Chapter 4: Research Methodology

Chapter 4
Research Methodology
Chapter No. Contents Page No.
4.1 Introduction 54
4.2 Statement of Problem 54
4.3 Objectives of the Study 55
4.4 Hypothesis 55
4.5 Research Design 58
4.5.1 Research Study 58
4.5.1.1 Exploratory Research 58
4.5.1.2 Descriptive Research 58
4.5.1.3 Causal Research 59
4.5.2 The Universe 59
4.5.3 Sampling Element 60
4.5.4 Sampling Frame 60
4.5.5 Sample 60
4.5.6 Sampling Technique 60
4.5.7 Sample Size 61
4.5.8 Method of Data Collection 61
4.5.9 Tools of Data Collection/Research 62
Instrument
4.5.10 Description of the Measurement Scale 63
4.5.11 Pilot Testing of Questionnaire 78
4.5.12 Coding the Questionnaire 78
4.5.13 Time Dimension of the Study 80
4.5.14 The Research Environment 80
4.5.15 Procedure of Research 80
4.5.15.1 Dependent Variables 81
4.5.15.2 Independent Variables 82
4.5.16 Data Analysis 82
4.5.17 Software used for Data Analysis 82
4.6 Conclusion 83

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 Chapter 4: Research Methodology

Chapter 4: Research Methodology

4.1 Introduction

Research comprises the fundamental and supporting block of every subject base. It
could be defined as methodical and planned process undertaken to come at conclusion
of predefined problem. Grinnel (1993) has simplified the debate and stated that the
word research is a combination of two words, re and search. The lexicon defines
research as in two conclusion ways the prefix means again, unique and the suffix as to
examine closely or carefully. Combined, they make of word that is structured and
careful study undertaken for the examination or investigation of some facts,
undertaken to ascertain facts or principles. Kothari (1999) defines research as
scientific and systematic search for relevant information on a specific topic.

Therefore it can be concluded that research in management field is ethical, transparent

and structured method of investigation that is directed towards well focused business
objective. This enquiry leads to validating existing postulates or arriving at new
theories and models.

A well-organized research methodology helps to complete research successfully. It

includes several logical steps undertaken by researcher in studying his or her research
problem. According to Nargundkar (2010), major elements of research methodology
comprises of problem statement, research design, sampling method, questionnaire
design, field work plan and analysis plan.

Following unit of the chapter provides how systematically the study conducted, which
specifies the method of attaining the stated research objectives in the best possible
manner.

4.2 Statement of Problem

Human behaviour has largely been ignored in understanding financial market. The
most researches on investor‟s behaviour has focused on testing the efficiency of the
financial market identifying the anomalies due to investor‟s behaviour and testing the
assumption that economic agent is rational as prescribed by expected utility theory.

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 Chapter 4: Research Methodology

The traditional models do not fully explain the movement in the share price.
Researcher advocates that understanding investor‟s sentiment can offer a better
explanation of stock price performance. The factors that affect investors sentiment is
need to be identified.

4.3 Objectives of the Study

To understand investor‟s sentiment concept.
To identify the factors which influence most the investor‟s sentiment in India.
To find out which types of information an individual investors look at when
making investment decisions in India.

4.4 Hypothesis

Problem identification and formulation process ultimately ends in the statement or

assumption that is to be authenticated with the help of research process. The
nomenclature for the same in the language of research is research hypothesis. Simply
stated hypothesis represents notional statement of the relationships between two or
more variables (Kerlinger 1986). As defined by Grinnell (1993), hypothesis is written
in such a way that it can be proven or disproven by valid and reliable data.

Hypothesis can be bifurcated in two categories (1) Descriptive hypothesis which

exhibits statement about trend or behaviour under the carried out research activity (2)
relational hypothesis are the typical kind of hypothesis which state the expected
relationship between two variables. If researcher uses words such as increase
decrease, less than or more than while formulating hypothesis, it is stated to be
directional or one tailed hypothesis. A hypothesis must be formulated in simple, clear,
and declarative form. The formulated hypothesis should be clear and measurable so
that it can be tested by statistical measures for authentication. In current study
hypothesis possesses the descriptive characteristics.

In present study, following hypothesis have been developed to achieve the objectives
of the study.

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 Chapter 4: Research Methodology

(All Null Hypotheses)

Investor’s Optimism: Investor‟s optimism means „nothing can go wrong

attitude‟ is measured through Investors believe that 1) In India, share price
will rise for the next 12 months and 2) If the Indian stock market Index
dropped on tomorrow, the investor would guess that it would recover most of
losses in few days.

H01: Investor‟s Optimism is not influenced by the Herd Behaviour of Investor

(HB)

H02: Investor‟s Optimism is not influenced by the Internet Led Access to

Information and Trading (ILAIT)

H03: Investor‟s Optimism is not influenced by the Macro-Economic Factors

(ME)

H04: Investor‟s Optimism is not influenced by the Risk and Cost Factors
(RCF)

H05: Investor‟s Optimism is not influenced by the Performance Factor and

Confidence level of Institutional Investors (PFCI)

H06: Investor‟s Optimism is not influenced by Best Game in Town (Attractive

enough to invest) (BG)

Investor’s Participation: It is measured through following two statements;

(1) Presently I will stay invested in the Indian stock Market

(2) I plan to increase my investments in the Indian Stock Market in the next 12
Months.

H07: There is no relationship between Investor‟s Participation and Financial

Characteristics (FC)

H08: There is no relationship between Investor‟s Participation and

Psychological Factors and Quality of Management (PF & QM)

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 Chapter 4: Research Methodology

H09: There is no relationship between Investor‟s Participation and Who Else is

Buying (WEB)

H010: There is no relationship between Investor‟s Participation and Past Price

Performance and Sector Attractiveness (PPPSA)

H011: There is no relationship between Investor‟s Participation and Expected

Events Surrounding the Stock and Book Value (EESSB)

H012: There is no relationship between Investor‟s Participation and

Recommendations of Financial Community (RFC)

Stock Market Outlook: It is measured through following two statements.

1) In Indian stock market, most of the shares are overvalued relative to their
fundamental value.
2) A major stock market correction like that of the 2008 could happen in India
in next 12 months.

H013: Stock Market Outlook is not influenced by Herd Behaviour. (HB)

H014: Stock Market Outlook is not influenced by the Macro-Economic Factors

(ME)

H015: Stock Market Outlook is not influenced by the Internet Led Access to
Information and Trading (ILAIT)

H016: Stock Market Outlook is not influenced by Performance Factor and

Confidence level of Institutional Investors (PFCI)

H017: Stock Market Outlook is not influenced by Risk and Cost Factor (RCF)

H018: Stock Market Outlook is not influenced by Psychological Factors and

Quality of Management (PF & QM)

H019: Stock Market Outlook is not influenced by Who Else is Buying (WEB)

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 Chapter 4: Research Methodology

4.5 Research Design

After establishing objectives of research the next step is to decide what will be the
form of study (Research Design). It stipulates the method of achieving the objectives
in the best possible manner. Research design entails the detailed plan for executing
the research study (Thyer 1993).

4.5.1 Research Study

The basic classifications of research study are Exploratory, Descriptive and Causal
Research.

4.5.1.1 Exploratory Research

When basic objective of research study is to explore and to gain background

information to define terms, obtain clarity of the problem situation exploratory
research study is the best suitable method. It is flexible in its approach and mostly
requires a qualitative investigation. There are several methods or techniques for
conducting exploratory research such as secondary data sources, expert interview,
structured or unstructured observations, case study, pilot survey and focus group
discussion. Moving forward by the way of exploration, researcher would be in a
position to expand concepts more visibly, can set priorities, develops operational
definition and get better in the final research design (Cooper, 2008).

4.5.1.2 Descriptive Research

The second set of research design is more organized or structured in approach.

Termed as descriptive study, the aim of the study is to seek inclusive and complete
information of a phenomenon under study. It is undertaken to ascertain and to
describe the characteristics of the variables of interest in a situation (Sekaran, 2006).

According to Cooper (2008) the objective of descriptive research is to learn who,

where and how of a topic under study. This study is used for the given purposes
hereunder:

Descriptions of phenomena or characteristics relevant to subject population

(who, what, when, where, and how).
Estimate the extents of a population which have these characteristics.

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 Chapter 4: Research Methodology

Detection of associations among diverse variables.

The said study, descriptive could be further bifurcated into categories like (1) Cross
sectional study; is carried out at a single moment of time and on a segment of
respondents from the population units under the study. The practical applications of
the study are most pertinent for a specified time period (Chawla et. al. 2011). In
multiple cross sectional design the response is recorded from two or more segments
and the response from each sample is recorded only once (Malhotra, 2009). (2)
Longitudinal design is where the response is recorded from same segment of people
over time and the same variables are examined (Malhotra, 2009).

4.5.1.3 Causal Research

It is used to get proof of cause and effect relationships (Malhotra, 2009).It is also
called as experimental research design. Researcher actively manipulates one or more
causal variables and measures their influence on the dependent variables of interest
through experiment (Chawla et. al. 2011).

In this study, researcher has used two stage research approaches. In the first instance,
exploratory research was used to explore and obtain clarity about the problem
situation. Exploratory research has been conducted by using following methods. 1)
Qualitative research was done by conducting in-depth focus group interview of senior
level experienced and expert persons in share broking industry. 2) Secondary data
(authenticated and published data) was collected from journals and computerized
database such as Proquest, JSTOR, Emerald.

In the second stage, descriptive research was conducted for gathering data for testing
the research hypotheses. This design used to validate the hypothesis generated from
exploratory research. Descriptive research is most suitable for this research as it
enables researcher to identify and describe which are the factors affecting investor‟s
sentiment.

4.5.2 The Universe (Population of Interest)

Population presents as any collection of people or objects that constitute the main
subject of study in a specific survey and are alike in one or more ways (Chawla et. al.,

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 Chapter 4: Research Methodology

2011). Target population is described as particular collection of people or objects for

which the data can be gathered or observations are made to build up necessary data
structure and information. In the current study, the population comprises of Individual
investors of India who invest in equity shares.

4.5.3 Sampling Element

Sampling element comprises a single member of the population. In this research

individual investor who invests in Indian stock market is considered as sampling
element.

4.5.4 Sampling Frame

It is associated to the population. It is the list of elements from which the sample is
really drawn (Cooper, 2008). Where the population size is very large, it becomes
virtually impossible to form a sampling frame. In this study also, as population of
individual investors of India who are investing in equity shares is very large and not
possible to identify clearly, it is very difficult to form sampling frame for the same.

4.5.5 Sample

It is a subsection of the population. It includes only some elements of the population.

It is a part of total population which is selected for further research. For this study,
sample consists of 539 respondents who are selected for further analysis.

4.5.6 Sampling Technique

It is process of choosing a sufficient number of elements from the population so that

the study of the samples will not only help in understanding the characteristics of the
population but will also enable to generalize the results. Broadly, sampling methods
can be classified in two groups; 1) Probability and 2) Non-probability sampling.
Probability sampling techniques are difficult as such sampling frame is not available
and population size is unknown. Thus appropriate sampling technique is Non-
probability snowball sampling.

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 Chapter 4: Research Methodology

4.5.7 Sample Size

Sample size is decided as follows (Malhotra, 2011)

= 384.16
= 385
Where
n = Sample size
Z= Z value from the standard normal distribution for the confidence level looked-for
by the researcher. For this study researcher has assumed 95 percent confidence
level. Then from the standard distribution table the Z value is 1.96.
π = frequency of occurrence of something expressed as a proportion
D= Tolerable error. This can be decided by the researcher. For this study researcher
assumed tolerable error 0.05.

As per the above calculation number of sample required for the study is 385 but under
the current study researcher has taken response from 539 respondents which is more
than sufficient to estimate the population proportions with 95 percent confidence level
and allowable tolerance limit of 0.05.

4.5.8 Methods of Data Collection

Sources of Data

For this research primary as well as secondary data have been used for further
analysis. Secondary data used to develop theoretical framework and to get insight into
the research problem. Secondary data have been collected from published
authenticated material such as journals, newspapers, internet and books.
Computerized database such as Proquest, Jstor and Emerald were also used to collect
secondary data. In present study, secondary data for the period up to 2014 have been
used.

Primary data is original and collected for the specific objectives and needs described
by the researcher. It might be qualitative or quantitative in nature. Primary qualitative

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data collection is in-depth and collected through interaction and unstructured way.
Qualitative data collection method includes observation, focus groups study, in-depth
interviews, content analysis etc, For this study, researcher has conducted focused-
group interview with experts in stock market to get insight into the problem. For
collection of quantitative primary data, structured questionnaire was developed.
Questionnaires were personally administered and explained to respondents to ensure
accurate collection of data. The primary data was collected through personal interview
and online survey.

As the population was very large, practically it was not possible to collect data from
every parts of the country. So majority of data was collected from Gujarat and
remaining state‟s data was collected through online survey. Data was collected by
visiting the different share brokers‟ offices such as Motilal Oswal Securities ltd,
Marwadi Share Broker Ltd, Angel Broking, Religare Securities, Reliance Securities,
Sharekhan Ltd. Data was also collected through friends and family contacts. Data was
collected during the period from September 2014 to March 2015.

4.5.9 Tool of Data Collection/Research Instrument

To satisfy objectives of the research for the measurement of dependent and

independent variables under study, an instrument in the form of structured
questionnaire was developed. In order to prepare instrument, different variables have
been identified from literature survey. A description of variables, type of
measurement and scale used to measure these variables is described in table 4.1.

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 Chapter 4: Research Methodology

4.5.10 Description of the Measurement Scale Table 4.1

Variables Scale used Type of Literature Review Hypothesis

to measure measurement
this used to
variable measure this
variable

Demographic Age Ratio Scale Multiple Kannadhasan.M, (2006);

Factors Choice Hossain M.F and Nasrin
Question Shelina, (2012); Saurabh
singh, (2009)
Gender Nominal Dichotomous Kannadhasan.M, (2006);
Scale Question Saurabh singh, (2009).
Educational Qualification Nominal Multiple Kannadhasan.M,(2006);
Scale Choice Hossain M.F and Nasrin
Question Shelina, (2012)
Annual Family Income Ratio Scale Multiple Kannadhasan. M, (2006).
Choice
Question
Occupation Nominal Multiple Hossain M.F and Nasrin
Scale Choice Shelina, (2012); E.Bennet
Question et al. (2011)
Marital Status Nominal Multiple Kannadhasan.M, (2006);
Scale Choice E.Bennet et al. (2011)
Question

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 Chapter 4: Research Methodology

Investor‟s Optimism In India, share price will rise for the next 12 Interval Seven Point E.Bennet et al. (2012);
months scale Rating Likert E.Bennet et al. (2011);
Scale Singhvi, (2001); Shiller,
(1999)
If the Indian stock market Index dropped on Interval Seven Point Shiller, (1999);
tomorrow, I would guess that it would recover scale Rating Likert Singhvi, (2001)
most of losses in few days Scale

Investor‟s Presently I will stay invested in the Indian stock Interval Seven Point E.Bennet et al. (2012);
Participation market scale Rating Likert E.Bennet et al. (2013);
Scale Singhvi, (2001); Shiller
(1999)
I plan to increase my investment in the Indian Interval Seven Point E.Bennet et al. (2012);
stock market in the next 12 months scale Rating Likert E.Bennet et al. (2013);
Scale Singhvi, (2001); Shiller
(1999)
Stock Market In Indian stock market, most of the stocks are Interval Seven Point Shiller, (1999); Singhvi,
Outlook overvalued relative to their fundamental value scale Rating Likert (2001)
Scale
A major stock market correction like that of the Interval Seven Point Shiller, (1999); Singhvi,
2008 could happen in Indian in next 12 months scale Rating Likert (2001)
Scale

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 Chapter 4: Research Methodology

An individual investors attitude towards investing is influenced by

Macro-Economic Rate of Inflation Interval Seven Point Abdullah & Hayworth, (1993); H3,H14
Factors scale Rating Likert Mukherjee and Naka, (1995);
Scale Maysami and Koh, (2000);
Udegbunam and Eriki, (2001);
Li & Wearing, (2002); H.A.H.
Al- Tamimi, (2006); Türsoy et
al. (2008); Sehgal Sanjay et al.
(2009); E.Bennet et al. (2012);
Singhvi, (2001)
Rate of Interest Interval Seven Point Bulmash and Trivoli, (1991);
scale Rating Likert Abdullah & Hayworth, (1993);
Scale Mukherjee and Naka, (1995);
Maysami and Koh, (2000), Li &
Wearing, (2002); Türsoy et al.
(2008); Sehgal Sanjay et al.
(2009); E.Bennet et al. (2012);
Singhvi, (2001)
GDP, GNP Interval Seven Point Chaudhuri and Smiles, (2004).
scale Rating Likert Sehgal Sanjay et al. (2009).
Scale
Strength of Indian Rupee vs. Interval Seven Point Mukherjee and Naka, (1995);
other major currencies scale Rating Likert Maysami and Koh, (2000);
Scale E.Bennet et al. (2012); Singhvi,
(2001)
Unemployment Rate Interval Seven Point E.Bennet et al. (2012); Singhvi,
scale Rating Likert (2001)
Scale

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 Chapter 4: Research Methodology

Price of crude oil Interval Seven Point Chaudhuri and Smiles, (2004).
scale Rating Likert E.Bennet et al. (2012) Singhvi
Scale ,(2001)
Availability of corporate research Interval Seven Point E.Bennet et al. (2012); Singhvi,
scale Rating Likert (2001).
Scale

Government policy toward Interval Seven Point Hasan Al- Tamimi, (2006).
business scale Rating Likert
Scale
Herd Behaviour Stories of successful investors Interval Seven Point E.Bennet et al,(2012) Singhvi , H1,H13
scale Rating Likert (2001)
Scale
Get quick rich philosophy Interval Seven Point H.A.H.Al -Tamimi, (2006);
scale Rating Likert E.Bennet et al. (2012); Singhvi,
Scale (2001)
Greed among investors Interval Seven Point E.Bennet et al. (2012); Singhvi,
scale Rating Likert (2001)
Scale
Performance Interval Seven Point E.Bennet et al. (2012); Singhvi,
of Internet stock scale Rating Likert (2001)
Scale
Media focus on stock market Interval Seven Point Mian, and Sankaraguruswamy,
scale Rating Likert (2008); Tetlock Paul C., (2007)
Scale
Media coverage of stock Interval Seven Point E.Bennet et al. (2012); Singhvi,
scale Rating Likert (2001)
Scale

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 Chapter 4: Research Methodology

Perception of „easy money‟ Interval Seven Point E.Bennet et al. (2012); Singhvi,
among investors scale Rating Likert (2001)
Scale
Everyone else is investing Interval Seven Point E.Bennet et al. (2012); Singhvi,
scale Rating Likert (2001)
Scale
Best Game in Performance of Indian stock Interval Seven Point E.Bennet et al. (2012); Singhvi, H6
Town market vs other stock market scale Rating Likert (2001)
Scale
Can‟t depend on social security Interval Seven Point E.Bennet et al. (2012); Singhvi,
to fund the retirement like scale Rating Likert (2001)
PF/Gratuity/Post office saving Scale
Target Saving rate Interval Seven Point E.Bennet et al. (2012);
scale Rating Likert Singhvi,(2001)
Scale
Lower rate of return in E.Bennet et al. (2012)
government bond

Performance Corporate earnings Interval Seven Point H.A.H. Al – Tamimi,(2006); H5,H16

Factor and scale Rating Likert Sehgal Sanjay et al. (2009)
Confidence of Scale
Institutional Confidence level of institutional Interval Seven Point Cornett (2007); E.Bennet et al.
Investors investor scale Rating Likert (2012); Singhvi, (2001)
Scale
Strength of financial sector Interval Seven Point E.Bennet et al. (2012);
scale Rating Likert Singhvi,(2001)
Scale
Strength of Indian economy vs. Interval Seven Point E.Bennet et al. (2012); Singhvi,
other economy scale Rating Likert (2001)
Scale
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 Chapter 4: Research Methodology

Internet led Online trading Interval Seven Point E.Bennet et al. (2012) H2,H15
Access to scale Rating Likert
Information and Scale
Trading Information age and access to Interval Seven Point E.Bennet et al. (2012); Brad M
information scale Rating Likert Barber and Terrance Odean,
Scale (2001); Singhvi, (2001)
Access to tools and technology Interval Seven Point E.Bennet et al. (2012); Singhvi,
via internet scale Rating Likert (2001)
Scale
Low cost of executing trade Interval Seven Point E.Bennet et al. (2012); Singhvi,
scale Rating Likert (2001)
Scale
Information available on internet Interval Seven Point Barber and Odean, (2001);
scale Rating Likert Singhvi, (2001)
Scale
Risk and Cost Cost cutting by corporation Interval Seven Point E.Bennet et al. (2012); Singhvi, H4,H17
Factor scale Rating Likert (2001)
Scale
Technological advancement at Interval Seven Point E.Bennet et al. (2012); Singhvi,
company level scale Rating Likert (2001)
Scale
Investor‟s risk tolerance level Interval Seven Point Kannadhasan. M, (2006);
scale Rating Likert E.Bennet et al. (2012); Singhvi,
Scale (2001)
Political stability Interval Seven Point E.Bennet et al. (2012); Singhvi,
scale Rating Likert (2001)
Scale
Statement from politician and Interval Seven Point Singhvi, (2001)
government official scale Rating Likert
Scale

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 Chapter 4: Research Methodology

Investor’s investment decisions are influence by stock specific factor

Financial Dividends Yield Ratio Interval Seven Point Singhvi, (2001); Gompers, H7
Characteristics scale Rating Likert Ishii and Metrick, (2003);
Scale Hartone, (2004); Docking and
Koch, (2005); H.A.H. Al –
Tamimi, (2006) E.Bennet et al.
(2011); Hossain M.F and
Nasrin Shelina, (2012);
E.Bennet and
Selvam,M.,(2013)
Interest Coverage Ratio Interval Seven Point Singhvi,(2001); E.Bennet and
scale Rating Likert Selvam,M., (2013)
Scale
Earning per Share Interval Seven Point Singhvi,(2001);Moore &
scale Rating Likert Beltz, (2002); Gompers, Ishii
Scale & Metrick, (2003); Sehgal et
al. (2009); Hossain and Nasrin,
(2012)
Turnover Ratio ( Receivables, Interval Seven Point Singhvi, (2001); E.Bennet and
Inventory and Account Payables) scale Rating Likert Selvam,M., (2013)
Scale
Current Assets to Current Liability Interval Seven Point Singhvi,(2001); E.Bennet and
Ratio scale Rating Likert Selvam,M., (2013)
Scale
Debt to Equity Ratio Interval Seven Point Singhvi,(2001); E.Bennet and
scale Rating Likert Selvam,M., (2013)
Scale
Return on Investment Interval Seven Point Singhvi, (2001); E.Bennet and
scale Rating Likert Selvam,M., (2013); Hossain
Scale and Nasrin, (2012).
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 Chapter 4: Research Methodology

Return on Equity Interval Seven Point H.A.H. Al – Tamimi, (2006);

scale Rating Likert E.Bennet and Selvam,M.,
Scale (2013)
Quality of Assets, Return on Interval Seven Point Singhvi, (2001); E.Bennet and
Assets scale Rating Likert Selvam,M., (2013)
Scale
Cash Flow per Share Interval Seven Point Singhvi, (2001); E.Bennet and
scale Rating Likert Selvam,M., (2013)
Scale
Recommend Recommended by the analyst and Interval Seven Point Krishanan and Booker, (2002); H12
ations research report scale Rating Likert E.Bennet et al. (2011);
of Financial Scale Singhvi, (2001); E.Bennet and
Community Selvam,M., (2013)
Recommended by the brokers Interval Seven Point E.Bennet et al. (2011);
scale Rating Likert Singhvi, (2001); E.Bennet and
Scale Selvam,M., (2013)
Recommended by the street expert Interval Seven Point E.Bennet et al. (2011); Singhvi
and stock market guru scale Rating Likert (2001); E.Bennet and
Scale Selvam,M., (2013)
Who Else is Insider buying Interval Seven Point Mukherjee and Naka, (1995); H9,H19
Buying scale Rating Likert E.Bennet and Selvam,M.,
Scale (2013)
Major institution and corporation Interval Seven Point Singhvi (2001); E.Bennet and
is currently buying the stocks of scale Rating Likert Selvam,M., (2013)
the company Scale
Price Cut Off Price cut off rules (e.g. Avoid Interval Seven Point E.Bennet et al. (2011),
Rules share price above rupee 100) scale Rating Likert Singhvi, (2001);E.Bennet and
Scale Selvam,M., (2013)

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 Chapter 4: Research Methodology

Other variables Social responsibility of the Interval Seven Point

company scale Rating Likert
Scale
Geographical location of the Interval Seven Point
company scale Rating Likert
Scale
Business partners, customers, Interval Seven Point
suppliers and competitors of the scale Rating Likert
company Scale
Industry sector Interval Seven Point Mukherjee and Naka, (1995)
scale Rating Likert
Scale
Competition level in the Industry Interval Seven Point H.A.H. Al – Tamimi, (2006)
scale Rating Likert
Scale
Size of company Interval Seven Point
scale Rating Likert
Scale
Expected Events Expected stock split Interval Seven Point E.Bennet et al. (2011); H11
Surrounding the scale Rating Likert E.Bennet et al. (2012);
Stock and Book Scale Singhvi, (2001)
Value Potential takeover target Interval Seven Point E. Bennet et al. (2011);
scale Rating Likert E.Bennet et al. (2012);
Scale Singhvi, (2001)
Merger and Acquisitions in the Interval Seven Point E.Bennet et al. (2012);
corporate sector scale Rating Likert Singhvi, (2001)
Scale

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 Chapter 4: Research Methodology

Book value Interval Seven Point Moore & Beltz, (2002);

scale Rating Likert Gompers, Ishii & Metrick,
Scale (2003); Sehgal et al. (2009);
E.Bennet et al. (2011);
Alfraraih M. & Alanezi F.,
(2011); Hossain and Nasrin,
(2012)
Past Price Past price performance including Interval Seven Point Singhvi, (2001); H.A.H. Al- H10
Performance any recent price over reaction scale Rating Likert Tamimi, (2006); Saurabh
and Sector Scale singh, (2009); E.Bennet and
Attractiveness Selvam,M., (2013)
Hot sector, hot stock Interval Seven Point Singhvi, (2001) E.Bennet and
scale Rating Likert Selvam,M., (2013)
Scale
Psychological Rumors Interval Seven Point Howard J.A., (2013) E.Bennet H8,H18
Factors scale Rating Likert and Selvam,M., (2013);
Scale Kiymaz H.,(2000); Singhvi,
(2001)
Gut feeling and intuition Interval Seven Point Shafi, (2014); E.Bennet and
scale Rating Likert Selvam,M., (2013), Singhvi,
Scale (2001)
Recommended by friends, family Interval Seven Point Singhvi, (2001); E.Bennet and
and peers scale Rating Likert Selvam,M., (2013)
Scale
Quality of CEO Track record and expertise Interval Seven Point Singhvi, (2001); E.Bennet and
Management scale Rating Likert Selvam,M., (2013)
Scale
Quality of management Interval Seven Point E.Bennet and Selvam,M.,
scale Rating Likert (2013); H.A.H. Al – Tamimi,
Scale (2006); Singhvi, (2001)
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 Chapter 4: Research Methodology

Firm status in Industry Interval Seven Point Hossain and Nasrin, (2012);
scale Rating Likert Merikas et al. (2003); Singhvi,
Scale (2001)
Price Earning Price to Earnings Ratio Interval Seven Point Moore and Beltz, (2002); Ishii
Ratio and scale Rating Likert and Metrick, (2003); Sehgal
Familiarity with Scale Sanjay et al. (2009); E.Bennet
Firm Product and et al. (2011).
Service Familiarity of firm products and Interval Seven Point Hossain and Nasrin, (2012)
service scale Rating Likert
Scale
Other variable Do you invest in the stock listed in Nominal Dichotomous
Indian Stock Market? Scale Question
Tell me the number of the years Ratio Scale Hossain and Nasrin, (2012)
you have been investing in the
stock market?
Brand name Interval Seven Point Singhvi, (2001)
scale Rating Likert
Scale
Perceived ethics of firms Interval Seven Point Singhvi, (2001)
scale Rating Likert
Scale
Mass marketing by mutual funds Interval Seven Point
scale Rating Likert
Scale
Mass marketing by discount Interval Seven Point Singhvi, (2001)
brokerage house scale Rating Likert
Scale
Institutional ownership Interval Seven Point Singhvi, (2001)
scale Rating Likert
Scale

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 Chapter 4: Research Methodology

Ease of executing trade Interval Seven Point E.Bennet et al. (2011)

scale Rating Likert
Scale
Investment decision :
I am confident in my ability to do Interval Seven Point
better than others in picking the scale Rating Likert
stocks Scale
I hate to sell my stock at a loss Interval Seven Point
scale Rating Likert
Scale
I hold fairly diversified portfolio Interval Seven Point
scale Rating Likert
Scale
I never trade on an impulse Interval Seven Point
scale Rating Likert
Scale
When the stock price falls below my Interval Seven Point
purchase price, I usually wait for the scale Rating Likert
price to come back to my purchase Scale
price before I sell
Emotions do not color my Interval Seven Point
investment decision scale Rating Likert
Scale
I am confident in my ability to pick Interval Seven Point
stocks that will beat the market scale Rating Likert
average Scale
I rush to sell my winners Interval Seven Point
scale Rating Likert
Scale

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 Chapter 4: Research Methodology

I consider all available information Interval Seven Point

before I make a trade scale Rating Likert
Scale
I find it difficult to sell my stocks Interval Seven Point
scale Rating Likert
Scale
I know I should hold on to my Interval Seven Point
winners, But I don‟t scale Rating Likert
Scale
I am risk taker Interval Seven Point
scale Rating Likert
Scale
I am confident in my ability to pick Interval Seven Point
up the stock that do well scale Rating Likert
Scale
I am an aggressive trader Interval Seven Point
scale Rating Likert
Scale
I get emotionally attached to my Interval Seven Point
stock scale Rating Likert
Scale
I always think carefully before I Interval Seven Point
trade scale Rating Likert
Scale
Attitude towards Suppose you are buying a stock one Nominal Dichotomous Kahnemann and Tversky,
Risk month ago for Rs.50 a share. Today Scale Question (1979); Singhvi, (2001)
(Investor‟s the price of the share is Rs.40 a
Rationality) share then would you prefer to book
loss of Rs.10 by selling the stock or

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 Chapter 4: Research Methodology

hold it for one month? Suppose

there are only two equal likely
chances that. (Assuming that there
is no transaction cost and taxes)

A. 50% chances that it will decrease

by Rs.10 more and reach to price of
Rs.30
B. 50% chances that it will increase
by Rs.10 more and reach to price of
Rs.50
What you will do?
Suppose you are buying a stock one Nominal Dichotomous Kahnemann and Tversky,
month ago for Rs.50 a share. Today Scale Question (1979); Singhvi, (2001)
the price of the share is Rs.60 a
share then would you prefer to sell
the stock or hold it for one month?
Suppose there are only two equal
likely chances that (Assuming that
there is no transaction cost and
taxes)
A. 50% chances that it will decrease
by Rs.10 and reach to price of
Rs.50
B. 50% chances that it will increase
by Rs.10 more and reach to price of
Rs.70
What you will do?

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 Chapter 4: Research Methodology

Mental Suppose you own stock of ABC Nominal Dichotomous Kahnemann and Tversky,
Accounting Company. According to you the Scale Question (1984); Singhvi, (2001)
( Investor‟s company is having very good long
Rationality) term predictions. The stock price
falls because of poor last quarter
result. Would you like to buy more
shares of ABC company?
You do not own stock of ABC Nominal Dichotomous Kahnemann and Tversky,
company. According to you the Scale Question (1984); Singhvi, (2001)
company is having very good long
term predictions. The stock price
falls because of poor last quarter
result. Would you like to buy more
shares of ABC company?
Suppose you have paid Rs.150 to Nominal Dichotomous Kahnemann and Tversky,
see a film. Arriving at cinema hall Scale Question (1984); Singhvi, (2001)
you come to know that you have lost
the ticket. Will you pay another
Rs.150 to see the film?
Suppose you are on the way to see Nominal Dichotomous Kahnemann and Tversky,
the film but you did not own the Scale Question (1984); Singhvi, (2001)
ticket before. On reaching the
cinema hall you come to know that
you have lost Rs.150.Will you buy
the ticket to see the film?

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 Chapter 4: Research Methodology

4.5.11 Pilot Testing of the Questionnaire

Preparation of Questionnaire is the most important stage for this study. Initially,
preliminary research instrument was prepared based on in-depth literature review in
the same and/or similar field. Then the research instrument was sent to experts. The
changes were incorporated in the research instrument as suggested by the experts and
then pilot testing of this modified research instrument was performed. Some
drawbacks were detected from the pilot testing. After removing these drawbacks and
simplifying language, final research instrument was prepared for the study. The
research instrument was not only in English, but, considering that language should not
be a barrier to measure objective of research, the whole research instrument was
translated into regional language of the state of Gujarat, i.e. Gujarati. The translated
version of the data collection instrument was sent to reviewers who are subject
specialists in the area of Gujarati language. As per their recommendations, some of
the basic words and sentences were revised to ensure that there are no ambiguous
questions and respondents understand it in the way it has to be.

Then after, pilot study was conducted on thirty respondents having characteristics of
sample selected for survey. Respondents were asked to comment on any difficulty or
ambiguity they faced while giving response in questionnaire. Respondent‟s comments
and suggestions were incorporated while preparing final questionnaire.

4.5.12 Coding the Questionnaire

Post data collection, next step is coding the questionnaire. It is the process of
detecting and denoting a numeric value to the responses given by a respondent
(Chawla et. al. 2011). Below table shows the coding of the questions used in this
study

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 Chapter 4: Research Methodology

Table 4.2 Coding of Questionnaire

Question Variable Coding Pattern

Number

2 Age 18 to 25 =1
26 to 35 =2
36 to 45 =3
46 to 55 =4
56 to 65 =5
66 and above =6
3 Gender MALE = 1
FEMALE = 2
4 Highest Educational qualification Up to Primary =1
Up to secondary = 2
Higher secondary = 3
Graduate =4
Post Graduate =5
Other =6
4 Annual Family Income Less than Rs.2,00,000 =1
Rs.200001 to Rs.400000 = 2
Rs.400001 to Rs.600000 = 3
Rs.600001 to Rs.800000 = 4
Rs.800001 to Rs.10,00,000 = 5
Rs.1000001 and more =6
5 Occupation Service =1
Business =2
Profession = 3
Retired =4
Other =5
6 Marital status Single =1
Married =2
11 A1 to A6 Strongly Disagree =1
Disagree =2
Somewhat Disagree = 3
Indifferent =4
Somewhat Agree =5
Agree =6
Strongly Agree =7
12 Variables are influencing your Not at all Important = 1
attitude towards investing in stock Low importance =2
market Slightly important =3
From A7 to A44 Neutral =4
Moderately important = 5
Very important =6
Extremely important = 7

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 Chapter 4: Research Methodology

13 Variable in terms of how important Not at all Important =1

they have been in your stock Low importance =2
selection process Slightly important =3
Neutral =4
From A45 to A85 Moderately important =5
Very important = 6
Extremely important =7
14 Investment decision Strongly Disagree = 1
Disagree = 2
Somewhat Disagree =3
Indifferent =4
Somewhat Agree = 5
Agree = 6
Strongly Agree =7
16 Buying decision under uncertainty Option A =1
and loss making situation Option B =2

17 Buying decision under uncertainty Option A =1

and Profit making situation Option B =2
18 to 21 Yes =1
No =2

4.5.13 Time Dimension of the Study

The sample size was large. Number of persons involved in research was only one. By
considering this constraint it had taken three years‟ time duration to complete the
study.

4.5.14 The Research Environment

The study was carried out in the field and not in the laboratory. The researcher met
the respondents individually for collection of data, so it was field study.

4.5.15 Procedure of Research

Measurement of Investor‟s sentiment: Investor‟s sentiment is defined as investor‟s

attitude and opinion towards investing. The researcher has used Shiller‟s (1999) and
Singhvi (2001) approach to measure investor‟s sentiment. Researcher measured three
aspects of investor‟s sentiment (1) Investor‟s optimism (2) Investor participation (3)
Investor‟s stock market outlook

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 Chapter 4: Research Methodology

Investors optimism means “nothing can go wrong attitude” among the investors, in
belief that Indian market will go up and any set back is temporary in nature.

Two statements were made to study this attitude:

1) Indian stock market will rise for the next 12 months.
2) If the Indian stock market index dropped on tomorrow, I would guess that it
would recover most of losses in few days.

To make the question relevant the individual investors were asked about how their
participation in stock market in terms of level of investment will change in next 12
months. Two statements were made regarding investors participation:
1) Presently I will stay invested in Indian stock market.
2) I plan to increase my investments in the Indian stock market in the next 12
months.

Now researcher examined the individual investor‟s stock market outlook. This was
measured through considering investors view on current stock market and their
expectation of market correction. To measure these again two statements were
prepared:
1) In India most stock are overvalued relative to their fundamental value.
2) A major stock market correction like 2008 could happen in next 12 months.

The respondent was asked to give rating on six statements by using 7 point likert
rating scale indicating the extent to which they agree with each statement and the
same way the market specific and stock specific variables are considered which have
influence on investor‟s sentiment. Through the analysis the researcher had
documented the relative importance of list of factors influencing investor‟s sentiment.

4.5.15.1 Dependent Variables

Investor‟s sentiment comprises three aspects (1) Investor‟s Optimism, (2) Investor
participation and (3) Investor‟s stock market outlook which were measured though six
statements as described above.

4.5.15.2 Independent Variables

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 Chapter 4: Research Methodology

Market specific variables and stock specific variables have been identified by the
researcher based on the literature review and individual investor‟s responses were
taken on 7 point likert scale to measure the importance of those variables on
individual investor‟s investment decision.

4.5.16 Data Analysis

For data analysis, Descriptive Statistics, Multiple Regression, VIF value, Factor
Analysis, and Reliability Analysis statistical tools were used.

Factor analysis is a multivariate technique which is used to condense the information

contained in a large number of variables into a smaller number of subsets or factors
(Hair et. al. 2009). As the main objective of research is to study factors affecting
individual investor‟s sentiment towards equity market and the number of variables
extracted through in-depth literature review were seventy nine in numbers. It is not
possible for researcher to concentrate on all variables. To fulfill the objectives and to
reduce and summarize data, researcher found factor analysis techniques as most
suitable technique.

Chawla et al. (2011) define the factor analysis as a multivariate statistical technique in
which there is no distinction between dependent and independent variables. In factor
analysis, all variables under investigation are analyzed together to extract the
underlined factors. For present study factor analysis is used to reduce the number of
variables of market specific factors and stock specific factors.

After identification of factors the reliability analysis was conducted to assess

reliability of each factor and then multiple regression was conducted to assess the
impact of independent variables on dependent variables. At last, Collinearity Statistics
(VIF) value was calculated to check multi Collinearity issue.

4.5.17 Software used for Data Analysis

Statistical Package for Social Sciences (SPSS) version 19 was used for data
preparation and data analysis.

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 Chapter 4: Research Methodology

4.6 Conclusion

The present chapter has provided in-depth idea of research methodology adopted by
the researcher for this study. To attain the objectives of the study and to test the
hypothesis developed, researcher has found descriptive research design as the most
appropriate method which enables researcher to identify and quantify key variables
under study. For collection of primary data convenience sampling method was used as
the population was very large and not known. The sample size has been determined
considering 95 percent confidence level and 5 percent tolerable error. To achieve the
objectives of the research factor analysis, multiple regression, VIF test and frequency
analysis were found most appropriate techniques. Next chapter of the thesis would be
deal with data analysis.

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