Most studies on investor searches for information on risk-reducing strategies in risky
investment decision-making focus on digital information and advice-seeking information.
This study extends the discussion on information search to discuss heuristics reliance, a
simplified information search method.
Based on the proposed extended information search model, we hypothesize that the
level of risk aversion determines the level of information searches, and both risk aversion
and information searches determine investor investment preferences.
Reporting on two dimensions of direct (stocks/options) and indirect (mutual funds)
investment, the findings show the significant direct effect of risk aversion on stocks/options
investment choices, but a great indirect effect of risk aversion on mutual fund choices
through information search. Because risk aversion and information acquisition are
important contributing factors under uncertainty, this empirical demonstration of an
extending model may have help to better understanding individual risk decision-making
behavior.
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Appendix A. Detailed measurement items for six constructs
Constructs Items Sources
Direct investment DIR1 I would like to inevest in stocks.
DIR2 I would like to invest in futures/options.
Indirect Investment IND1 I would like to invest in domestic mutual funds.
IND2 I would like to invest in foreign mutual funds.
Warren et al., (1990), Fisher and Statman (1997), Peress (2004)
Risk aversion RAV1 I would like to realize the gain as soon as the stock increases in price.
RAV2 Considering a stock purchased one month ago for $100, it is found that the stock is now selling at $110. After hold the stock for one more period, there are 50-50 odds between gaining an
additional $10 or “breaking even.” I would like to sell the stock to realize the
$10-gains now.
RAV3 I would like to realize the (substantial financial) gains from stocks more than to realize the (substantial financial) losses from stocks.
Heuristics HEU1 I think that this stock, from a company with high sales growth and generating strong earnings, is likely to be a good investment.
HEU2 I think that the return on this stock, from a company with high sales growth and generating strong earnings, is likely to be higher.
HEU3 I think that the future return on this stock, from a company with strong performance during the past three to five years, is likely to be higher.
DIG1 I would like to search for information about a firms’ expected earnings.
DIG2 I would like to search for informtiaon about firms’ financial statements.
DIG3 I would like to search for information about firm status in industry.
Nagy and
ADV1 I would like to search for information from magazines and brochures from financial institutions to help making financial decisions.
ADV2 I would need advice on investment options from professional financial advisors in making financial decision.
ADV3 I would need advice on investment options from family/friends in making financial decision.
Nagy and Obengerger (1994), Lee and Cho (2005)