Research Abstract

Investment decision is one of the major decisions made by consumers in the market.
Marketers must recognize the need for understanding the factors that influence the consumer‟s
investment decision and factors by which choices are made. By knowing the level of consumer
involvement while choosing between investment decisions, which will help consumers to choose
and marketers to better promote their financial product to consumers.

We discuss the characteristics of investment decisions and identify the factors that affect
consumers‟ information search behavior when they make investment decisions. We find that
subjective knowledge, amount of investment, risk tolerance, age, education, and income
influence both the extent of information search and the use of specific information sources,
including literature, media, the Internet, friends/family, and professional services.

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Chapter 1

Introduction

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1.1 Background of the Study

The investment service industry has experienced phenomenal growth over the past
decade. Investment products have several distinct characteristics.

Investments are intangible goods. Investments are classified as goods, because they have
value and exist independently of producers and buyers, ownership belongs to the investors who
purchase them, and they can be further traded at different times and locations. Investment
products are intangible, because their value is the invisible right of ownership of the subsequent
benefits. The performance of investment products depends on the performance of the parties who
produce the products. When making investment decisions investors evaluate the predicted
investment income and losses, both of which can only be realized when the return or loss
actually takes place.

1.2 Statement of the Problem

The study focuses primarily on measuring the impact of information search on investment
decision. The study also tries to explore the relation between information search and
demographic characteristics.

1.3 Significance of the Study

Numerous studies have investigated consumer information search behavior. Consumer

information search for investment decisions have not received much attention. This study
proposes to contribute to this aspect of the literature. Using data from the Survey, a
comprehensive database of consumer attitudes, behaviors and motivations associated with
financial products, by empirically investigating the determinants of consumers‟ information
search behavior when making investment decisions.

By searching for information, consumers may find products with greater benefits per
rupee spent, increase satisfaction with the products and/or the decisions, and/or reduce risk.
Investment generally involves substantial amount of money and risk, and information search is
therefore an important activity for many consumers before making investment decisions.

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 Chapter 2

Review of Literature

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 Stigler (1961) proposes the theory of imperfect market information in his seminal article
on the economics of information. Since then, consumers‟ information search behavior has been
explained in terms of the costs and benefits associated with a search. Grossman and Stiglitz
(1980) have also noted that there does not exist a competitive equilibrium. Prices serve a role in
conveying the information from the informed individuals to uninformed ones but only partially
reveal the information about the true value of the assets because information is costly. Under
such price system, those who seek information will receive compensation for their effort by
obtaining better positions in the market than uninformed individuals.

When applied to investing, this theory implies that the benefits of searching include
purchasing products with better appreciation potential that enable a higher potential return,
reducing risk, increasing satisfaction with the decision, or accumulating investing experience that
contributes to one‟s stored knowledge. The costs associated with information search for
investment include both monetary and time costs. For example, do-it-yourself investors must
purchase informational materials and spend a lot of time observing market changes, while
investors who are customers of financial advisors must pay for the services they receive.

Previous literature identifies the following as the factors influencing consumers‟

information search when making investment decisions: subjective knowledge, amount of
investments, risk tolerance, and demographic characteristics. First, Brucks (1985) argues that
more knowledgeable consumers tend to engage in more information search than less
knowledgeable consumers, as they have both the knowledge structure to process new
information and the confidence to engage in information search. Subjective knowledge may also
influence the use of specific information sources. For example, consumers with greater
subjective knowledge are more likely to search independently using literature, the media and the
Internet, whereas consumers may choose professional investment advisors when they are not
confident of their own investment knowledge.

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 Second, past research has found that consumers engage in more search activities when
purchasing foods with higher prices (Schmidt and Spreng, 1996). This positive relationship
between price and search activities exists across a variety of products, so for investment products
we expect a positive relationship between the amount of the investment and the extent of
information search.

Third, risk tolerance refers to the degree of risk that an investor is willing to take or
tolerate (Hanna and Chen, 1997). Dowling and Staelin (1994) suggest that, to reduce their risk,
consumers who are less risk tolerant engage in more information search than those who are more
risk tolerant.

Fourth, several researchers find an inverted-U-shaped relationship between income and

external search: the extent of search increases at first and decreases as income increases (Carlson
and Gieseke, 1983; Morgan, 1988; Ratchford, 1988). As income is a good proxy for a
consumer‟s opportunity costs of time, we propose that income has a negative relationship with
the use of more time-intensive information sources, such as reading books and surfing on the
Internet, compared to more resource-intensive information sources, such as professional financial
planners.

Fifth, education level has been found to be positively associated with search activities
(Andreasen and Ratchford, 1976; Claxton, Fry, and Portis, 1974; Hempel, 1969; Newman and
Staelin, 1972; Schaninger and Sciglimpaglia, 1981), as better-educated consumers have a more
extensive knowledge structure and are more capable of identifying, locating, and assimilating
relevant information (Schmidt and Spreng, 1996). Therefore, consumers with a higher education
level would be able to search using sources that require more knowledge, such as books,
newspapers, or the Internet. Moreover, consumers with higher educational levels may be more
realistic about their own ability to invest and more open-minded toward professional service
providers.

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 Finally, age has been identified as an influential factor in consumer information search.
On one hand, several researchers find that as consumers age, their information search abilities
decline, in terms of both intensity and accuracy (Cole and Balasubramanian, 1993; Lehmann and
Moore, 1980; Schaninger and Sciglimpaglia, 1981). On the other hand, older consumers have
accumulated knowledge and experience of investing over time and therefore have reduced needs
for information search. In terms of specific sources of information, the elderly have a tendency to
rely on mass media in making purchasing decisions (Barry and Bearden, 1978; Phillips and
Sternthal, 1977), while Internet usage is the lowest among older people (Bucy, 2000). It is also
found that older consumers rely on neither the experience of others (Lumpkin and Festervand,
1987) nor their broker‟s advice for portfolio choices (Lease, Lewellen, and Schlarbuam, 1976).

THEORETICAL DEFINITION

1. Investment decisions are made by investors and investment managers.Investors

commonly perform investment analysis by making use of fundamental analysis, technical
analysis and gut feel.Investment decisions are often supported by decision tools. The
portfolio theory is often applied to help the investor achieve a satisfactory return
compared to the risk taken.
2. The Information Search Process (ISP) is a six-stage process that information seekers go
through when seeking information. ISP was first suggested by Carol Kuhlthau in 1991.
The six stages of ISP are as follows: Stage 1: Initiation, Stage 2: Selection, Stage 3:
Exploration, Stage 4: Formulation, Stage 5: Collection, Stage 6: Presentation.

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 Chapter 3

Research Methodology

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3.1 Title of the study

“A study on the impact of information search on investment decision”

3.2 Objectives

Specific objective: To identify the relationship between Information Search on Investment

Decision of people in Cochin city.
Secondary objectives:
To analyze the Investment Decision of people in Cochin city.
To study the nature of Information Search among the people in Cochin city on

3.3 Hypotheses

Hypothesis 1: There exists a positive relationship between the amount of the investment and the
extent of information search.

Hypothesis2: More knowledgeable consumers tend to use more information sources than less
knowledgeable consumers

Hypothesis3: Consumers engage in more information search after marriage than those „single'
who are more risk.

Hypothesis4: Income has a negative relationship with the use of more time-intensive
information search

Hypothesis5: Education level has been found to be positively associated with search activities

Hypothesis6: Knowledgeable customers tend to be more risk tolerant than their less
knowledgeable counterparts.

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3.4 Variables of Study

Dependent variable: Investment Decision

Independent variable: Information Search

3.5 Scope of Study

Time:

The study deals with the current behavior of investors.

Place:

The study is applicable only in the Kochi city in Kerala

Population:

The population of the study consists of the professionals in Kochi city in the age group 20 to 65
and with a minimum salary of Rs.60, 000 per month.

Operational definition:

1. Investment Decision: Factors affecting consumer‟s information search when making

investment decisions: subjective knowledge, amount of investments, risk tolerance, and
demographic characteristics.

2. Information search: it comprises of the following.

Information sources in the questionnaire into five categories: literature (i.e., books,
consumer magazines, other magazines, newspaper articles, financial newsletters, and
financial institution brochures/written materials), media (i.e., radio programs, broadcast
TV programs, education TV programs, cable TV program, radio advertisements, TV
advertisements, daily newspaper or magazine advertisements, or financial newspaper or
magazine advertisements), the Internet, friends/family (i.e., friends/relatives and persons

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at workplace), and professional financial service providers (i.e., financial institution
personnel and seminars).
Subjective knowledge is defined as one‟s self-assessment of the adequacy of
one‟sknowledge about investment products and investing. To uncover a respondent‟s
subjective knowledge about investments, this study adopts a Likert scale comprising five
questions.This is similar to Brucks‟ (1985) and Srinivasan‟s (1987) subjective knowledge
measures.

The amount of investments is a continuous variable indicating the total amount of a

respondent‟s financial assets in dollars, including savings, stocks, mutual funds,
bonds,trusts, and annuities.

Age is included as a continuous variable.

Education level is a categorical variable,including less than high school, high school
diploma, some college or technical school, andcollege degree or higher.

Income is recorded as the amount of total household income before tax.

Financial Risk Tolerance: Risk tolerance refers to the degree of risk that an investor is
willing to take or tolerate (Hanna and Chen, 1997). Dowling and Staelin (1994) suggest
that, to reduce their risk, consumers who are less risk tolerant engage in more information
search than those who are more risk tolerant.Risk tolerance is the inverse of a person‟s
risk aversion. Risk aversion is a concept in economics, finance, and psychology related to
the behaviour of consumers and investors under uncertainty. Risk aversion is the
reluctance of a person to accept a bargain with an uncertain payoff rather than another
bargain with a more certain, but possibly lower, expected payoff.

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Research Design

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Sample Unit

The sampling unit includes professionals in Cochin.

Sample size
The sample size for the study was taken as 150.
Population

The sampling unit includes individuals of Cochin City

1) Falling under the age group of 20 to 60

2) With a minimum income of 60000 per annum.

3.7 Sampling Method

The sampling technique adopted is Stratified sampling. The strata used are 1) Gender (Male ,
Female) 2) Income level (High , Medium , Low)

Gender

Male Female Total

High 25 25 50

Income level Low 25 25 50

Medium 25 25 50

total 75 75 150

The sampling technique used is stratified convenience sampling. The responses where collected
by giving a standardized questionnaires to respondents. The study was conducted for the city of
Kochi.

One hundred and fifty valid responses were collected. Of the 150 subjects, 75 were male
and 75 females 150 subjects reported their gender, This was a gender-balanced sample, with

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reasonable amount of work and “real-life” experience, and of reasonable maturity. Amount of
investment and age was taken as continuous variable.

3.8 Tool for Data Collection

A standardized questionnaire instrument was developed to collect the following data from the
respondent: demographic factors like gender, age, education level was collected as direct
questions in the tool. Risk tolerance represents the risk preference of an individual. A five-item
scale, similar to Moorthy, Ratchford and Talukdar‟s (1997) measure, is adopted in this
study.having a set of five questions.
Subjective knowledge is defined as one‟s self-assessment of the adequacy of one‟s
knowledge about investment products and investing. To uncover a respondent‟s subjective
knowledge about investments, this study adopts a Likert scale comprising five questions.
This is similar to Brucks‟ (1985) and Srinivasan‟s (1987) subjective knowledge measures.

3.9 Tool for data analysis

Tool used for analysis is bivariate correlation, to explain the relationship between variables. The
package used for analysis is SPSS

3.10 Limitations

The limited number of the sample size taken (150in number) and the time available to conduct
the study are the limitations involved. Again the study was based on the behavioral aspects of the
consumer‟s

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 Chapter 4

DATA ANALYSIS & INTERPRETATION

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Relationship between Amount of Investment and information search .

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17
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 Correlations

Amount of Information
investment Search
Amount of investment Pearson Correlation 1 .218 **
Sig. (2-tailed) . .007
N 150 150
Information Search Pearson Correlation .218 ** 1
Sig. (2-tailed) .007 .
N 150 150
**. Correlation is significant at the 0.01 level (2-tailed).

In this study an attempt is made to analyze the relation between amount of investment
and information search.

The amount of investments is a continuous variable indicating the total amount of a

respondent‟s financial assets in dollars, including savings, stocks, mutual funds, bonds, trusts,
and annuities. Amount of investment is positively correlated to information search at 21.8%the
p- value is 0.007 which is less than the limit of 0.05, therefore the sample maps the properties of
the population and the result is valid. We can see that extent information search is more when
consumers invest more. Consumers tend to be more careful as the amount of investment increase
as the risk is there of losing bigger amounts. Risk of loosing bigger amounts forces people to go
for extensive information search.

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 Hence it can be said that “There exists a positive relationship between the amount of
the investment and the extent of information search.”

Information search is obtained as the sum total of the characteristics shown by

subjective knowledge and risk tolerance.

Responses obtained from questions measuring subjective knowledge

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Household knows to
choose financial 150 1 5 3.04 1.446
products and services
consider myself a
150 1 5 2.58 1.448
sophisticated invester
need help selecting
savings and investment
products that are best 150 1 5 2.52 1.320
suited to meet my
financial goals
feel qualified to make my
150 1 5 3.36 1.430
own investment decision
do not need advice in
150 1 5 2.02 1.245
investment options
Valid N (listwise) 150

From the study it is evident that most people have clear idea about their investment decision but
yet they are not confident to about their knowledge and most of them feel that they need advice.

Responses obtained from responses measuring risk tolerance

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 Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

important to have both
guaranteed interest and 150 1 5 3.74 1.313
insurance on my savings
willing to accept riskof
losing money if an
investment is likely to 150 1 5 3.78 1.274
come out ahead of
inflation in the long run
wise to put some portion
of savings in uninsured
150 1 5 3.94 1.051
investments to get a high
yield
willing to take substantial
risks to realize substantial
150 1 5 3.60 1.285
financial gains from
investments
where would you prefer to
put most of your
150 1 5 3.24 1.427
household savings and
investments
Valid N (listwise) 150

From the findings it is seen that sample selected is slightly risk tolerant. Most people are
willing to put money in risky investments and they feel that it is necessary for getting good yield.
Majority prefers investing in medium risk investments to get acceptable rate of returns.

Knowledgeable consumers and information sources

Correlations

Number of Subject
Sources knowledge
Number of Pearson Correlation 1 .560**
Sources Sig. (2-tailed) . .000
N 150 150
Subject Pearson Correlation .560** 1
Knowledge Sig. (2-tailed) .000 .
N 150 150
**. Correlation is significant at the 0.01 level (2-tailed).

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 In this study an attempt is made to analyze the relation between knowledgeable
customers and number of information sources they use. Subjective knowledge is defined as one‟s
self-assessment of the adequacy of one‟s knowledge about investment products and investing.

. There exists a healthy correlation between the subjective knowledge of

consumers and the number of information sources they use. The more knowledgeable customers
refer to more information sources than the less knowledgeable consumers with a healthy
correlation of 56%. More knowledgeable customers have access to more data to their less
knowledgeable counterparts. They inquire more to increase their subjective knowledge and take
their decisions based on the knowledge from extensive information search and use of more
reliable sources. Here as the p value is less than .05, H1 is accepted i.e. and the sample chosen
has the characters of the population

Hence, it can be concluded that “more knowledgeable consumers tend to use more
information sources than less knowledgeable consumers.”

Association between Information Search and Marital Status.

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24
 Correlations

Information Marital
Search Status
Information Pearson Correlation 1 .428**
Search Sig. (2-tailed) . .000
N 150 150
Marital Status Pearson Correlation .428** 1
Sig. (2-tailed) .000 .
N 150 150
**. Correlation is significant at the 0.01 level (2-tailed).

In this case there is strong positive association. Consumers who are married tend to employ more
information search as fear of losing money affects them as well as their dependants. So they
make their investment decision only after extensive information search.

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 Correlations

Risk
Tolerance Marital status
Risk Pearson Correlation 1 -.321**
Tolerance Sig. (2-tailed) . .000
N 150 150
Marital status Pearson Correlation -.321** 1
Sig. (2-tailed) .000 .
N 150 150
**. Correlation is significant at the 0.01 level (2-tailed).

While „singles‟ tend to be more adventurous and more risk tolerant as they invest in more risky
assets and that too with very less information search. Here there is a negative correlation between
marital status and risk tolerance.

It can be said that married investors employ more information search and are less risk tolerant
than their single counterparts.

Relationship between Income and information search

Correlations

Information
Net Income Search
Net Income Pearson Correlation 1 .219**
Sig. (2-tailed) . .007
N 150 150
Information Pearson Correlation .219** 1
Search Sig. (2-tailed) .007 .
N 150 150
**. Correlation is significant at the 0.01 level (2-tailed).

According to the results obtained from the data collected from the survey income is
directly correlated to information search. Income shows positive correlation of 21.9%. As net

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income increases information search increases. High income consumers tend to employ
professional advice for their investments, also as income increases people has a tendency to
employ in riskier assets. P value less than 0.05 hence the sample taken is valid. Therefore our
hypothesis income is inversely proportional to information search is wrong.

From the data it is concluded that Information search is positively correlated with net income

Relationship between Education Level and Information Search

ANOVA

Information Search
Sum of
Squares df Mean Square F Sig.
Between Groups 3138.069 5 627.614 8.001 .000
Within Groups 11296.071 144 78.445
Total 14434.140 149

Education level is a categorical variable, including less than high school, high school diploma,
some college or technical school, and college degree or higher. Information search tends to
increase with education level. Being ordinal we go for ANOVA to explain the relationship. Less
educated does little information search compared to others. Use of internet, financial journals
and professional advice is used very rarely by the lower education class for information search
they resort to daily newspaper, friends and family for information search.

Here p value equals zero hence the sample is accepted. And the alternate hypothesis is
accepted. It can be concluded that education level and information search are related.

Relationship between risk tolerance and Subject knowledge

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 Correlations

Risk Subject
Tolerance Knowledge
Risk Pearson Correlation 1 .485**
Tolerance Sig. (2-tailed) . .000
N 150 150
Subject Pearson Correlation .485** 1
Knowledge Sig. (2-tailed) .000 .
N 150 150
**. Correlation is significant at the 0.01 level (2-tailed).

In this study an attempt is made to analyze the relation between subject Knowledge and
risk tolerance.

The amount of investments is a continuous variable indicating the total amount of a

respondent‟s financial assets in dollars, including savings, stocks, mutual funds, bonds, trusts,
and annuities. Amount of investment is positively correlated at 48.5%the p- value is 0. Which is
less than the limit of 0.05, therefore the sample maps the properties of the population and the
result is valid. Here it is found that highly knowledgeable investors tend to be more risk tolerant t

It can be concluded that there is knowledgeable customers tend to be more risk

tolerant than their less knowledgeable counterparts.

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 Chapter 5

Findings and Suggestions

Findings

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  There exists a positive relationship between the amount of the investment and the extent
of information search.

 More knowledgeable consumers tend to use more information sources than less
knowledgeable consumers

 Consumers who are married tend to employ more information search.

 Income has a positive relationship with the use of more time-intensive information search

 Education level has been found to be positively associated with information search.

 Knowledgeable customers tend to be more risk tolerant than their less knowledgeable
counterparts.

Suggestions

 Most of the respondents felt they wanted to invest more in risky investments. But
majority of them feel their knowledge is not adequate and they are not confident. It is
found that more information search increases the confidence of investor and improves his
risk tolerance behavior

 Amount of investment is directly correlated to information search. Higher the amount

people tend to make use of more information sources. Professional advices are taken by
investors when the amount of investment is high, even if the customer is qualified to
make his own investment decision

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Conclusion

The study reveals that information search and risk tolerance are factors which influence
investment decision. Information search increases the confidence of the investor while risk
tolerance reduces the confidence. Both act in opposite directions. Information search is directly
correlated to demographic factors like gender, marital status, education level, amount of
investment and income. While their relationship with age cannot be established.

Bibliography

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  Qihua “Catherine” Lina,* Jinkook Lee Consumer information search when making
investment Decisions Financial Services Review 13 (2004) 319–332

 Andreasen, A. R., & Ratchford, B. T. (1976). Factors affecting consumers‟ use of

information sources. Journal of Business Research, 4, 197–212.

 Beatty, S. E., & Smith, S. M. (1987). External search effort: An investigation across
several product categories. Journal of Consumer Research, 14, 83–95.

 Bennett, P. D., & Harrell, G. D. (1975). The role of confidence in understanding and
predicting buyers‟ attitudes and purchase intentions. Journal of Consumer Research, 2,
110–117.

 Brucks, M. (1985). The effect of product class knowledge on information search

behavior. Journal of Consumer Research, 12, 1–16.

 Cole, C. A., & Balasubramanian, S. K. (1993). Age differences in consumers‟ search for
information: Public policy implications. Journal of Consumer Research, 20, 157–169.

 Dowling, G. R., & Staelin, R. (1994). A model of perceived risk and intended risk-
handling activity. Journal of Consumer Research, 21, 119–134.

 Hanna, S., & Chen, P. (1997). Subjective and objective risk tolerance: Implications for
optimal portfolios. Financial Counseling and Planning, 8, 17–26.

 Moorthy, S., Ratchford, B. T., & Talukdar, D. (1997). Consumer information search
revisited: Theory and empirical analysis. Journal of Consumer Research, 23, 263–277.

 Phillips, L. W., & Sternthal, B. (1977). Age differences in information processing: A

perspective on the aged consumers. Journal of Marketing Research, 14, 444–457.

 Schaninger, C. M., & Sciglimpaglia, D. (1981). The influence of cognitive personality

traits and demographics

 on consumer information acquisition. Journal of Consumer Research, 8, 208–216.

 Schmidt, J. B., & Spreng, R. A. (1996). A proposed model of external consumer

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Book Referred:

“Marketing Research”, by Naresh K. Malhotra.

32
Annexure

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 Dear Sir/Madam,
I am Geo Xavier currently doing my 4th Sem MBA at Rajagiri School of Management. As part
of academic requirement, I am doing a dissertation study titled “A STUDY ON THE IMPACT
OF INFORMATION SEARCH ON INVESTMENT DECISION " for which I request your
kind cooperation. Kindly provide me with some information which I assure would be used
purely for academic purpose
Name: …………………………….
Age :……………………………….

Education:
(a)10th (b) 12th (c)Graduation (d)Post Graduation
Annual Household Income:……………
Amount of investment:………………...
(1 _ mostly agree, 2 _ somewhat agree, 3_neutral , 4 _ somewhat disagree, and 5 _ strongly
disagree)
1. My household knows how to choose the financial products and services that are best for us
. 1 2 3 4 5

2. I consider myself a sophisticated investor.

1 2 3 4 5

3. I need help selecting savings and investment products that are best suited to meet my financial
goals.

1 2 3 4 5

4. I feel qualified to make my own investment decisions.

1 2 3 4 5

5. I do not need advice on investment options.

1 2 3 4 5

34
6. It‟s very important to me to have both a guaranteed interest rate and federal insurance on my
savings.

1 2 3 4 5

7.I am willing to accept some risk of losing money if an investment is likely to come out ahead
of inflation in the long run.

1 2 3 4 5

8.It is wise to put some portion of savings in uninsured investments to get a high yield.

1 2 3 4 5

9.I am willing to take substantial risks to realize substantial financial gains from investments.

1 2 3 4 5

(1 _ a very low return with a very low risk of loss, 5 _a very high return with a very high
risk of loss).

10.Where would you prefer to put most of your household’s savings and investments?

1 2 3 4 5

11. Information sources (Tick whichever is applicable. You can tick more than one option)

(i)Literature (i.e., books, consumer magazines, other magazines, newspaper articles, financial
newsletters, and financial institution brochures/written materials),

(ii)Media (i.e., radio programs, broadcast TV programs, education TV programs, cable TV program, radio
advertisements, TV advertisements, daily newspaper or magazine advertisements, or financial
newspaper or magazine advertisements),

(iii)Internet,

(iv)Friends/family (i.e., friends/relatives and persons at workplace),

(v)Professional financial service providers (i.e., financial institution personnel and seminars

THANK YOU

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