Category: Investment

Investor Risk Tolerance Detection

Abstract

Risk tolerance can be defined as the maximum amount of risk by investment that an individual is ready to take. In this paper, we explore the relationship between demographic features and risk tolerance pertaining to an individual using the KMeans Algorithm. We also propose a novel architecture using graph embeddings in Graph Convolutional Networks (GCNs) to contrast the use of demographics and try to predict an outcome based on previous investments.

Introduction

Risk Tolerance can be different for individuals from different demographics. The premise of this concept lays in the fact that different people may agree on the riskiness of a gamble, but may however prefer to go for other gambles according to their tolerance. The demographics used include Gender, Age, Education, Marital Status and Race.

Deep learning has indeed revolutionized many tasks in the recent years, ranging from image processing to speech recognition. These problems can be represented in Euclidean space but graphs are n-dimensional, which cannot be represented on a Euclidean space. Graph neural networks come in play here where we can map these graphs to Euclidean space without disrupting their connections.

Here we propose a new method of detecting the risk an investor can take in an investment using graph neural network, especially graph convolution network. For this we have classified the user into three main categories, namely:

• Aggressive Risk Taker. Aggressive riskers tend to be market-savvy. They have a deep understanding of their propensities and reach for maximum returns with maximum risks.
• Moderate Risk Taker. They accept some risk to the principal but adopt a balanced approach. They often purchase a 50/50 structure.
• Conservative Risk Taker. They accept little to no volatility in their investment. Mostly, retired people who do not have a constant source of income tend to incline in this category. They opt for mutual funds.

Literature Survey

In this section we outline each and every criterion which influences investor risk tolerance and review literature which outlines the effect of every option.

Gender

According to Slovic (1966), a “prevalent belief in our culture is that men should, and do, take greater risks than women” (p. 169). This assumption has been confirmed by other researchers (Higbee & Lafferty, 1972). Blume (1978), when reporting the results of a unique national study of New York Stock Exchange (NYSE) investors that employed a combination of descriptive and multivariate statistics, indicated that men who own and invest in equities avoided risk less than women with similar characteristics. This finding was affirmed by Coet and McDermott (1979) who studied the effects of gender, type of instruction, and group composition on general risk-taking behavior using an experimental method with 200 college students, and by Rubin and Paul (1979) who designed an experimental study to examine systematic risk taking by gender over the life cycle as part of a larger model of risk-tolerance behavior. Rubin and Paul found that males consistently demonstrated greater risk-taking behaviors than did females.

Xiao and Noring (1994) each used a version of the Survey of Consumer Finances (SCF)10 to obtain data for regression type analyses (e.g., Ordinary Least Squares, logit, probit, and tobit), where willingness to take financial risks was defined as the dependent variable, and gender (among a number of other variables) was operationalized as an independent variable. These researchers concluded that men were more willing than women to take financial risks. Bajtelsmit and Bernasek (1996), in reporting findings from a survey of literature, concluded that women invest their pensions more conservatively than men, and that, in general, women are less risk tolerant than men. Lytton and Grable (1997) analyzed gender differences in financial attitudes from a random sample of 592 tax payers from a mid-Atlantic state; they found that males expressed more confidence in their financial situation(s) and higher risk-taking propensities in relation to financial management strategies than women.

As indicated above, there is evidence to suggest that a relationship exists between gender and investor risk tolerance, with men tending to take more risks than women. Furthermore, it is commonly accepted that gender can be used effectively to classify individuals into investor risktolerance categories; however, researchers have not reached consensus on this point. There are, however, a number of empirical studies which indicate that there are no differences between men and women in relation to risk tolerances.

Race

There are few empirical studies concerning the relationship between race and investor risk tolerance. Lefcourt (1965) was the first researcher to explore risk-taking differences between Black and White adults. Using a risk-taking experiment using 30 Blacks and 30 Whites, Lefcourt concluded that Blacks choose fewer low probability bets, made less shifts of bets, and generally took less risks than Whites.Recently there has been a renewed focus on the relationship between risk-taking propensities and race. Haliassos and Bertaut (1995), Hawley and Fujii (1993-1994), Lee and Hanna (1995), and Sung and Hanna (1996a) each used the 1983 and 1986 Surveys of Consumer Finance to conduct logit and probit analyses of multistage area-probability samples (N = 3,824). Each of these research teams found that White respondents had a higher probability of taking investment risks. Investment managers and researchers generally accept the notion that there is a relationship between race and investor risk tolerance. Controlling for other factors, Whites are considered to have higher risk tolerances than non-Whites. This difference may be attributable to cultural values, preferences, and tastes. According to Zhong and Xiao (1995) “further investigation will be helpful to enhance the understanding of the investment behaviour between Whites and non-Whites”

Education

Education, as used in investor risk-tolerance research, has been defined as the level of formal education completed by an individual (Masters, 1989). Numerous researchers have concluded that greater levels of attained education are associated with increased risk tolerance. Baker and Haslem (1974), using data from 851 respondents to a risk-tolerance questionnaire that was randomly distributed to customers of five brokerage firms, determined that investors with less education found price stability more important than those with at least some college training. Baker and Haslem acknowledged that their findings conflicted with findings from other researchers that suggested that those with little education were desirous of quick profits from risky trading (Potter, 1971). Hammond et al. (1967) used a general regression model to consider life insurance premium expenditures by household. Although it is generally accepted by investment managers and researchers that increased educational levels are associated with increased levels of investor risk tolerance, there is research to suggest otherwise. Blume (1978), using results from a large random national survey of NYSE investors, concluded that educated heads of households were somewhat less willing than others to take substantial risks, “but at the same time, they reported a less than average propensity for reducing financial risks to the barest minimum, preferring some intermediate trade-off between risk and expected return” (p. 124). McInish (1982), as a result of a regression of betas against Rotter scores and demographic variables, found that educational levels showed a predicted positive relationship with risk tolerance, but that education coefficients were not significant in any of the regressions. The literature suggests that a positive relationship between attained education and increased investor risk tolerance is reasonable. However, as with the implications derived from research concerning other demographics, this relationship is not definite, and additional research is warranted.

Scoring for Classification

This section converges the information obtained literature reviews from the previous section and provides a ranking to the categories given above.

Gender, Gender was included as an independent variable, because gender has been found to be an important investor risk-tolerance classification factor, with more men than women tending to fit the personality trait called “thrill seeker” or “sensation seeker” (Roszkowski et al., 1993).

A dataset was generated from the Survey of Consumer Finances 2016, by the Federal Reserve United States. Selected questions were taken separately and the dataset was then scored according to the numbers given in Section 2. The database consists of replies from 31241 people all across United States. A small portion of the table is shown in the below figure.

Using Elbow method we try and assess the optimal number of clusters required to divide the given dataset. It gives us the following output. Looking at the output we take 6 as the number of clusters as looking at the plot we understand that the observed difference in the within-cluster dissimilarity is not much after this point.

Hence from the above result we obtain at very basic classification for risk tolerance analysis and can given each person a score based on their answers of the survey. We value the risk tolerance based on the volatility of the stock which is generally measured with beta value. The beta value in the market ranges from 0.0 – 1.9 usually. We took a simple method of dividing the beta value into six weighted [image: ]segments as follows: –

Graph Convolutional Networks (GCNs)

In this method we use graphs to classify if an investor when investing in a new venture is able to take risk and in which category he is using his previous investments. The transactions made by an individual are represented in a graph with the Nodes representing the transactions and the Edges represent directed flows. We assume graphs to be directed. Each node holds the amount of the transaction and each edge holds the directed flow of that transaction. Any incoming node will be classified among the three categories stated above based on the threshold done by taking the first quartile of the transactions done by an individual. Any transaction within the first quartile range is classified as Conservative risk, second quartile as Moderate risk and third quartile as Aggressive risk. The topology of the investments is done by collating investments and the dependency of these among each others can be digitized as a directed graph.

Using node embedding we map the nodes so that similarity in the embedding and the embedding space approximates the similarity in the original network.

We generate node embedding based on local neighborhood. Nodes aggregate information from their neighbors using neural network. Network neighbor defines a computation graph. Neighborhood representation using average neighbor. After K-layers of neighborhood aggregation, we get output embedding for each node. We can feed these embedding into any loss function and run stochastic gradient descent to train the aggregation parameters.

Conclusion

This experiment provides a very conservative estimate to an investor’s risk tolerance by asking very few questions. This method can be incorporated into any investment portal and used to provide efficient investment advice as well as by algorithms to judge the investment decisions on the basis of the risk tolerance of the institution or individual using it. We can conclude that data mining approach allows us to improve our decision making process by a significant extent.

Graph convolution networks can easily classify the risk tolerance level of investors replacing the tiresome task of questionnaires. These provide better prediction and classification results because of the interdependency of the transactions of an individual and is also individual specific.

Graph convolution networks are recently developed and are computationally expensive if the number of edges increases. The forming of an adjacency matrix is a challenging task. We can improve the results using hybrid structure including random forest with GCN.

References

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2. Bajtelsmit, V. L., & Bernasek, A. (1996). Why do women invest differently than men? Financial Counseling and Planning, 7, 1-10.
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Types of Investors Based on ‘Rich Dad, Poor Dad’ by Robert Kiyosaki

Different investment avenues are to be had to buyers. Mutual budget also offers correct investment opportunities to the investors.Like all investments, they also bring positive dangers. The traders must compare the dangers and predicted yields after adjustment of tax on numerous units at the same time as taking investment choices. The investors might also are seeking for advice from professionals and specialists consisting of dealers and vendors of mutual budget schemes at the same time as making funding choices.

In continuation of the instructions I’ve found out from ‘Rich Dad, Poor Dad’ by author, Robert Kiyosaki, I will talk these days what he referred to as ‘Types of Investors’. According to him, there are two predominant varieties of traders: average investors and professional investors.Average investors purchase packaged securities including mutual funds, treasury payments, or real-estate-investment trusts. Professional buyers are more aggressive—they invent funding possibilities or get in on the ground ground of latest offerings, construct groups and advertising networks, collect companies of financiers to fund offers too big for them to undertake alone, and pick out the organizations with the maximum promise for preliminary public services of stock. There are five different types of professional investors: accredited investor, qualified investor, sophisticated investor, inside investor and ultimate investor.

The Accredited Investor

As described by Robert Kiyosaki, accredited traders are person investor that earns at the least $two hundred,000 in annual earnings ($300,000 for a pair) and/or has a net really worth of $1 million. An authorised investor has get admission to to many rewarding investments that, due to their risk can be legally off-limits to human beings of lesser income. Although usually financially knowledgeable, authorized traders are not necessarily fully literate. They can be content with protection and luxury instead of wealth, and may depend on advisors to increase and put into effect their monetary plans.

The Qualified Investor

This investor is nicely versed in both essential or technical investing and so there are two sorts of qualified traders – the essential investor and technical investor.

Fundamental investing calls for the capacity to assess a enterprise’s capacity with the aid of reviewing economic statements, tracking the industry the organization represents, and calculating how changes in interest prices and the economic system as an entire ought to have an effect on profitability. The essential investor makes use of financial ratios, which you’ll learn all approximately later, to evaluate the energy of a organisation he or she is considering as an investment.

Technical making an investment is special—it’s far based on know-how of the income records of a corporation’s inventory, the mood of the market in fashionable, and techniques such as brief promoting and options. The fundamental investor is commonly an S inside the CASHFLOW Quadrant due to the fact he or she will be able to normally operate alone in comparing shares, both via analyzing fundamentals or using technical analysis in evaluating capacity investments.

Unlike a essential investor, a technical investor (often a inventory trader) does not always look for nicely-run, profitable organizations. If people are rushing to put money into a positive kind of enterprise, say dot-com organizations, the technical investor may additionally leap on the bandwagon, irrespective of whether these companies are showing income, not to mention income. Technical investing is consequently extra speculative than fundamental, but it may yield greater rewards. Regardless of funding fashion, certified traders understand how to make, or at the least hold, cash in an up or down marketplace.

The Sophisticated Investor

The aim of this investor is to build wealth by way of developing a foundation of property that can generate excessive coins returns with minimal price of taxes. Armed with the three Es—education, revel in, and extra cash—the state-of-the-art investor takes advantage of tax, company, and securities laws to guard capital and maximize profits. When operating from the B quadrant, the investor can pick the first-rate structure or entity thru which to create property. This entity offers some diploma of manage over the investment and also serves as a firewall among non-public and business price range within the event of a lawsuit.

Sophisticated buyers exercising control over the timing of taxes and the person of their income. They understand, for instance, to defer paying taxes on capital gains from real estate by rolling over income to greater high priced belongings. They look at economic downturn as an opportunity to pay good buy basement fees for great securities, and they devise deals as opposed to truely expecting the right one to come back alongside.

Sophisticated buyers take dangers but abhor playing, hate dropping but are not afraid to, are financially shrewd yet depend upon professionals to train them greater, own little in their names but command exquisite wealth. Although they end up companions in actual-property ventures and big shareholders in groups, they lack one critical power: control control over their assets.

The Inside Investor

Building or proudly owning a worthwhile enterprise is the number one purpose of this investor. Whether as an officer of a agency or owner of a majority of its stocks of stock, the internal investor exercises a few diploma of control manage.

By running enterprise systems from the interior, she or he learns how to analyze them from the outside and thereby becomes a sophisticated investor as properly. Although inside buyers have financial intelligence, they do not necessarily have economic assets and accordingly may not meet the definition of an permitted investor. If inside buyers thoughts their own business and prevail, but, they are able to become not handiest accepted investors however ultimate buyers as well.

The Ultimate Investor

The purpose of the final investor is to personal a business that is so successful that stocks are sold to the public. Making an preliminary public presenting (IPO) is pricey and full of risks, yet it lets in business proprietors to cash in on the equity they have got constructed up in the business enterprise, while additionally raising money to pay down debt and fund expansions.

Awareness of Different Investment Avenues Among Working Women

In the ancient times, women were not allowed to even get education. Their role was purely to look after home. Their world was limited to their families. But then, the people slowly started recognizing the importance of education for women. And today, we find many highly educated women. They are progressing in real sense because in almost all sectors we find women working successfully. And of course, while doing so, they haven’t forgotten their job of homemaker. On both the fronts i.e. home & job, they are doing just fine. They know how to manage work life balance. Now-a-days, we find more and more women who are financially independent. No doubt, today’s women are more successful. They are getting paid handsome salaries. But what about their investment behaviour? Are they financially aware enough to make their own investments? If yes, then what are their investment patterns? What are their perceptions towards savings and investment, what is their risk bearing capacity? The answers to these questions are necessary for getting the picture of the role of Indian working women while taking the investment decisions.

Financial investment is the purchase of a financial security such as stock, bond or mortgage. As a woman & an investor, shaping of financial future is as the many other roles they play in life. Women today, have more earning potential & more influence over financial decisions than ever before. Women represent almost half of the workforce & many businesses are owned or managed by women. Many women influence or control the majority of all consumer decisions. As a result, it becomes important for women to focus on finances now more than ever.

Throughout their lives, as a woman, they face different financial challenges than their male counterparts. If women are going to take control of their financial future, it’s important that they recognize those differences & empower themselves.

Earning money is only half the equation for achieving financial independence. Effectively putting your money to work for you is equally important. In addition, circumstances are frequently different for women, and whatever choices you make will be better as a result of greater knowledge of the underlying issues & your options.

Economy of any country is driven by investments leading to capital formation. Savings lead to investments. In India, the household sector occupies the prime place as far as savings is concerned in comparison to institutional sectors, whether it is private or public. Every government in the world would like households to save, as personal saving constitutes the largest segment of national saving in most of the countries. This is followed by savings of the corporate sector, with government savings being least or negligible in most of the countries.

According to the economists and central bankers, for sustained economic growth of a country, rise in domestic savings is necessary. As per 2013 RBI annual report, household saving for 2012-13 is 22.3 percent of the GDP.

Every individual earning money, spends it to meet his or her own personal needs or to fulfil the basic needs of his or her family. Individuals use money for various purposes including funding their 2 daily house hold expenses and expenses incurred for buying luxuries for a better life. Money earned is generally used to fund some immediate expenses or saved to meet some future needs. Those who spend less than what they earn end up with savings. These savings can be accumulated and grown to fund various goals, such as, for education, marriage, vehicle purchase, house purchase or for acquiring any other asset, for medical emergencies and for meeting the post retirement financial needs. In general, the entire amount saved is not held in cash, but is invested in different asset classes or investment avenues in order to get areturn, which can be in the form of regular income or capital appreciation or sometimes both.

Women, in general are savers according to the Association of Bankers 2013 report. Even in India, under the recently launched Janadhan Scheme, a large number of new bank accounts were opened. In rural areas, major part of the new accounts was opened in the names of women according to the report released in 2014 by Punjab National Bank, resulting in a greater contribution by women. This scheme provided an opportunity for women to open bank accounts thereby increasing the percentage of the population under financial inclusion program of the government.

Three successive governments in India have stressed on providing and improving the educational opportunities for children, especially girl children. The efforts of the government have led to an increase in the number of educated women, who are well qualified and have the necessary skills to gain employment. With the opening up of the economy and the progress and investment made in the banking, financial services, insurance, software and educational sector, job opportunities have increased for women in India. The increase in the number of employed women has led to rise in the number of savers as well as the quantum of savings by women.

As per Census 2011, the population of India is 1210.19 million comprising 586.47 million (48.5%) females and 623.72 million (51.5%) males. Females have a share of 48.1% in the urban population and of 48.6% in the rural population. Women find more opportunities to work in urban cities. According to the NCAER survey of 2004 -05, the main source of income is through salary, for people living in urban areas is 36.9 percent and 81.4 percent of households at the all-India level save a part of their earnings. The figure is 88% for urban India and 78.5 % for rural India. The work force participation by women in urban sector was 13.8% for females and 54.3% for males. Employment to population ratio for 4 female in India was last measured at 27.50 % in 2011. Table 1.1 helps us understand the avenues of investment according to the NCAER survey. This table gives the distribution of investment in percentage of the total investment made by households. Avenues of investment in this table are us as part of investment classification in the current study.

Millions of investors buy bonds, mutual funds, equity, gold or similar investment products,for different purposes. The decision to invest in a specific assets class or classes of assets is primarily driven by the risk and the return associated with the product.

Any investment made carries certain amount of risk, which isthe uncertainty of return on the investment made or even losing the capital invested. There is no uniformity of opinion about the risk associated with a particular investment product across investors. What may seem to be highly risky to one investor may be considered to be average risk product by another investor. Evaluation of risk associated with a financial instrument may depend on the past experience of the investor, financial expertise or dependence on others for investment. These factors may drive an individual’s opinion about the risk level of a certain financial product. The perception of investors about the risk associated with a financial instrument ranges from no risk to very high risk in relative terms. The perception of investors towards different asset classes is captured in the current research using suitable questions.

For centuries women have been viewed as the caretakers of the family. However, as more women are either earning higher salaries than their spouses or taking on the role as the “breadwinner” of the household, that view gets a little more complicated. According to an analysis by the Pew Research Centre, 40% of all households with children under the age of 18 include mothers who are either the sole or primary source of income for the family – this number greatly increased from the 11% in 1960. These mothers who are the primary financial supporters of the family are divided into two groups: 37% are married and have a higher salary than their husbands while 63% are single mothers (“Breadwinner Moms”).

The role of women, both in the household and in business, cannot be undermined. It is also believed that the full participation of both men and women is critical for development. As more women become breadwinners and business owners who generate income and make financial decisions for their households, the power of the purse—and the market opportunity it represents—will grow exponentially (Hewlett, Moffitt and Marshall, 2014). The role of women in investment decision making in the family is also critical. Previous researchers have suggested that women, compared to men, tend to be risk averse, have a conservative investment attitude, lower levels of financial knowledge, lack of confidence and are dependent on guidance from others when it comes to investment decisions. Indian women, even after having their own investments, tend to rely on the advice of husbands. Husbands can play an important role in married women’s investment decisions. This article attempts to highlight the role of women in investment decision making in the family. Existing literature related to women investors and role of women in investment decision making in family is presented at the beginning of this article. A questionnaire was used to collect the responses to get a better idea of how the spouse influences the investment decisions of a working woman for different investment instruments.

Financial investment is the purchase of a financial security such as stock, bond or mortgage. As a woman & an investor, shaping of financial future is as the many other roles they play in life. Women today, have more earning potential & more influence over financial decisions than ever before. Women represent almost half of the workforce & many businesses are owned or managed by women. Many women influence or control the majority of all consumer decisions. As a result, it becomes important for women to focus on finances now more than ever.

Throughout their lives, as a woman, they face different financial challenges than their male counterparts. If women are going to take control of their financial future, it’s important that they recognize those differences & empower themselves.

Earning money is only half the equation for achieving financial independence. Effectively putting your money to work for you is equally important. In addition, circumstances are frequently different for women, and whatever choices you make will be better as a result of greater knowledge of the underlying issues & your options.

‘Investment Awareness’ is not an altogether new concept. In fact, it is very much discussed topic. Life of a human being is full of uncertainties. Hence, it becomes very much essential or is rather a necessity to save money for the future. Now, just saving money & keeping it idle is not sensible. Because, the value of money will get decreased. Hence the money saved should be invested; so that its value will get increased. Out of this need, various investment avenues have come into force. The risk bearing capacity of each & every individual is different; depending upon their age, income, perceptions & beliefs.

Today’s women are definitely financially independent. They are heading the important senior posts in various sectors. They are doctors, engineers, IPS officers, artists, professors. The list is unending. Hence, in the society, women are getting great respect. They have got financial soundness. But only earning high income is not enough. It is just half the battle won. The remaining & very much important thing is investment. If the amount earned is invested in the right manner, one can increase one’s wealth. As it is one of the objectives of financial management, wealth maximization is really very important.

As far as the Indian scenario is concerned, working-women here have started doing investments slowly. The percentage of working-women who take their own financial decisions for making investments is low. Many a times, they rely on their husbands or parents to make investment decisions. There is still a class of working-women who just don’t bother much about making investments out of their income. This is because their husbands are financially very strong & these female working professionals join somewhere with the sole intension of killing the time or they don’t want to sit at home idle. The reason for not making investments on their own might be male dominance in some cases.

No doubt, there is a class of working-women who are handling their own portfolios & getting good returns on their investments too. But the percentage of such class of women is a bit low. Such class includes mainly single mothers, divorcees, widows, unmarried women etc. This needs to be changed. That means more & more working-women should be financially aware & they should take their own financial or investment decisions. Then only the term ‘Women Empowerment’ will be justified in real sense.

Recent research demonstrates that there is an important difference between the investment choices of women and men. Therefore, examining the differences in financial decision-making between the two is relevant these days. By investigating the gender differences, we show important differences and this allows various economic agents to handle them. Research has already been done all over the world, but there is still a need for. To find this evidence we take questionnaires to investigate the different influencing factors of financial choices. We conclude that gender doesn’t have a great influence on the investment behaviour, but other factors like saving quota, risk and financial literacy.

According to Ellevest, an investment platform created by women for women, “of all the assets controlled by women, 71% is in cash – aka not invested.” Statistically, women are less likely to invest, and even those who do invest tend to wait until they are older to start.

Most women don’t think they know enough about investing to properly grow their savings; therefore, they wait to start investing until they feel they’re more financially stable and believe they can risk the possibility of losing money. A common misconception around investing is that you have to be an expert in the industry to succeed when the reality is that there are so many tools and resources that make easy to start investing with as little as your pocket change.

As a woman, the life expectancy is high as compared to males; hence it is very much essential to have enough investment to maintain the lifestyle throughout their lives. The main objectives of any investments are – safety, growth and income. The growth of money is important to fulfil basic needs in life and investing can help a person to meet long term life goals easily. Return builds and creates wealth over time.

• If we observe the current scenario of metro cities of India, we will get to know that the percentage of career oriented women is on the rise. Hence many women are such that they don’t get married but many a times they prefer adopting children & prefer to become single mothers. Now in such situations, they would need higher amounts of funds to meet the increasing needs arising out of the entry of the children to their families.

• Secondly, the number of divorcees is also increasing day by day. Now, in such case, again women should not only be financially independent, but they should have sound investment to secure their future.

• Thirdly, it is always observed that women are no risk takers while doing investment decisions. If they educate themselves well about investment avenues & the returns which can be availed from them, they can take important and bold decisions for making investment.

The Impact of Interest Rate on Investment Decision

This chapter explains the background of the study, statement of the problem, objectives of the study, research questions, significance of the study, research hypotheses, scope of the study, limitations of the study and definitions used in the study.

Malawi and Bader (2010) pointed out that investment is considered to be an important factor in economic growth. One of the prospective determinants of the investment level is the interest rate. Adeshina (2017) stated that investment is the current commitment of specific amount of cash into an income yielding asset with the sole aim of deriving future inflow of cash. This will compensate the investor for the time of releasing the fund for the use of another; the changes in interest rate and the purchasing power of money and the uncertainty of future payment (Oluwatusin 2017). Unlike capital, investment is a flow term and not a stock term. This means that capital is measured at a point in time, while investment can only be measure over a period of time. Investment plays a significant and positive role for progress and prosperity of any country. Many countries rely on investment to solve their economic issues such as poverty, unemployment.

Muhammad et al. (2013) stated that investments in different sectors ultimately raise the capital (in other words cause capital formation), this capital can be divided into two broad categories the first is increase in working capital (in short run) which can be shown by increase in business activity and the other is increased in fixed capital (long run effect), which raise the output (production) which later cause increase in the welfare of the economy. Raise in the interest rate increase the cost of capital for the business sector that is invested in the working and business fixed capital. It also increases the cost of holding inventories. A high interest rate might lower investment because it turns out to be extra expensive to have a loan of money, while a raise in income promotes high investment. Still if a firm decides to employ its personal finance in an investment, the interest rate in this stand for an opportunity cost of investing those finances rather than providing out that quantity of money for interest rate.

According to Soyibo and Adekanye (1992), interest rate is the price paid for the use of money, where it is the opportunity cost of borrowing money from a lender. Interest is the reward that accrues to people who provide the fund with which capital goods are bought. On the other hand, interest rate is the charge a borrower pays for the money lend to him for business or other transaction motives. Investors borrow money from banks and other financial institutions. The response of investment expenses changes keenly with interest rate which is at the mind of money-making analysis. Interest rates is the other strong factors that affect financial policies as well as weaker financial payments in guiding principles of investors, it facilitates investment if the high interest rate is applicable on savings. Interest rate influences savings practically all commercial banks commencing macroeconomic theories. The negative influence of higher investment rate inhibits the macroeconomic effect of interest rate policy (Maranga & Nyambane Nyakundi, 2017).

On the other hands, Shumway and Stoffer (2017) also indicated that the changes in interest rates can reflect the basic situation of the operation of macro economy; it also effects all the macroeconomic variables such as GDP, price level, employment rate, international balance of payments, the rate of economic growth, etc. Obviously, the interest rate is an important economic variable that plays an important role in both macro and micro economy activity. Therefore, a change in interest rates is one of the main factors to judge the macroeconomic situation and the interest rate trend analysis is the main method to predict the macroscopic economic situation. The total social savings and investment are closely linked; therefore, the current interest rates affect the investment activities. At the same time, current interest rates also affect the scale of investment in the future by adjusting the savings. If the interest rate rises, bond prices fall, if the interest rate falls, bond prices rise. The influence of interest rate on investment scale is operate as the opportunity cost of investment on total investment, Under the condition of unchanged in investment income, the rising interest rates increase the cost of investment and then inevitably cause lower income investors to withdraw from the area of investment, so that the demand for investment is reduced. However, falling interest rates means that investment costs decline, thereby stimulating investment and the total social investments increase.

Applying Value-at-Risk on a Portfolio Investment in the Cambodia Securities Exchange

Measuring the capital at risk in the portfolio investment under the extreme scenario plays a vital role to enable the traders to foreseen the potential maximum capital loss at a particular time frame. The Value-at-Risk (VaR) is extensively adopted by the numerous financial institutions, investors and creditors as a risk assessment method to measure the maximum capital loss to an investment portfolio or risky assets over a period of time under the provided confidence interval. Soon after, it was introduced by J. P. Morgan in 1998 in their RiskMetrics which purposefully aims to publish the volatility and correlation information for stocks listed on the major markets in the world (Kaura, n.d.). Pafka & Kondor (2001) argued that the popular RiskMatrics is the artifice of the choice of risk assessment. Provided that the exceptional performance of volatility estimates is because of the short forecasting horizon and the satisfactory performance in obtaining the VaR is because of the choice of the confidence level.

The VaR method, however, is comprehensively conducted to determine the exposure of the capital to the potential market risks which is the extensively used by the creditors, such as, commercial and investment banks to study about the exposure of their portfolio investment to risk over a particular time to ensure that their capital and cash reserve can cover the value-at-risk without putting the firms at the financial distress. (Kaura, n.d.), Koch (2006), Goorbergh & Vlaar (1999), Shirazi (n.d.), Gregory & Reeves (2008), Hong, Hu, & Liu (2014), Linsmeier & Pearson (2000), Borgdan, Baresa, & Ivanovic (2015), Jorion (2007) and Wong, Cheng, & Wong (2003) have all comprehensively employed the VaR method in studying the exposure of the market risks on the portfolio investment. The Value at Risk can be computed by 3 methods, namely, the historical analysis, the parametric VaR and the Monte Carlo Simulation with each method offers certain pros and cons.

The historical analysis, first and foremost, adopts the historical data from the market ratio or prices to empirically analyse the value at risk. Considered as the easiest method to measure the value at risk, this nonparametric method uses essentially the empirical distribution of portfolio returns, and is not required to fulfil any distributional assumptions (Goorbergh & Vlaar, 1999). The realistic historical information of the past event enables the researchers to accurately predict the possible future event (Kuara, n.d.). The readily available data also adds more simplicity to the method. For example, the historical trading data, such as, securities, is publicly available (Borgdan, Baresa, & Ivanovic, 2015). Only predetermining the time horizon of the data is required, and no mapping is required in comparison with the parametric method. On the contrary, the major drawback of this method is if the composition of the portfolio investment changes over time, collecting large sample size is unmanageable. Therefore, making this method becomes less feasible (Koch, 2006). The historical simulation approach using the historical asset returns data, however, is applicable to dealt with this problem. Yet, intensive computation is required for the large portfolio investment (Kuara, n.d.).

The parametric VaR method, which is also called by other names, including variance-covariance, and linear or delta normal VaR, is another popular method to measure the value-at-risk. According to Lausbch (1999), the parametric method also uses the historical data to measure the potential risk. Unlike the previous method, this method does not require long historical data which allows this method to be quickly and easily calculated. The mean value of the yield rate and the standard deviation of the same data are the two major variables used by the parametric method in the calculation. The primary requirement of the parametric method, however, is the data has to be normal distribution (Value-at-Risk, n.d.). Meaning that the mean value, arithmetic mean, mode and median are the same size and it has a bell shape. Lausbch (1999), on the other hand, stated that the hypothesis of the normal distribution is main disadvantage of the parametric model which makes it less feasible for the nonlinear portfolios and distorted distribution. Jackson, Maude & Perraudin (1997) which VaR was applied on the trading book of an anonymous bank, have concluded that the simulation approach provides more accurate measures of tail probabilities comparing to the parametric VaR. This can happend due to the arise of a serious non-normality of financial return. Lausbch also anticipated that the major limitation of the parametric model is the constancy of the computed standard deviation and correlation coefficients, in which value changes throughout the time. Hence, if the researchers fail to modify the computation due to the extreme values of VaR, it will result in the misinterpretation of the results.

Last but not least, Monte Carlo Simulation is last method for forecasting VaR. The Monte Carlo, basically, is a justify name for the stochastic method for computing VaR. Due to the fact that the method involves the computer simulation of various influences on the observed portfolio of securities (Borgdan, Baresa, & Ivanovic, 2015). Similar to the historical method, this method involves complex computation of the historical data to predict the future risk and potential loss with a statistical confidence interval. The complex computation which involves hundreds or thousands of possible scenarios and generates the feasible solution makes this method to be the most reliable method to compute VaR (Borgdan, Baresa, & Ivanovic, 2015). This method, additionally, can be employed to calculate both the value of stochastic and non-stochastic. Vose (1997) indicated that Monte Carlo is the mathematical risk analysis techniques which describe the impact of risk and uncertainty on the problem. The uncertain parameters in the model are characterised by distribution of probabilities. While that shape and size of these distribution describes range of values that parameters can have with their relative probabilities. Ostojić, Pokorni, Rakonjac, & Brkićm (2012) and Lausbch (1999) agreed that a major advantage for Monte Carlo method would be its effectiveness to accurately calculate the risk value of various financial instruments, yet this method does not necessarily require large historical data. Significantly, the Monte Carlo method support the use of different distribution, including T-distribution, normal and similar. While the major drawbacks for this method are the requirement for complex analysis and really time consuming. Finally, selecting the proper distribution is also vital to quantify the risk of thickened tail distribution.

VaR, in conclusion, is the maximum potential loss to a portfolio investment at a particular period of time. This risk assessment method is very handy for the investors and creditors to estimate the potential loss due to its applicability and simplicity, and the model itself has passed numerous modifications which aim to improve the precision to forecast the value-at-risk. Hendricks (1996) applied the VaR on 1,000 randomly selected foreign exchange portfolios from 1983-94. The study suggested that among the twelve approaches which was applied. None is perceived to have more superiority over the others. The choice on the confidence level, however, appears to have significant influence on the performance of VaR. Borgdan, Baresa, & Ivanovic, (2015), on the other hand, claimed that besides the many advantages that this model contains, the model should be applied with some precautions, for example, the model focus mainly on the portfolio losses but cannot entirely forecast the future losses. Most importantly, the dramatic price fluctuations can probably influence the computed value-at-risk and generate false security, such as, undervalued or overvalued risk. Hence, the VaR model has the best applicability in the stable market conditions. In this paper, the VaR model will be applied to study the value-at-risk of a portfolio investment in The Cambodia Securities Exchange Market (CSX).

Impact of Foreign Investment in a Country

This chapter forms our bases of our study which is on the impact of foreign direct investment on economic growth in Kenya. Literature that relates to the study is viewed to identify the gaps in the knowledge. Theoretical and empirical literature is viewed through assessment of the various theories on foreign direct investment on the economic growth in Kenya. Besides, it outlines some of the gaps that have been identified from the review of historic as well as current state of research in the field.

This section shades light on the various theoretical theories that have been advanced in the previous studies by different scholars. Theories identified are; the economic theory, Solow type growth theory and the neoclassical theory. These theories are well explained below:

The standard economic theory holds that foreign capital inflows into a recipient country increases its stock of capital and level of technology and lead to better economic performance. Theory provides conflicting predictions concerning the growth effects of FDI. FDI affects economic growth positively through improved technology, efficiency and increased productivity (Lim, 2001). However, the potential contribution of FDI to growth is strictly dependent on the circumstances in the recipient or host country.

Economists tend to favor the free flow of capital across national borders because it allows capital to seek out the highest rate of return. Unrestricted capital flows may also offer several other advantages (Barry and Collins,1999). First, international flows of capital reduce the risk faced by owners of capital by allowing them to diversify their lending and investment. Second, the global integration of capital markets can contribute to the spread of best practices in corporate governance, accounting rules, and legal traditions. Third, the global mobility of capital limits the ability of governments to pursue bad policies.

The role of foreign direct investment (FDI) in stimulating economic growth is one of the controversial issues in the development literature. In the standard Solow type growth model, FDI enables host countries to achieve investment that exceeds their own domestic saving and enhances capital formation. According to this theory, the potential beneficial impact of FDI on output growth is confined to the short run. In the long run, given the diminishing marginal returns to physical capital, the recipient economy could converge to the steady state growth rate as if FDI had never taken place leaving no permanent impact on the growth of the economy (De Mello, 14). Mankiw (2003) applying the Solow growth model argues that private businesses invest in traditional types of capital such as bulldozers and steel plants and newer types of capital such as computers and robots. On the other hand, government invests in various forms of public capital, called infrastructure, such as roads, bridges and sewer systems. Mankiw further argues that policy makers trying to stimulate growth must confront the issue of what kinds of capital the economy needs most.

According to neoclassical theory, FDI influences income growth by increasing the amount of capital per person (Nair, 2010). It spurs long-run growth through such variables as research and development (R&D) and human capital. Through technology transfer to their affiliates and technological spillovers to unaffiliated firms in the host economy, MNCs can speed up the development of new intermediate product varieties, raise product quality, facilitate international collaboration on R&D, and introduce new forms of human capital (Ikiara, 2003). Bajonaand Kehoe (2010) discussed explanations of multinational production based on neoclassical theories of capital movement and trade within the Hecksher-Ohlin framework.

However, they criticize these theories on the basis that they were founded on the assumption of existence of perfect factor and goods markets and were therefore unable to provide satisfactory explanation of the nature and pattern of FDI. In the absence of market imperfections, these theories presumed that FDI would not take place (Bajona and Kehoe, 2010). Nevertheless, they argue that the presence of risks in investing abroad implies that there must be distinct advantages to locating in a particular host country.

This section describes the various determinants of FDI. The exact determinants discussed here include: infrastructure, market size, labour costs and productivity, political risk, economic growth and taxation.

Infrastructure covers many dimensions ranging from roads, ports, railways and telecommunication systems to institutional development like accounting, legal services. According to ODI (1997), poor infrastructure can be seen, however, as both an obstacle and an opportunity for foreign investment. For the majority of low-income countries, it is often cited as one of the major constraints. But foreign investors also point to the potential for attracting significant FDI if host governments permit more substantial foreign participation in the infrastructure sector.

Jordan (2004) claims that good quality and well-developed infrastructure increases the productivity potential of investments in a country and therefore stimulates FDI flows towards the country. According to Asiedu (2002) and Ancharaz (2003), the number of telephones per 1,000 inhabitants is a standard measurement in the literature for infrastructure development. However, according to Asiedu (2002), this measure falls short, because it only captures the availability and not the reliability of the infrastructure. Furthermore, it only includes fixed-line infrastructure and not cellular (mobile) telephones.

According to Artige and Nicolini (2005) market size as measured by GDP or GDP per capita seems to be the most robust FDI determinant. This is the main determinant for horizontal FDI and it is irrelevant for vertical FDI. Bakir & Alfawwaz (2009) mention that FDI will move to countries with larger and expanding markets and greater purchasing power, where firms can potentially receive a higher return on their capital and by implication receive higher profit from their investments.

According to Charkrabarti (2001), the market-size hypothesis supports an idea that a large market is required for efficient utilization of resources and exploitation of economies of scale: as the market-size grows to some critical value, FDI will start to increase thereafter with its further expansion. This hypothesis has been quite popular and a variable representing the size of the host country market has come out as an explanatory variable in nearly all empirical studies on the determinants of FDI. In ODI (1997), it is stated that econometric studies comparing a cross section of countries point to a well-established correlation between FDI and the size of the market, which is a proxy for the size of GDP, as well as some of its characteristics, such as average income levels and growth rates. Some studies found GDP growth rate to be a significant explanatory variable, whereas GDP was not, probably indicating that where the current size of national income is very small, increases may have less relevance to FDI decisions than growth performance, as an indicator of market potential.

Wage as an indicator of labour cost has been the most contentious of all the potential determinants of FDI. Theoretically, the importance of cheap labour in attracting multinationals is agreed upon by the proponents of the dependency hypothesis as well as those of the modernization hypothesis, though with very different implications (Charkrabarti, 2001). There is, however, no unanimity even among the comparatively small number of studies that have explored the role of wage in affecting FDI: results range from higher host country wages discouraging inbound FDI to having no significant effect or even a positive association.

According to ODI (1997), where the host country owns rich natural resources, no further incentive may be required, as it is seen in politically unstable countries. In general, as long as the foreign company is confident of being able to operate profitably without excessive risk to its capital and personnel, it will continue to invest. For example, large mining companies overcome some of the political risks by investing in their own infrastructure maintenance and their own security forces. Moreover, these companies are limited neither by small local markets nor by exchange-rate risks since they tend to sell almost exclusively on the international market at hard currency prices.

The role of growth in attracting FDI has also been the subject of controversy. Charkrabarti (2001) states that the growth hypothesis developed by Lim (2001) maintains that a rapidly growing economy provides relatively better opportunities for making profits than the ones growing slowly or not growing at all. Lunn (1980), Schneider and Frey (1985) and find a significantly positive effect of growth on FDI, while Culem (1988) obtains a strong support for the hypothesis over the period 1983 to 1986, but only a weak link from 1975 to 1978.

On the other hand, Nigh (1985) reports a weak positive correlation for the less developed economies and a weak negative correlation for the developed countries. Ancharaz (2003) finds a positive effect with lagged growth for the full sample and for the non-Sub- Saharan African countries, but an insignificant effect for the Sub-Saharan Africa sample. Gastanaga et al. (1998) and Schneider and Frey (1985) found positive significant effects of growth on FDI.

The literature remains fairly indecisive regarding whether FDI may be sensitive to tax incentives. Some studies have shown that host country corporate taxes have a significant negative effect on FDI flows. Others have reported that taxes do not have a significant effect on FDI.

The direction of the effects of above-mentioned determinants on FDI may be different. A variable may affect FDI both positively and negatively. For example, factors, such as labour costs, trade barriers, trade balance, exchange rate and tax have been found to have both negative and positive effects on FDI. In the empirical studies a various combination of these determinants as explanatory variables have been used. Ahmed (2012) states that due to the absence of a consensus on a theoretical framework to guide empirical work on FDI, there is no widely accepted set of explanatory variables that can be regarded as the true determinants of FDI.

Nair (2010) studied the relationship between Foreign Direct Investment and Economic Growth using a case study of India from 1970 to 2007. The study applied regression analysis. The main regression results show that FDI has a positive and highly significant effect on overall growth for India. The stock of human capital is also significant in the growth process, and the magnitude of the effect of FDI does depend to some extent on the interaction between these two variables. The study further notes that the nature of the interaction of FDI with human capital is such that for countries with very low levels of human capital, the direct effect of FDI is negative. The large positive value of the dummy variable, and its high level of significance, reflect that the opening up of the Indian economy in 1991 saw the effect of FDI on economic growth increase tremendously.

Wan (2010) conducted a literature review on the relationship between foreign direct investment and economic growth. This study sums up the literature as well as empirical studies on the relationship between foreign direct investment and economic growth, trying to arrive at a meaning revelation eventually. Theories and existing literature provide conflicting results concerning this relationship. On one hand, some scholars argue that foreign direct investment could stimulate technological change through the adoption of foreign technology and know-how and technological spillovers, thus boosting host country economies. On the other hand, other pessimists believe that FDI may bring about crowding out effect on domestic investment, external vulnerability and dependence, destructive competition of foreign affiliates with domestic firms and market-stealing effect as a result of poor absorptive capacity.

Chakraborty (2012) sought to establish whether there was any relationship between foreign direct investment, domestic investment and economic growth in India using a time series analysis. The findings show that while the long-run co-integrating relationship between FDI, gross fixed capital formation (GFCF) and gross domestic product (GDP) in India is confirmed by the empirical analysis, the findings that there is a unidirectional causality from India’s economic growth to FDI and from FDI to domestic investment raises important policy implications. Higher FDI inflow in India could be argued to be facilitated by the relatively stable GDP growth rate, which in turn acted as a major boost towards a sustainable high domestic investment. The growth effects of the FDI on GDP in the short run were, however, less pronounced.

Njeru (2013) examined the impact of foreign direct investment on economic growth in Kenya using FDI and GDP inflow data series from 1982 to 2012. The findings show that FDI contributes to development in three major ways: capital inflows such as FDI enable countries to import more than they export, which enables them to invest more than they save and thus accumulate capital faster, boosting labor productivity and wages. FDI has the potential to absorb some of the surplus literate labor in the rural and urban informal sectors; and employment creation in industries with good productivity growth prospects is an important aspect of poverty alleviation strategies, which is good for local entrepreneurs.

Abala (2014) conducted an empirical analysis of Kenyan data on foreign direct investment and economic growth. The view suggests that FDI is important for economic growth as it provides much needed capital, increases competition in host countries and helps local firms to become more productive by adopting more efficient technology. The study findings show that FDIs in Kenya are mainly market-seeking and these require

growing GDPs, political stability and good infrastructure, market size as well as reduction in corruption levels. The prevalence of crime and insecurity would be impediments to FDI inflow.

The empirical review above has shown the relationship between foreign direct investment and economic development of a country. However, the studies have not concentrated on the impact of economic growth on FDI or the intervening effects of inflation on the impact of economic growth on FDI with the exception of Chaudhry et al (2013) who established that FDI has a positive effect on economic growth. All the local studies have not considered the effect of economic growth on FDI mixing other macroeconomic variables except the inflation as done by Wanjiru (2013). This study therefore seeks to fill this research gap in literature where the only dependent variable being economic growth.

Affects of Fear on Your Investment Strategy

Being in the investment industry may give you experience, but there is always that fear inside each of us. Fear can have a significant impact on how you make decisions related to your finances. Whether you want to invest in real estate, buy stocks form a company, or try trading cryptocurrency, fear can influence your ability to make decisions.

Though this can prevent you from pursuing what you want, a certain degree of fear can keep you focused and make you more alert. This means that fear is not necessarily a bad thing. Fear can be divided into two types, namely F.O.N.G.O and F.O.M.O. Even though these forms of fear can have an impact on your finances, it is possible to use them to your advantage.

During investing, you may panic every time you think that you may miss out on a great opportunity. The thought of other people grabbing the opportunity before you do can cause panic. Since the market keeps on changing, investors are on always alert since they don’t want to be left behind. Though this fear heightens your senses, acting on your motion can prevent you from making the right decision.

Risk is part of investing, and it is through taking risks that investors gain rewards. You should, however, try to evaluate your risk tolerance and determine how much risk you are comfortable with. Know what you can afford to lose from the investment and avoid going beyond your limits.

As you invest, you need to come up with a budget to avoid making losses. A budget should guide you in making the right investment decisions. You should also develop a clear investment strategy and set goals. Know if you are investing for short term or long term purposes. This fear makes you follow others blindly while making decisions based on emotional impulses. Instead of taking such actions, you should come up with a plan and make informed decisions based on your investment goals.

Do you fear getting trapped in a particular financial situation during investing? Changes in the market can cause this form of fear. Many investors panic from the thought of losing. Though this form of fear can spread fast, you should not let it affect you. Keep on reminding yourself of your goals in investing and try to assess the situation at hand using logic and not on emotions.

Instead of making hasty decisions during market cycles, try to focus on your long term plans. Since market cycles can last for a few hours, days, or even months, try not to make decisions without looking at the bigger picture. Acknowledge your fear as you review your strategy to ensure that you are still on the right track.

Liberalization of The FDI Regime

There has been a considerable thinking about FDI by central government since it came into power in 2014. The country which has adopted many revolutionary economic changes like GST was not considered as an “ease of business doing country” in many surveys. But, on January 10, 2018, the Union Cabinet approved certain key amendments to the Consolidated FDI Policy Circular of 2017. The amendments aim to further liberalize and simplify the FDI Policy to create a more foreign investor-friendly atmosphere and, in turn, attract more foreign direct investment in the country.

This amendment marks another step in a series of steps already taken by the government in this regard, including the recent amendments to the regime governing the transfer and issue of securities held by non-residents2 and the notification of the new rules consolidating the filing and reporting requirements under the Foreign Exchange Management Act, 1999.3.

Before FDI policy, foreign investment in entities undertaking single brand product retail trading (“SBRT”) was allowed up to 100%, with up to 49% being allowed under the automatic route and prior Government approval being required beyond 51%. The amended FDI Policy now permits up to 100% FDI in SBRT through the automatic route. The companies no longer need to consult government for investment. Further, the local sourcing requirement with respect to SBRT has been eased. As a result of the amendment, an entity undertaking SBRT does not need to meet the 30% local sourcing requirement through its Indian units for the first five years, if the requirement is met through sourcing from India for its global operations, either directly or through its group companies.

After completion of the 5-year grace period, the SBRT entity shall be required to meet the 30% sourcing norms directly towards its Indian operation, on an annual basis. Another milestone happened in amended FDI policy was the removal of prohibition on foreign airlines to invest in Air India. Under the FDI Policy, foreign airlines were allowed to invest under the government approval route in Indian companies (except in relation to Air India Limited (“Air India”)), operating scheduled and non-scheduled air transport services, up to a limit of 49% under the government approval route in Air India. This is subject to the condition that foreign investment in Air India shall not exceed 49%, directly or indirectly, and substantial ownership and effective control shall continue to be vested in Indian nationals. This can be seen as a new birth of Air India which has a debt of 50000 crore rupees.

Under the FDI Policy, no foreign players were allowed to real estate business. The amended FDI policy has clarified that a real estate broking service does not amount to a real estate business and therefore, is eligible for 100% FDI under the automatic route. This may pave way to a significant change in real estate industry as multiple bulging eyes were looking to enter this untouched industry.

The FDI Policy allows 49% FDI under the automatic route in power exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010. However, foreign institutional investors (“FIIs”) and foreign portfolio investors (“FPIs”) could invest only by way of secondary market transactions or subsequent purchases. The amended FDI Policy uplifted the regulation from CERM, thereby allowing FIIs and FPIs to also invest through primary markets or subscriptions, subject to sectoral limits. Conversion of external commercial borrowings, lump sum fee and royalty into equity Pursuant to the FDI Policy, the issue of equity shares against non-cash consideration was permitted only under the government approval route. Now, under the amended FDI Policy, the issue of equity shares against non-cash consideration, such as preincorporation expenses and the import of machinery shall be permitted under the automatic route in case of sectors falling under the automatic route.

FDI in an Indian company engaged only in the activity of investing in the capital of other Indian companies (regardless of its ownership or control)

The FDI policy allowed FDI up to 100%, with prior government approval, in companies engaged only in the activity of investing in the capital of other Indian companies or limited liability partnerships (“LLPs”), and in core investing companies.

To bring the conditions governing these sectors in line with “other financial services”, it has now been decided that if any financial sector regulator regulates the activities of such companies, FDI up to 100% shall be allowed under the automatic route. However, if they are not regulated by any financial sector regulator, or where only a part of their activities is regulated, or where there is doubt regarding regulatory oversight, FDI up to 100% will be allowed under the government approval route, subject to conditions including a minimum capitalization requirement, as may be decided by the government.

Pursuant to the FDI Policy, medical devices were defined in the Drugs and Cosmetics Act, 1940. It has now been decided that the definition medical devices shall no longer be subject to the Drugs and Cosmetics Act, 1940. A revised definition of medical devices is also proposed to be introduced in the amended FDI Policy and foreign companies can be invest in drugs and pharmaceuticals.

The FDI policy has been amended to stipulate joint audits in investee companies (receiving foreign investments) in situations where the foreign investor wishes to specify a particular auditor/audit firm having international network for the Indian investee company. One of the auditors should not be part of the same network, according to the amended FDI policy.

Prior to this change, the FDI policy did not have any provisions in respect of specification of auditors that can be appointed by the Indian investee companies receiving foreign investments.

Under the earlier FDI policy, global defence company was having 49% FDI limit while Indian partner holding remaining stake in the joint venture. The decision to allow 100 % FDI in defence marks a major push to defence manufacturing under Make in India initiative. The deals above 49%, under amended FDI policy deals not involving state of art technology can also opt the route. Government has been aggressively pushing global defence companies, due to prolonged scams and huge cots incurring, to setup companies in India. In the past, government has stated that relaxation above 49% can be given on a case by case basis through Foreign Investment Promotion Board (FIPB) for state of the art technology and depending on the extent of technology transfer. Opening up of 100% defence to FDI is still a debatable topic.

Whether Education an Investment or Consumption

Globalisation has led to a considerable growth of the economic importance of knowledge. Knowledge is a resource which has become a decisive factor in economy and developmental policy. The generation and propagation of knowledge holds a key position for economic and cultural development in industrialized as well as in developing countries. There is growing demand for academically trained experts in such knowledge driven economics and societies. As a result therefore, education has emerged as an industry and investment in education is considered as the much lucrative business. Realizing this importance, government of India has made educational planning a constituent of the total planning process. It has even made handsome allocations for this purpose. the first five year plan (1951-56) made an allocation of Rs. 169 cores of the total plan outlay towards education. The allocation was an allocation of Rs. 169 cores of the total plan outlay towards education. The allocation was stepped up substantially during the third five year plan to Rs. 589 crores and in the sixth five year plan it had increased to 2,524 crores. In the eleventh FYP (2007-12), central government envisages an outlay of about Rs. 2.70 lakh crore at current price (Rs. 2.37 lakh crore) for education. This reflects the high priority being given to the education sector by the central government and represents a creditable progress towards raising the public spending of the centre and the states combined to 6% of GDP. But the question arises.

Goods and services are divided into two categories: those from which consumers derive immediate benefit called consumption, those which are used in production to produce after a long term called investment.

Education is both consumption as well as an investment. As a consumption, it accounts for national development. Sometimes it is regarded as consumption in so far as it is desired for its own sake or in the sense that it is considered to be rewarding and intellectually stimulating in itself. The consumption aspect has also been treated by analyzing the amount spent per head of population, or per student. As an investment its returns are compounded in the form of developed personalities, thought, behavior and resourceful citizens in the society. Education is 100% investment with huge returns and massive growth in human resources. Education yields knowledge, job, money and happiness and the most wanted peace. It is permanent property which can’t be stolen and is always productive. Education can be passed over the next generation, making them knowledgeable, disciplined and a perfect human being and thus it is an investment and not an expense.

In the words of Ellea Kyleal, ‘No investment is more productive than in education and training.’ Three factors are responsible for considering educations as an investment as mentioned below:

At one time education was considered an instrument only for promoting individual’s self-improvement and his social relations. The thinking of ‘education for education sake’ is fast changing. In the present age of maximizing the application of science and technology it has been increasingly realized that one needs to be educated not only to become a better man and a better social being, but he should also be a better creative and productive being In the words of Arn Rand, ‘The only purpose of education is to teach a student how to live his life by developing his mind and equipping him to deal with reality. The training he needs is theoretical, i.e. conceptual. He has to be taught to think, to understand, to integrate, to prove. He has to be taught the essentials of the knowledge discovered in the past and he has to be equipped to acquire further knowledge by his own effort. This is education’s economic role.

An important motivation for individuals to invest in education is that the acquired knowledge and skills tend to raise their productivity and hence earning potential. Education appears to provide not only and initial earning advantage but also a wage premium that increases with time spent in the labour market. Education is not only productive of economic welfare but also has psychic and moral value and is necessary for cultural satisfaction. S. Kuznets says, ‘capital formation; should be broadened to include investment in health, education and training of the population itself, that the population itself, that is investment in human being.’ Dr. Ellea Kyleal avers, ‘From the stand-point of economic development three factors are of basic importance: natural resources, physical capital and human resources.

A Positive correlation between educational system and per capita income is therefore, irrefutable. A large number of studies have conclusively proved that by fat the major factor in economic growth is not natural resources, physical capital and human resources but the residual factors life organization, inventiveness and education. Better organizational skill and sharp inventiveness are the direct results of education.

In a way education is considered as an industry, which absorbs material and human resources. The education industry consists of schools, colleges, universities and various private institutions. The ‘inputs’ are teachers; buildings etc. and ‘outputs’ are students. It not only serves to diffuse the existing stock of knowledge but also acts to increase that stock of human capabilities. There are several modes of acquiring human capabilities, such as education and training.

This includes primary and secondary education. Primary or elementary is the first years of formal education generally beginning when children are four to seven years of age. Primary education aims to provide literacy and numeracy skills, and foundations in other subjects. Secondary education follows after this.

This includes students following tertiary education abroad or people purchasing online distance learning from abroad, and can be distinguished from tertiary education provided domestically.

Studies have proved that average income figures of persons who have more education are higher than the persons who have less education. Education enables people purchase it (or participate in it) to derive a future stream of benefits, whether in sense of income benefits from jobs that they may acquire by virtue of their education or whether in sense that society, by providing education, enables educated members of the labour force to add to society’s output of goods and services in the future.

A nation’s level of output is greatly influenced by its policies concerning the education of its people. Educational policy explains most of a country’s GNP per capita and high proportion of country’s economic growth rate.

Education promotes technical change in various ways ranging from the undertaking of research to adding up the existing knowledge, values, skills and attitudes of the work force.

Education leads to faster economic growth and also plays a role in reducing proverty. The relationship between economic growth and education was also addressed by Adam Smith and Alfred Marshall, two important figures for the economics profession. They pointed out that how investments in ‘education’ influences the ‘wealth of nations’.

Literacy is not education, for literacy to become education there must be adequate and proper utilization of literacy so that it can contribute to economic development. Investment in education has led to develop will of the people to gear literacy for the promotion of economic development.

In the process of economic development, the labour force is equipped with the necessary technical skills for modern industrial production with help of education. Thus education increases in the chances of gainful employment by providing requisite skills for sophisticated occupations.

After decades of high growth, the population growth rate in our country has stated declining. During the decade of 70’s the growth rate of population had reached a peak of 2 percent perannum which has declined to 1.50 percent during the period of 2006-2011 due to spread of education.

In educated societies, the families are planned, people manage their resources through savings, contributes the social and national welfare through bringing change in their attitude and by shedding orthodoxy, superstitions and narrow outlook.

Education creates awakened mind, through right knowledge, appropriate skills and desirable attitudes. It is through education that the constructive urges of man are aroused. Thus, education creates awareness for rights and duties to make an individual an enlightened citizen.

Education brings about a change in the individual, promoting greater productivity, modern attitudes, values and beliefs, about work and quality of life, thus, improving their standard of living.

Education is not only considered as an instrument for promoting individual’s self-improvement and his social relations but, education is also considered as human capital and industry as both investment as well as consumption. As consumption, it accounts for national development and as an investment education returns are compounded in from of developed personalities, thought and behavior of citizens in the society.

Proposed Behavioural Model Towards Investment Decisions

This paper investigates the background regarding the factors which drives the investors for planning and taking investment decisions. The main idea of this paper is to develop proposed model towards investment decisions and its future implications. The research is based on searching keywords in database in Google Scholar and Emerald on the basis of number of publications and times cited in the respective field to measure the contributions of active researchers. The papers reviewed are mostly empirical or theoretical in nature with limited number of papers in review category, which are required to assist researchers and professionals. The proposed model used for analysis purpose is based on literatures so far reviewed and has some limitations to justify every factor and variables. Research related to factors which have association with varying time like time varying aggregate risk is to be analysed .Through the proposed model it is found that there is huge scope of research taking factors like attitude, personality, and perception as variables in the region like South-East Asian Countries.

Behavioural Finance and study of investor’s psychology has focused on the rationality of their investment planning and decisions. It was Oscar Wilde who described a cynic as one who “knows value of nothing but price of everything’1. Considering some equity research analysts and many researchers having ‘bigger fool’ theory of investing, which highlights that the value of asset is irrelevant as long as there are “bigger fools” to buy the asset. While this may provide basis to make some profit as there are some other theory which disingenuous enough to argue that the value is in the eyes of beholder and any price can be justified as long as there are other investors willing to pay that price2. There are many assets for which perception may be all that matter like painting or a sculpture, but a rational investor does not buy most of the assets for aesthetic or emotional purpose but financial assets are acquired for the expected cashflows from the investment.

Modern finance assumes that markets are efficient and that agents know the probability distribution of future market risk3,4,5. Behavioural finance models are usually developed to explain investor behaviour or market inefficiency when rational models provide no sufficient explanation6. Behavioural aspects and psychology often affects the investor’s decisions which are evident from irrational decisions under the influence of overreaction, under-reaction, overconfidence, group behaviour etc7.

In recent years, many researchers in the area of finance and investment have been very active in behavioural finance, and many of their research works have been accepted in the top journals in the field of financial economics8. This shows that behavioural finance is becoming an increasingly significant area for research.

This synopsis begins the review of past and recent studies to explore the relationship of psychological factors influencing the investment decision makings with the returns through investments. The findings through literature of the study are then presented and discussed to identify any gaps. The synopsis concludes with a summary of the main area of research, their implications and future scope of research, as well as a consideration of the limitations of the study if any.

Behavioural Finance is one of the dynamic and fully developed fields which have its own principle and methodology9. Behavioural finance came in existence due to limitations of traditional theories and finance to support the investment and saving decisions10. While traditional finance formulates the investment strategy whereas behavioural finance focuses on the decision process of its execution11. Many of the key variables in behavioural models are neither observable nor measurable directly to researchers analysing data, thus most of the empirical studies in the field of behavioural finance adopt proxies in attempt to capture or measure the effect of such variables12.

Considering the limitations of modern finance regarding justification of investment strategies being followed by investors under different scenario, behavioural finance models are usually developed to explain investor behaviour or market inefficiency when rational models provide no sufficient explanation. Behavioural aspects and psychology often affects the investor’s decisions, which are evident from irrational decisions under the influence of attitude, overreaction, under-reaction, fear, overconfidence, group behaviour etc13.

Behavioural finance is one of the significant areas of research as many of the papers are new and emerging in nature and have limited review papers. With consolidation of financial market across the world the importance of behavioural finance is attracting many scholars and researchers. According to analysis during the period 1995 to 2013, in this period of 20 years, the study in the area of behavioural finance was in 124 journals and 347 articles in which 650 authors were involved14. Participation in this field is limited to from USA, Germany, Spain, England, China Israel, Australia, but there are limited scholars from south East Asia economy like India.

Factors like anxiety, interests in financial issues, decision styles, need for precautionary savings, and spending tendency as self stated attitudes and behaviours for a range of daily financial affairs15. Fund managers and financial institutions have to have in-depth study of the customers to retain them in this competitive world16.

Functioning of financial markets found to be strongly correlated with the financial behaviour of individuals which have been traditionally in experimentation phase with economics and psychology which motivates for empirical analysis and study17. To study behavioural finance Basic tools used for experiment includes direct observations, controlling variables; manipulate variables as per theoretical requirements18. In two companion review papers which highlighted the key strength of experimentation method, which provides its importance for its suitability to study behavioural finance19. This method provides flexibility to researchers to use proxy variables which is not measurable or observable directly and thus provides an important weapon to manipulate the variables as per requirement.

Major analysis of these researches are focused in countries like Japan, United States, France, United Kingdom, Switzerland etc where factors like wage income per worker, S&P composite returns, comparison of nominal investment and planned investment, retail investor portfolio, impact of diversification and the effect of behavioural factors on investment strategies are broadly covered in the papers reviewed.

It is expected that the proposed work will provide the impact of psychological factors which will attempt to explain the biases and inefficiencies present in the financial market. The proposed work plan would lead to development of investor’s psychological model which will help to identify those key factors which influence investment decisions considering the role of moderating variables like gender, age and marital status of investor.

The validation of this theoretical model with practical observations will be useful for the researchers, fund managers as well as for investors for taking informed decisions as well as scope for further study.

The findings of the work plan will help an individual to invest in those avenues and financial instruments which comfort their psychological behaviour with respect to their risk appetite to increase their investment returns.

These findings will help financial product managers/agents to reformulate their product as per the psychology of an individual, considering active or passive investment thus better investment strategies and management.

The companies can evaluate the performance of their financial product by using the outcome of the proposed model and can strategise towards continuations/ discontinuation and improvisations which will help them to enhance the marketability of their product.