Investment behaviour of Indian Investors: Gender Biasness

Ms. Priya Kansal, Research Scholar

priyagoel0211@gmail.com
Dr. Seema Singh, Associate Professor in Economics
seemasinghdtu@gmail.com
Delhi Technological University, Delhi-110042

Abstract:

There are number of studies which favour the existence of gender biasness in investment
patterns. Most of the studies conclude that women invest more conservatively than men (Yao,
R. & Hanna, S.D., 2005) and that the women are more risk averse (Julie R. Agnew, 2005).
Some studies also contend that women are less confident about their investment decisions
and earn less return in compare to men (Barber B and Odean T., 2001). In this context, this
paper aims to study whether these gender differences really exist in India. Using NCAER
household survey report, the paper examined the household investing and saving patterns of
Indian investors. The gender difference has been studied in terms of their risk tolerance viz
their risk bearing capacity, risk perception i.e. how they assume risk within different
constraints, time horizon for investment, preference for investment alternatives among the
vast number of alternatives available in the Indian capital market etc. We also examined the
factors which influence the investment behaviour of women such as age, level of education,
their marital status, income, dependency etc.

JEL Classification: J16, G11, G23

Keywords: Gender Difference, Risk perception, Investment Behaviour, Women Investment.

Introduction:
After the global financial crisis of 2008 and 2009, the Indian financial sector has now
emerged stronger. The investments and savings are increasing in terms of volumes and
number of investors. As the number of investors is increasing, the most common discussion
based on gender biasness again becomes the interest of investors. There are number of
studies, which have shown that the financial behaviour of men and women differ
significantly. Women hold low risk tolerance i.e. are more risk averse than men and also
sometimes earns less returns from their investments. Except this, women invest more

Electronic copy
Electronic copy available
available at:
at:https://ssrn.com/abstract=2358344
http://ssrn.com/abstract=2358344
conservatively their financial resources and have shows low confidence regarding their
financial behaviour. In this paper we are studying the investment behaviour of individuals,
residing in the territory of India, dividing them in the strata of male and female with reference
to their preference for investment alternative, their risk behaviour, the level of confidence
regarding their financial decisions, the factors which influence their behaviour, etc.

Literature Review:
There are number of studies available, which have discussed the difference in financial
behaviour of male and female investors and the factors which influence this behaviour.
Researchers like Suden et al.(1998) Julie R. Agnew (2005), Perrin (2007), Oslen and
Cox(2001), Schmidt & Sevak (2006) shows that women are more risk averse then men in
general and this defines their choice of less risky assets in their portfolios.

Except this, Guiso, Jappelli and Terlizzese (1996), Bajtelsmit and VanDerhei (1997),
Hariharan, Chapman and Domain (2000), Hartog, Ferrer-I-Carbonell and Jonker (2002)
concluded that males are more risk tolerant than females. Powell & Ansic (1997) find that
men have significantly higher preference for risk than women. Males prefer “riskier”
investment strategies in order to achieve the highest gains, while women select “safer”
strategies that allow them avoiding the worst possible losses [Odean (1998), Barber and
Odean (2001), Benartzi and Thaler (2001), Gervais and Odean (2001), and Daniel and
Huberman (2003)]. Graham (2002) found that women have less confidence regarding their
decision related to financial issues.
Fellner & Maciejovsky (2007) reveal a systematic correlation between gender and risk
attitudes. Further Fellner & Maciejovsky (2007) find that women prefer less volatile
investments and exhibit lower market activity, e.g. they submit fewer offers and engage less
often in trades.
Women give a lot of priority and importance to the advices given by Financial Advisors (FA)
and depend on them for guidance than men. Female investors are more detail oriented; and
want to read more and understand financial matters better and they ask more questions than
male clients (Worley, 1998).
Jianakoplos & Bernasek (1998) test gender differences in investment behaviour on a large
data set drawn from the Survey of Consumer Finances (CFS) 1989. The analysis reveals that
single women are relatively more risk averse than single men or married couples.

Electronic copy
Electronic copy available
available at:
at:https://ssrn.com/abstract=2358344
http://ssrn.com/abstract=2358344
Some studies concluded that since women earn less compare to men, they have lower wealth
accumulation and hence lower investment and saving rates [Blau & Kahn (2000), Moore &
Shierholz (2004), O‟Neill (2003)].
In India there are very few studies which have presented these gender gaps. Madhusoodanan
(1997) suggested that risk tolerance serves as an illusion of control and thus overconfidence.
Somasundaram (1998) concluded that the investors of Coimbatore prefer the bank and chit
fund deposits to save. Mutual funds are the least preferred instrument for investment.
Rajarajan (2003) and Shobhana and Jayalaxmi (2005) bought out the fact that there is a
strong association between the demographic factors and the risk tolerance of the investors.
Sharma and Sharma (2004) pointed out that the retail investment activity in India is very low.
However the young generation of Jammu holds a positive attitude towards the stock market
with moderate belief. Rajarajen (2010) revealed that the population of Indian investors have
increased in the recent years. Similarly, the surveys organised by government bodies such as
NCAER, RBI Survey talk about the individual investor‟s investment and saving behaviour.
In the same line, Hira and Mugenda (2000) state that an advisor needs to understand the
factors that underlie a client‟s financial behaviours before they can effectively advise them,
and numerous studies have shown that men and women think and behave differently when it
comes to managing money.
However there exist some studies exist which denies the existence of any gender gap. For
example Schubert et al. (1999) find no influence of gender on financial decisions. Masters
and Meier (1988) found no difference in the risk taking propensity of male and female
entrepreneurs.
Research Methodology:
Formulation of Hypotheses: Hypotheses are formulated considering „no difference’ exists in
the investment behaviour among Male and Female investors.
Ho: There will be no difference between male and female households with regard to:
 The preferred investment alternative
 The amount allocated to investments
 The time horizon for investments
 The relative risk aversion
 The risk tolerance
 The perception of risk
 The level of confidence

Electronic copy available at: https://ssrn.com/abstract=2358344

  The use of windfall income
 The portfolio diversification strategy
 The importance of expert’s advice
 The factors influencing the investment in capital market
Sample:

The data set used in this study is the 2011 Survey of National Council of Applied Economic
Research, titled “How Household Invest: Evidence from NCAER Household Survey”
sponsored by Securities Exchange Board o India (SEBI).

The household is the basic unit of analysis in the study. The survey was conducted in 52
major states/ Union Territories of India. The sample size is 38,412.
Chi square test is used for analyze the formulated hypotheses with the help of SPSS 21.0
package.
Data Analysis:
Table 1 represents the summarised data which is given in NCAER survey report. However
we have summarized the data as per our requirements. We have worked on the following 11
parameters:
Parameter 1: Investment Preference :- As per the survey, assuming a level of risk aversion
and information asymmetry, investment preference shows how a rupee of surplus income
has been allocated across various investment options by the households. We find that mutual
funds constitute the single largest allocation by male(40.75%) and female (41.63%)
compared to all other options. Since mutual funds provide returns that are in general greater
than market returns and expose investing households to risks that are lower than the market
risks, Both male and female households prefer this medium over retail investing. Retail
investing is "costlier" in terms of time and information as well as the variability of returns.
This explains why a mere 21.38 percent (male) and 19.23 percent (female) of all households
prefer to invest in the secondary market. Other choices such as derivatives and bonds are
even less preferred by male investors. However it is noticeable that female investors are more
interested in derivatives.
Parameter 2: Level of Investment:- Report shows that men and women invest almost same
amount.

Electronic copy available at: https://ssrn.com/abstract=2358344

Parameter 3: Time Horizon: - This shows the relationship between gender and time horizon
for investment. It is interesting to know that women are involved in more speculative
behaviour when compared to men.
Parameter 4: Relative Risk Aversion:- The relative risk aversion (risk tolerance) of a
household has been captured using a risk scale, which can be defined as;

RAi
ri 
TAi
i  1, 2,3, 4......N
ri  0, Reflects that household is risk averse
ri  1, Reflects that household tolerate risk
Reflects that household is risk averse
where ri is the Reflects
proportion of risky assets,
that household RAi is asset holdings with some degree of risk, Tai
is risk averse
is total asset holdings, i is the household. The risk scale reflects the proportion of risky assets
in an investor's portfolio. The numerator of this ratio is the value of investments in risky
assets and the denominator is the total value of financial wealth. The risk scale is bounded
between 0 and 1. We divide the risk scale into four categories, viz., less than equal to 0.25,
greater than 0.25 but less than equal to 0.50, greater than 0.50 but less than equal to 0.75 and,
greater than 0.75. The degrees of the risk tolerance scale are in increasing order from 0 to 1.
The study shows that most of the investors are risk averse. Here also, women involve in less
risky behaviour.
Parameter:5: Risk Tolerance:- The self-perception of households with respect to their
willingness to take risk is examined using the following neutral statement:
Which of the following statements is true for you? Willingness to take substantial financial
risks/ Willingness to take above-average financial risks, expecting to get above average
financial returns/ Willingness to take average financial risks, expecting to get average
financial returns/ Not willing to take any financial risks.
The findings are consistent with the findings of Parameter 4 i.e. majority of investors either
men or women are low risk taker.
Parameter 6: Confidence Level:- NCAER used the following vignette to judge the level of
confidence:
"You have saved money for a "world tour" that you were looking forward to for a long time.
A month before you plan to leave, you lose your job. You would: [Very low level of
confidence=Cancel the trip; Low level of confidence=Take a shorter vacation; High level of
Confidence=Go as scheduled, reasoning that you will use that time to prepare for a job

Electronic copy available at: https://ssrn.com/abstract=2358344

search; Very High level of Confidence=Extend your vacation, because this might be your
only chance for such a trip]".
The responses are not in the line of previous studies which say that women are less confident.
Table1 shows the less confident behaviour of men.
Parameter7: Use of Windfall Income:- Windfall gains are unexpected increase in income.
One would expect such unexpected income to be used for relatively risky ventures. The
following vignette is used to know the behaviour of households:
"If you unexpectedly receive ` 50,000, what would you do? [Saving Only=Deposit it in a
bank account; Invest in risk free securities =Invest in high-quality govt. bonds; Invest in
securities having moderate risk=Invest in mutual funds; Invest in securities having high
risk=Invest in stocks; No saving or investment=Spend it]".
Responses shows men and women show the same attitude towards the use of windfall income
and prefer to save it.
Parameter 8: Definition of risk:- This was the simply asked question the option mentioned
in table 1 under parameter 8. Investors take it as the uncertainty of returns.
Parameter 9: Portfolio Diversification:- This parameter discussed the portfolio
diversification strategy adopted by me and women. Table 1 show that women consist more
risky securities in their portfolio.
Parameter 10: Expert Advice: - Basically this parameter shows the herd behaviour of
investors. The following vignette is used to know the herd behaviour of households:
"Some experts are predicting that the prices of assets such as gold, jewels, collectibles, and
real estate (hard assets) will increase in value; bond prices may fall. However, experts have
advised you that government bonds are relatively safe. Most of your investments are
currently in high-interest government bonds. What would you do? [Truther=Hold the bonds;
Liberal=Sell the bonds, put half the proceeds into the stock market, and the other half into
assets such as land; Free Thinker=Sell the bonds and put all the money into buying land and
precious metals; Contrarian=Sell the bonds and put all the money into buying assets like land
and borrow additional money to buy more assets such as land]"
The study shows that when it comes to follow the advice of experts, both male and female
shows the little bit influence of expert‟s advice.
Parameter 11: Factors influencing the investment in the stock market:- As per the
NCAER survey report, women invest less in stock market because of their resource
constraints whereas men invest less because they don‟t know about the investment options.

Electronic copy available at: https://ssrn.com/abstract=2358344

 Table:1
S.
Parameters of Study Men Women
No.
1. Investment Preference
Mutual Fund 40.75 41.63
Bond Only 15.09 14.79
Debenture Only 8.68 6.74
IPO Only 8.71 4.51
Secondary Market Only 21.38 19.23
Derivatives Only 5.4 13.71
2. Level of Investment
Lowest 19.89 21.7
IInd Quintile 19.91 20.69
IIIrd Quintile 20.01 19.94
IVth Quintile 20.47 16.58
Highest 19.71 21.09
3. Preferred Time Horizon for Investments
Upto 3 years 33.68 37.98
3 to 5 years 32.23 33.99
More than 5 years 34.08 28.03
4. *Relative Risk Aversion
< 0.25 49.22 53.32
0.25 - 0.50 14.06 16.04
0.5 - 0.75 16.91 16.94
> 0.75 19.81 13.69
5. Risk Tolerance
No Risk Taker 39.55 36.38
Moderate Risk Taker 20.9 24.09
High Risk Taker 17.76 21.32
Substantially High Risk Taker 21.78 18.21
6. Confidence Level
Very Low 32.62 23.99

Electronic copy available at: https://ssrn.com/abstract=2358344

 Low 36.24 44.32
High 24.55 23.99
Very High 7.59 7.69
7. Use of Windfall Income
Only Saving 31.39 31.79
invest in risk free securities 23.49 23.48
invest in securities having moderate risk 20.3 23.48
invest in securities having high risk 13.88 11.83
no saving or investment 10.95 9.43
8. Risk Definition
Loss 22.13 23.82
Uncertainty of Returns 42.43 42.36
Opportunity for Significant Return 27.32 24.91
Thrill 8.11 8.91
9. Portfolio Diversification
60% in Low Risk, 30% in Medium Risk and 10 % in High
27.71 22.45
Risk
30% in Low Risk, 40% in Medium Risk and 30 % in High
50.61 52.5
Risk
10% in Low Risk, 40% in Medium Risk and 50 % in High
21.68 25.05
Risk
10. Following the Experts
Truther 25.28 26.74
Liberal 26.65 24.54
Free thinker 27.09 29.3
Contrarian 20.98 19.41
11. Factors affecting the investment in capital market
Returns 5.07 3.22
Surety of Returns 13.6 12.22
Liquidity 8.23 8.08
Information about instruments 26.85 22.24
Knowledge 14.27 16.38

Electronic copy available at: https://ssrn.com/abstract=2358344

 Role of Regulator 6.19 7.73
Financial Resources 25.81 30.15

Interpretation:
 The above discussed parameters are the basis of our study to know if there is any
difference in regarding the financial behaviour of male and female households. As
mentioned above the null hypotheses are tested with the help of Pearson Chi- Square
Test using SPSS 21.0. The Chi –square test is done at the significant level of 5%, i.e.
calculated p-value is compared with 0.05. Table 2 shows that p – value is higher than
the level of significant for all the parameters i.e. p> 0.05, hence all the null hypotheses
are accepted. This means there is no significance difference among the male and
female households with regard to the preferred investment alternative, the amount
allocated to investments, the time horizon for investments, the relative risk aversion,
the risk tolerance, the perception of risk, the level of confidence, the use of windfall
income, the portfolio diversification strategy, the importance of expert‟s advice and
the factors influencing the investment in capital market.
Table:2
S. Chi- p- Critical
Parameters df
No. square value value Decision
1. Investment Preference 5.056 0.409 5 11.07 Accepted
2. Level of Investment 0.382 0.984 4 9.488 Accepted
3. Preferred Time Horizon for Investments 0.863 0.649 2 5.991 Accepted
4. Relative Risk Aversion 1.349 0.718 3 7.815 Accepted
5. Risk Tolerance 1.021 0.796 3 7.815 Accepted
6. Confidence Level 2.222 0.528 3 7.815 Accepted
7. Use of Windfall Income 0.579 0.965 4 9.488 Accepted
8. Risk Definition 0.218 0.975 3 7.815 Accepted
9. Portfolio Diversification 0.945 0.623 2 5.991 Accepted
10. Following the Experts 0.325 0.955 3 7.815 Accepted
11. Factors affecting the investment in
capital market 1.864 0.932 6 12.592 Accepted

Conclusion:

Electronic copy available at: https://ssrn.com/abstract=2358344

As the position of women is changing day by day, now women are also having a strong
profile in the society. Now she is playing a role of not only a homemaker, but also dealing
with high valued decisions including financial decisions at par with men. The above
discussion shows that the decisions taken by the women are not different from the
decisions taken by men. This result is however not in the line of previous studies which
say that the financial behaviour of men and women have a significant difference. The
reason may be the recent financial turmoil due to which a significant change has occurred
in the investment activities of both men and women.

References:
1. Agnew, J. (2005), Do behavioural biases vary across individuals? Evidence from
individual level 401(k) data, Journal of Financial and Quantitative Finance, Vol.41,
pp.939–962.
2. Bajtelsmit, V. L., & VanDerhei, J. A. (1997), Risk aversion and retirement income
adequacy in M. S. Gordon, O. S. Mitchell, & M. M. Twinney (Eds.), Positioning
pensions for the twenty-first century, Philadelphia, University of Pennsylvania Press.
3. Benartzi, Shlomo, and Richard H. Thaler, 2001, Naive Diversification Strategies in
Retirement Saving Plans, American Economic Review, Vol.91, No.1, pp. 79-98.
4. Barber B and Odean T (2001), Boys will be Boys: Gender, Overconfidence and
Common Stock Investment, Quarterly Journal of Economics, Vol. 116, No. 2, pp
261-292.
5. Blau, F. D. and Kahn, L. M. (2000), Gender differences in Pay, Journal of Economic
Perspectives, Vol.14, pp.75-99.
6. Daniel Dorn and Huberman Gur (2003), Talk and Action: What Individual Investors
Say and What They Do, European Finance Association Meetings in Glasgow,
December 16
7. Deb M. and Chavali K. (2009), A Study of Gender Differences in Investment
Behaviour, Asia Pacific Business Review, Vol. 5, No.3, pp. 45-55
8. Fellner, G. & Maciejovsky, B. (2007), Risk attitude and market behaviour: Evidence
from experimental asset markets, Journal of Economic Psychology, Vol. 28, No.3,
pp.338–350.
9. Gervais S and Odean T (2001), Learning to be Overconfident, Review of Financial
Studies, Vol. 14, No. 1, pp- 127

Electronic copy available at: https://ssrn.com/abstract=2358344

10. Graham, J., Stendardi, E., Meyers, J. and Graham, M. (2002), Gender Differences in
Investment Strategies: An Information Processing Perspective, International Journal
of Bank Marketing, Vol. 20, No.1, pp. 17-26.
11. Guiso, L., Jappelli, T., & Terlizzese, D. (1996). Income risk, borrowing Constraints,
and portfolio choice. American Economic Review, Vol.86, No.1, pp. 158-172.
12. Hariharan, G., Chapman, K. S., & Domain, D. L. (2000). Risk tolerance and asset
allocations for investors nearing retirement. Financial Services Review, Vol.9, No.2,
pp. 159-170.
13. Hartog, J., Ferrer-i Carbonell, A. & Jonker, N. (2002), Linking measured risk aversion
to individual characteristics, Kyklos Vol. 55, No.1, pp. 3–26
14. Hira, T. and Mugenda, O. (2000), Gender Differences in Financial Perceptions,
Behaviours and Satisfaction, Journal of Financial Planning, Vol. 13, No. 2, pp. 86-
92.
15. Jianakoplos, N. A. & Bernasek, A. (1998), Are women more risk averse?, Economic
Inquiry Vol.36, No. 4, pp. 620–630.
16. Madhusoodanan T P (1997), Risk and Return: A New Look at the Indian Stock
Market, Finance India, Vol. 11, No. 2, pp 285 - 304.
17. Masters, R., & Meier, R. (1988). Sex differences in Risk taking Propensity of
Entrepreneurs. Journal of Small Business Management, Vol.26, No.1, pp. 31-35.
1. Moore, Q., & Shierholz, H. (2004). Why did the convergence of male and female
wages slow during the 1990s? Unpublished manuscript. Michigan Retirement
Research Centre, University of Michigan, Ann Arbor, MI.
2. National Council of Applied Economic Research (2011), How Household Invest:
Evidence from NCAER Household Survey, sponsored by Securities Exchange Board
o India (SEBI).
3. ONeill, J. (2003). The gender gap in wages, circa 2000. American Economic Review,
Vol.93, No.2, pp.309-314.
4. Odean T (1998), Volume, Volatility, Price and Profit When All Traders are Above
Average, Journal of Finance, Vol. 53, No. 5, pp 1775-1798.
5. Olsen, R. A. & Cox, C. M. (2001), The influence of gender on the perception and
response to investment risk: The case of professional investors, Journal of
Behavioural Finance, Vol.2, No.1.

Electronic copy available at: https://ssrn.com/abstract=2358344

6. Powell, M. & Ansic, D. (1997), Gender differences in risk behaviour in financial
decision making: An experimental analysis, Journal of Economic Psychology, Vo.18,
No.6, pp.605–628.
7. Schmidt, Lucie & Sevak P.(2006).Gender, Marriage and Asset Accumulation in the
United States, Feminist Economics,Vol.12, No.12, pp 139-166
8. Sharma B.C and Sharma Dinesh (2004), An empirical study of stock investment
behaviour in Jammu-An emerging market, Indian Journal of Finance and Research,
Vol. 14, No.1and2.
9. Somasundaram V.K. (1998), A Study on Savings and Investment Pattern of Salaried
Class in Coimbatore district. Unpublished Thesis, Bharathiyar University,
Coimbatore, Tamilnadu.
10. Rajarajan.V (2003), Investors Demographics and risk bearing capacity; Finance
India, Vol.17, No.2, pp.565-576.
11. Shobhana V.L. and J. Jayalakshmi(2005),Investor Awareness and Preference: A study
University of Madras, Tamilnadu.
12. Rajarajen Vanjeko (2010), Indian Investors Investment Characteristics, Indian
Institute of Finance, Vol.4, No.3&4, pp.1274-1294.
13. Schubert, R., Brown M., Gysler M. and H. W. Brachinger (1999), Financial Decision-
Making: Are Women Really More Risk-Averse?, American Economic Review
(Papers and Proceedings), Vol.89, No.2, pp.381-385.
14. Sunden, A and Surette, B. (1998), Gender Differences in the Allocation of Assets in
Retirement Saving Plans, American Economic Review, Vol. 88, No.2, pp. 207-212.
15. Worley, D. (1998), Women Finding Investing A Necessity, Many Band Together,
Create Investment Clubs, Florida Today, 10 February, p. 12C.
16. Yao, R. & Hanna, S.D. (2005), The effect of gender and marital status on financial
risk tolerance, Journal of Personal Finance, Vol.4, No.1, pp.66-85.

Electronic copy available at: https://ssrn.com/abstract=2358344