The role of information source in decision-making for investors: Case study at Maranatha Sinarmas Securities Investment Gallery

S. Setyawan

Maranatha Christian University, Bandung, West Java, Indonesia

ABSTRACT: Professional capital market investors need an appropriate source of information to execute their decision about buying, selling, or keeping their portfolio.

1 INTRODUCTION

The growth of capital market in Indonesia is quite outstanding. There are 534 companies listed and 473 kinds of bonds traded in Indonesia Stock Exchange (www.idx.co.id). It is also supported by enormous investors in Indonesia. Indonesia Central Securities Depository (KSEI) reported there are 491,116 individual investors in 2016, and it has been growing 26 percent from previous year (www. ksei.co.id).

Investor trading activity in capital market includes buying, selling, or holding. Each second in trading time can be observed at specific trading software. It describes all trading activity in present time. This trading time is recorded and resumed in particular time. The record can describe the pattern of invest­or’s decision behavior.

An investor as securities consumer has unique behavior when facing capital market trading. The behavior can be conservative, speculative, or oppor­tunistic (Mistry 2015), analyst both technical and fundamental (Maditinos et al.

In making their stock transaction decision, investors are expected to be influenced by several inputs such as financial advice, word of mouth (WOM), and specialized media (Tauni et al. 2016). Financial advice is obtained from a paid profes­sional who supervises individuals for their financial matters (Cruciani 2017). WOM can be described as informal information from social environment. It is a powerful communication, especially in electronic communication era. For today’s generation, elec­tronic WOM (eWOM) has become one of the most important ways to communicate (Steffers & Burgee 2009). Specialized media is a formal financial media and formally issued by certain companies. The common specialized media are corporate finan­cial report (Al-Ajmi 2009) and mass media (Davis 2006).

Maranatha Sinarmas Securities Investment Gal­lery (Galeri Investasi Maranatha Sinarmas Sekuri- tas) was founded in 2007. It used to be Maranatha Sinarmas Securities Indonesia Stock Exchange Corner (Pojok BEI Maranatha Sinarmas Sekuritas). The investment gallery itself is supported by Indo­nesia Stock Exchange to educate students, lecturers, staffs, and also parents as investors of the gallery (www.idx.co.id). One of the objectives is to increase the investors’ capital market literacy; furthermore, the investors are confident to trade in capital market. The gallery has four computers with online trading information that can help investor to read the trading pattern in particular time.

The main problem of this investment gallery is the passive investor. It has 452 investors with more than 50 percent as passive investors. They are listed as investors in the gallery but they have no transac­tion. Most of them are beginner investors who are not confident to make the trading decision for they are lack of information source. Misunderstanding about source of information may result in loss for the investor, although understanding information may not be creating profit.

This research wants to describe the type of source of information that is used by advanced investors; moreover, the decision is also based on their decision behavioral pattern. It is also expected that the result can increase the beginner investors’ confident to trade in Indonesia Capital Market.

2 LITERATURE REVIEW

2.1 Behaviorpattern

Economically, investors expect to gain profit in trad­ing at capital market. To gain the profit, investors have to decide whether they buy, sell, or even keep their investment. Nevertheless, investors should face the risk to gain the profit. This obstacle creates investors’ behavior pattern.

Behavior pattern can be identified by decision process. Rani (2014) states that consumer (or investor in this matter) goes through a decision pro­cess. There are recognition problem, information search, and evaluation of alternatives, purchase deci­sion, and post-purchase behavior. Based on this deci­sion process, this research adapted Rani’s (2014) theory and made it as a decision behavior for invest­ors from identification the needs of stock until the execution about buying or selling the stock. It is called the four steps of investors’ decision behavior.

Source: Adapted from Rani (2014).

In the first step, investors should identify their needs of stock, whether it is important, interesting, or even just follow the trend.

Tauni et al. (2016) investigate the impact of sources of information on trading behavior by analyzing the influence of investor personality in Chinese futures market. Based on their research, the sources of infor­mation consist of three types of sources, i.e. financial advice, word of mouth, and specialized media.

2.2 Sourceofinformation

Zhang (2014) measures the face-to-face financial advice provided by an authorized financial adviser. Financial adviser could be someone who is advanced in capital market and usually works in capital market. Tauni et al. (2016) define financial advice as advice obtained by an investor from professionals such as bank manager, financial advisor, or broker advice. Zhang (2014) concludes that investor who gets information from financial advice will have a better return. Investors will behave positively if there is information from financial advice. In this research, financial advisor could be a gallery invest­ment’s officer or staff, securities broker, banker, or financial planner.

In this discussion, WOM can be said as an informal chain of financial information between investors whether in offline (viral) or online (buzz) form (Kotler & Keller 2016). This research used friends, family members, lecturers, students, or other investors as the forms of WOM. Special media is a mass media which dis­cuss specifically about finance and investment. The media could be local media (Deshpande & Svetina 2011) or international media. This research used financial statement (Al-Ajmi 2009), financial newspaper, financial magazine, newslet­ter from securities, television, or website.

3 METHODS

This research tries to describe the situation in Mar- anatha Sinarmas Securities Investment Gallery.

4 RESULTS

There are lots of sources of information for the investors to form their decision. According to respondents as advanced investors, they gathered the information from particular sources as depicted in Table 2.

The first part is financial advice. Most of the respondents gathered the information from the person who is appointed at the investment gallery, i.e. the head and staff. It is believed that they usually or almost meet the head and staff in investment gal­lery to execute their trading. The head and staff get the information from securities industries. Respond­ents are rarely using financial planner for they have to pay for the services.

The second part is WOM. Most of the respond­ents believe other investors in investment gallery. Many of them also trust investment and capital market lecturer at campus for their expertise in theory. On the other hand, they do not gather infor­mation from their own family members who have no understanding about capital market.

The last part is specialized media. Most of the respondents believe in official news; nevertheless,

Table 2. Respondent’s source of information.

Source of information

Average

Panel A: Financial Advice

corporate financial report is higher than mass media.

Moreover, this result also shows that group of specialized media are the most popular source of information, followed by WOM and financial advice. Unfortunately, the difference test between these groups is rejected, i.e. there are no differences between groups. On top of that, although specialized

Table 3. Specified Specialized Media.

media is the most popular, investors also use other source of information to make their investment decision.

Mass media also takes part of investors’ decision­making. Therefore, this research also shows the kind of mass media that is used as source of information. Table 3 exposes the sources of specialized media based on type of media, i.e. television, Internet, and newspaper or magazine. It shows that local media is trusted to be the source of information. This result also supports Deshpande & Svetina (2011) saying that local mass media can help investor to decide their investment.

5 CONCLUSION

This descriptive research wants to show what kind of source of information is used by advanced invest­ors to decide on their investment. Using previous research about four steps of investors’ decision behavior (Rani 2014) and source of information (Tauni et al. 2016), it is obvious that most of Mara- natha Sinarmas Investment Gallery uses specialized media, along with WOM and financial advice. Most of them also use local mass media to make their investment decision.

The formal specialized media, especially finan­cial report and newsletters, are the most reliable sources used by investors, as these provide reli­able description for the investor to execute their investment decision. Moreover, investors also believe in informal news from their trusted sources, i.e. other investors at gallery, and invest­ment lecturers.

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