NEEDS THEORY ON INVESTORS’ IRRATIONALITY WITH THE MODERATION IMPACT OF INVESTOR CATEGORY: EVIDENCE FROM SRI LANKA

Abstract

Although conventional finance is the central point of the finance research arena, disciplines such as psychology and sociology are crucial in the stock market investment decisions. This study tests the impact of psychological attributes in stock market investment decisions by applying the well-established Trichotomy of Needs Theory by David McClelland. As a secondary objective, the moderation impact of investor category on the relationship between Needs Theory and individual investors’ stock market investment decision has been tested. In this quantitative study, data was gathered through a structured questionnaire from a sample of 386 individual investors in the Colombo stock market using systematic random sampling. Hypotheses were developed, and data was analyzed using the Structural Equation Model (SEM) using AMOS statistical software. Results show that there is a significant positive impact on individual investors’ stock market investment decisions from both the Need for Affiliation and Need for Achievement. The results embrace a significant positive moderation impact from the ‘investor category’, on the relationship between Need for Affiliation and individual investors’ stock market investment decision. Moreover, a significant-positive moderation impact from the ‘investor category’ has been identified on the relationship between the Need for Achievement and individual investors’ stock market investment decision. This study leads to the novel finding those personal characteristics of individual investors explained by their needs lead to variations in their stock market investment decisions. When making the stock market investment decision, individual investors can assess their personal Need characteristics to make a sound stock market investment decision.