to note that the unstructured interview of which this research will be adopting has the capability of allowing the researcher to explore as much as possible his areas of interest. In addition to the fact that interviews can be conducted on one to one or one versus many bases, it can also be carried through telephone (Bryman 2001). The importance of this approach to the research understudy is that it will offer the researcher the freedom to move into any area of interest. Considering the nature of this method of data collection it will not be suitable to adopt the conducting interviews approach based on the fact that the researcher has not fully participated directly and has limited time to complete the research.

Questionnaires

Questionnaires are one of the techniques used in collecting data. In research literature there seems to be varied opinions as it relates to its definition. Generally speaking it includes all those data collection techniques in which each person is asked to provide an answer to the same set of question in a determined manner (Saunders et al 2007). Questionnaires could be structured, semi-structured or unstructured (Bryman 2001; Bryman and Bell 2007). More so, the questionnaires took cognizance of the time that would have been wasted in interviewing some of the managers who as a result of their tight schedule were not able to give out much time during the interviews as earlier scheduled. It is important to note at this juncture that the type of questionnaires used in the research is delivery and collection questionnaires whereby the questionnaire is handed over to each research samples and collected later on (Saunders et al 2007). Considering the nature of this method, researcher identified it as more appropriate method for this analysis.

Participant and structured observation

Observation is one of the essential parts of collecting data, although it is most often neglected. This method entails "the systematic observation, recording, description, analysis and interpretation of people's behaviour" (Saunders et al 2007, p. 282). In their views observation is of two types: participatory observation is where the researcher makes effort to participate entirely in the lives and activities the group, organization, or community understudy that he in this sense becomes a member of the organization. Although the method gives the researcher more insight of significant social processes the closeness of the researcher to the situation can prejudiced his data. The second type is known as structured observation. Here observation is systematic and predetermined. One of the advantages of the structured observation as recorded by Saunders et al (2007) is that it enables the researcher to tell how often things happen rather than why they happen. Considering the nature of this method of data collection it will not be suitable to adopt the participatory observation approach based on the fact that the researcher has not fully participated directly and has limited time to complete the research.

Research Problem

A problem can be viewed as a gap between desired circumstances and existing circumstances. Investor behaviour in share market is influenced by the psychological and economical factors. Though, investors' irrationality is mostly affecting their decision making in share market. Therefore, the research question is, "Whether the economical climate and investors' irrationality influence the investor behaviour in share market"

Research Style

Researcher selects Questionnaire as appropriate style for this research based on it will provide good value in investigating the issue under examination. This research developed a modified questionnaire (see Appendix) to inspect the behaviour of individual investor in LSE. The questionnaire items signify two categories: economic factors and psychology factors. Based on this questionnaire, the most important item and the most important category will be identified. The developed questionnaire includes ten items. First five questions with Likert scale rating were used for variable that measure investor behaviour. Other five questions were asked to answer the question aimed at identifying investor's beliefs. It is assumed that economic and psychological factors should have a strong effect on the behaviour of the LSE investor because of the vital role of this factor in the LSE.

Hypothesis

In this analysis, researcher attempts to develop an argument or working theory about problem. In this respect, the research problem could be conceptualized based on the economical and psychological factors that can cause effect on investors' decision making on share market. Based on the research problem, the following hypotheses are formulated for the purpose of the study.

H1: The economic climate has an impact on investor behaviour.

H2: Investors show irrationality in decision making

Research question

This study attempts to examine the determinants of investor behaviour of London Stock Exchange. The following research questions were developed in order to find answer at end of the research.

  1. To what extent the investor behaviour change according to the economic climate?
  2. Does the economic climate have an impact on investor's decision making?
  3. Do the psychological factors have an impact on investor's decision making?
  4. Are investors irrational in decision making?

Method of analysis

In this analysis, researcher chooses the percentage analysis as a method to represent the draw streams of data for best understanding. Then, collected data through issued questionnaires were identified. Then, that are converted into percentage and summarized by bar chart in a constructive and meaningful manner. Then behaviours, beliefs and observations of specific individual investors were reported and interpreted. In this research, the analysis is undertaken to find out the relationship between investor behaviour and economical and psychological factors.

Data collection

Collection of data is an important part of research and as rightly envisaged by many scholars the technique used in the course of collecting the data is very much fundamental in research process (Bryman 2001; Saunders et al 2007). In literature there are two main types of data of which the researcher has appropriately configured as means of collecting his data: primary and secondary data (Saunders et al 2007). While primary data refers to those data collected for the specific purpose of the research project being undertaken, secondary data stands for data collected for other purposes like published summaries and through other means such as books, journals, scholarly articles, news papers, company documents, internet, e-journals and data base among others (Bryman 2001; Saunders et al 2007).

Hence in order to ascertain the required data, collection of data was undertaken from selected samples of individual investors of London Stock Exchange through using the questionnaire. The questionnaire is an important tool to collect the data for this research. In order to get responses on the research questions, 35 questionnaires were mailed to 35 individual investors of the LSE. The answers were identified according to how importance they were placed in each factors such as economic factors and psychological factors. More specifically, factor analysis was used to identify the similarities among the variables and moreover, group them into identifiable categories. The data provided were then examined. Also secondary data is used to collect the information. The relevant data would also be taken from official website, books and articles of London Stock Exchange.

Summary

This chapter covers the methodological aspects selected in conducting the research. It opens by reviewing the research aims and objectives as well as highlighting the influence of them on the research method to be followed. Furthermore, it presented the rationale and justification behind the chosen method. A discussion of the research philosophy, approach, data collection and methodology were used in this study in order to examine the investor behaviour in the share market. The next chapter however will focus on the analysis and findings.

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