IAREP/SABE 2008 at LUISS in RomeIAREP/SABE 2008 at LUISS in Rome

Psychology of the Stock Psychology of the Stock Market in the Interface Market in the Interface between Investors and between Investors and

Media.Media.

Annamaria Silvana de Rosa, Cristina Annamaria Silvana de Rosa, Cristina Gioiosa.Gioiosa.Authors contacts: University of Rome "La Sapienza", Faculty of Authors contacts: University of Rome "La Sapienza", Faculty of Psychology 2, European Ph. D. on S. R. and C., P.za d’Ara Coeli, 1, Psychology 2, European Ph. D. on S. R. and C., P.za d’Ara Coeli, 1, 00185 Rome, Italy. 00185 Rome, Italy. annamaria.derosa@uniroma1.itannamaria.derosa@uniroma1.it

Theoretical Introduction:Theoretical Introduction:Money as Social Representation Money as Social Representation and and new Symbolic scenario of “risk”.new Symbolic scenario of “risk”.

Rationality and economyRationality and economy

As early as in 1937, As early as in 1937, KeynesKeynes downplayed downplayed the impact of the impact of rationality in the rationality in the economic field, economic field, reducing it to mere reducing it to mere “adequacy” to a “adequacy” to a given cognitive given cognitive situation, although he situation, although he did not deny the need did not deny the need for choices to be for choices to be rational (Ferrari & rational (Ferrari & Romano, 1999). Romano, 1999).

Along the same Along the same lines, lines, SimonSimon (1985) introduced (1985) introduced the notion of the notion of bounded bounded rationality in the rationality in the field of economic field of economic psychology, which psychology, which leads individuals leads individuals to be pleased to be pleased with satisfactory with satisfactory solutions (Kirchler solutions (Kirchler & Zappalà, 1995).& Zappalà, 1995).

RiskRisk

Many are the studies on the socio-cultural Many are the studies on the socio-cultural dimensions (Tulloch & Lupton, 2003) of Risk:dimensions (Tulloch & Lupton, 2003) of Risk:

The symbolic-cultural approach proposed by Mary The symbolic-cultural approach proposed by Mary Douglas (1992) and her colleagues;Douglas (1992) and her colleagues;

The sociological approach of the “Risk Society”, the The sociological approach of the “Risk Society”, the most authoritative of whose are Ulrich Beck (2002) most authoritative of whose are Ulrich Beck (2002) and Anthony Giddens (1990);and Anthony Giddens (1990);

The theoretical approach of the so called The theoretical approach of the so called “Governamentality”, which was inspired by the “Governamentality”, which was inspired by the works of the French philosopher Micheal Foucault works of the French philosopher Micheal Foucault (1978).(1978).

Risk implies a need of Risk implies a need of control towards the control towards the uncertainty…uncertainty… using rational reasoning, institutional using rational reasoning, institutional

systems of prevention or other systems of prevention or other “scientific” methods, to single out “scientific” methods, to single out possible risks before they could turn possible risks before they could turn real (real (LuhmannLuhmann, 1991; , 1991; LuptonLupton, 1999; , 1999; SofskySofsky, 2005)., 2005).

experiencing “heroic life” experiencing “heroic life” ((FeatherstoneFeatherstone, 1995): reaching , 1995): reaching the apex of being excellent, going the apex of being excellent, going beyond man’s everyday limits.beyond man’s everyday limits.

Media and Financial MarketsMedia and Financial Markets

Media contributes to create and to diffuse the Social Representations (de Rosa, 2001).

“The surprising results achieved by the Market from time to time, are caused by the fact that event reports in the media have an effect on our motivations that we would have never expected” (Shiller, 2000. p. 205).

The The methodologymethodology

The multidimensional model The multidimensional model of the stock market SR of the stock market SR structure:structure:

Stock Market

2nd Investor

Other I

Object

Investing Market Structure Investing Method Investing Instruments

Other Investors Intermediares Experts

1st Investor

Stock Markets Knowledge Avaible Funds Temporal Orientation Behavioural Styles

ME

DIA

Risk

Research Aims and Research Aims and Hypotheses:Hypotheses:

AIMS HYPOTHESES

STU

DY

I To analyse the Social

Representations of the Stock Market in Print Media differentiated between different target of experts (Il Sole 24 Ore) and of common people (La Repubblica).

1. The Social Representation of the Stock Market is influenced by the Social Representation of the Risk diffused by different newspapers; 2. The Risky Stock Market Social Representation is influenced by critical events, their emotional impact and fluctuations of Stock Market indexes.

STU

DY

II

To analyse the positioning on the basis of the Stock Markets traders’ socio-demographic variables and trading styles. To analyse the Social Representations of Risk, Stock Market and Internet. To highlight the presence of different sub-populations among the investors on the Stock Market.

1. The Traders’ behaviours via Stock Market are guided by the Social Representations of Investment on the Stock Market, Risk and Internet; 2. The construction of the Stock Market Social Representation is mediated by the Stock Markets knowledge (differentiating between more and less expert investors), the temporal orientation (differentiating between investors with a greater propensity to risk oriented to the future and those who are more conservative oriented to the past), the social interaction and the media (differentiating between investors with a greater propensity to use the new technologies as compared to those who privilege more traditional places and channels); 3. There are two different subpopulations: one is related to a self-directed emerging typology of investors, who play the market according to high-risk investment strategies and largely using new on-line investment systems; the other to hetero-directed investors who adopt low-risk investment strategies and via traditional investment systems.

Print media analysisPrint media analysis

6-05-2003 “Il Messaggero”6-05-2003 “Il Messaggero”

The Hypotheses were:The Hypotheses were:

1.1. The Social Representation of the The Social Representation of the Stock Market is influenced by the Stock Market is influenced by the Social Representation of the Risk;Social Representation of the Risk;

2.2. The Risky Stock Market Social The Risky Stock Market Social Representation is influenced by Representation is influenced by critical events, their emotional critical events, their emotional impact and fluctuations of Stock impact and fluctuations of Stock Market indexes.Market indexes.

Methodology – the sampleMethodology – the sample

We analyzed the press discourse which was We analyzed the press discourse which was conveyed in two best-selling Italian newspapers conveyed in two best-selling Italian newspapers (“(“La RepubblicaLa Repubblica” and “” and “Il Sole 24 OreIl Sole 24 Ore”), ”), published between published between January 2000January 2000 and and December December 20032003..

While “While “La RepubblicaLa Repubblica” is a mainstream newspaper ” is a mainstream newspaper mostly dealing with economic issues related to mostly dealing with economic issues related to political news and current affairs, “political news and current affairs, “Il Sole 24 Il Sole 24 OreOre” is a “specialized” newspaper which is totally ” is a “specialized” newspaper which is totally dedicated to economic and financial news.dedicated to economic and financial news.

From each newspaper’s population, we randomly From each newspaper’s population, we randomly selected a selected a 100100-article sample, for a total of 200 -article sample, for a total of 200 articles, which we then analyzed using articles, which we then analyzed using AlcesteAlceste..

The Illustrative variablesThe Illustrative variables

We considered the following as We considered the following as illustrative variables: illustrative variables:

Main events reported in every article; Main events reported in every article; Main emotions reported in the article;Main emotions reported in the article; Fluctuations in the Mib30 security Fluctuations in the Mib30 security

index during 15 days around the date index during 15 days around the date when the article was published;when the article was published;

The different kind of newspaperThe different kind of newspaper. .

Text coverage and stability Text coverage and stability index:index:

The occurrences (meaning “every word appearing in a The occurrences (meaning “every word appearing in a text”, Bolasco, 1997, p. 168) we analyzed in our study text”, Bolasco, 1997, p. 168) we analyzed in our study were were 55.7%55.7% of total occurencies, showing a text of total occurencies, showing a text coverage percentage greater than the required 30% coverage percentage greater than the required 30% minimum (Matteucci and Tomasetto, 2002). minimum (Matteucci and Tomasetto, 2002).

To verify class stability, Alceste performed the To verify class stability, Alceste performed the Descending Hierarchical Classification twice (Image, Descending Hierarchical Classification twice (Image, 1998, 2002). Both classifications were compared by 1998, 2002). Both classifications were compared by calculating a calculating a stability indexstability index which turned out to be which turned out to be very satisfactory, with a very satisfactory, with a 81.9581.95%, which is much %, which is much greater than the required 50% (Matteucci and greater than the required 50% (Matteucci and Tomasetto, 2002).Tomasetto, 2002).

The dendogramThe dendogram

Class 1 (430 e.c.u.)

Class 4 (410 e.c.u.)

Class 2 (1000 e.c.u.)

Class 5 (341 e.c.u.)

Class 3 (512 e.c.u.)

Class 1 (430 e.c.u.)

Class 4 (410 e.c.u.)

Class 2 (1000 e.c.u.)

Class 5 (341 e.c.u.)

Class 3 (512 e.c.u.)

Orizontal axis

Vertical axis

Class: 1-4

Class: 2-5

The multi-The multi-methodological methodological interviewinterview

The hypotheses were:The hypotheses were:

1. The Traders’ behaviours via Stock Market are guided by the Social Representations of Stock Market, Risk and Internet;

2. The construction of the Stock Market Social Representation is mediated by the Stock Marketsknowledge (differentiating between more and less expert investors), the temporal orientation(differentiating between investors with a greater propensity to risk oriented to the future and those whoare more conservative oriented to the past), the social interaction and the media (differentiatingbetween investors with a greater propensity to use the new technologies as compared to those whoprivilege more traditional places and channels);

3. There are two different subpopulations: one is related to a self-directed emerging typology ofinvestors, who play the market according to high-risk investment strategies and largely using new on-line investment systems; the other to hetero-directed investors who adopt low-risk investmentstrategies and via traditional investment systems.

The construction of the The construction of the Multi-methodological interviewMulti-methodological interview

Areas INSTRUMENTSa)     Contents and structure of the SocialRepresentations of Stock Market, Risk and Internet;

a) Associative Network with the elicitation words Stock Market, Risk and Internet;

b.1.     Self Identification Conceptual Networks (Dom.1);b.2.     Stanford Time Perspective Inventory (Dom.5);b.3.     Risk propensity scale (Dom.14);b.4.     Risk factors evaluation scale (Dom.15);b.5.     Risk tolerance Scale (Dom.16)

c.1. Open questions related to the perceived influence on economic behaviourcarried by own life events (Dom.5);c.2. Closed questions on the typology and differentiation of the financial activities(Dom.6);c.3.a. Closed questions related to the evaluation of the dimensions of the StockMarket (Dom.7);c.3.b. Closed questions related to the placement of own investments (Dom.8);

c.3.c. Closed questions related to the evaluation of the instability factors of the StockMarket (Dom.9);c.4.a. Closed questions related to the perceived influence of economic, political andnatural events on Stock Market (Dom.10);c.4.b. Closed questions on the change of placement of the investments after theseevents (Dom.11);c.4.c. Closed questions on the change of motivations of the investments placementafter these events (Dom.12);

d.1. Closed questions on the perceived influence carried by the SocializationAgencies (Dom.13);d.2. Closed questions on the selection, reasons of the selection and perceivedinfluence carried by the Media (Dom.17, 18);d.3. Closed questions related to advisers consulted and their social proximity to theinvestors (Dom.19);d.4. Closed questions on the advisers degree of perceived influence (Dom. 20);

d.5. Closed questions on the financial information agencies degree of credibility(Dom. 21);c.4.b. Closed questions on the financial information agencies perceived influence(Dom. 22);

e)    Socio demographic variables

INS

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EN

TS

US

ED

IN O

UR

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SE

AR

CH

DE

SIG

N

b)    Investor’s Identity Profile;

c)     Economic behaviour;

d)    Perceived influence by communication systems andSocialization agencies;

The sample distribuitionThe sample distribuition

SMALL INVESTOR

MIDDLE INVESTOR

LARGE INVESTOR Tot

PROMOTER 4,8% 7,9% 0,00%12,7%

BANK & POST OFFICES 27% 15,9% 1,6%

44,4%

ON-LINE 3,2% 17,5% 9,5%30,2%

MISCELLANEUOS MEANS 3,2% 7,9% 1,6%

12,7%

Tot 38,1% 49,2% 12,7% 100%

Indexes constructionIndexes construction

Areas Variables Questions Indexes

Economic Knowledge

Expertise

Working Activity

Typology of the investor differentiated byPercentages of capital invested per familyestateChannels of Investment used

Auto-heterodirection Self Identification ConceptualNetworks (Dom.1)

Obtained after Multidimensional procedure byaveraging the scores

Risk Identity Risk factors evaluation scale(Dom.15), Risk tolerance Scale(Dom.16)

Obtained by averaging the scores

Past, Instant, Control and Planning Stanford Time PerspectiveInventory (Dom.5)

Obtained by averaging the scores of the threescales

Socio-Economical Events Economic, political and naturalevents on Stock Market(Dom.10);

Obtained by averaging the scores

Risk Propension Risk propensity scale (Dom.14) Obtained by averaging the scores

Proximity Influence Influence of the Proximity onthe Investors decisions(Dom.19)

Obtained by averaging the scores

Media Influence Perceived Influence perceived carried bythe Media (Dom.18)

Obtained by averaging the scores

PERCEIVED INFLUENCE BY COMMUNICATION SYSTEMS AND

SOCIALIZATION AGENCIES

SOCIO-DEMOGRAPHIC DATA

INVESTOR’S IDENTITY PROFILE

ECONOMIC BEHAVIOUR

Associative network (evoc 2000):Associative network (evoc 2000):RiskRisk InternetInternet

Core: “Core: “FortuneFortune", "", "DangerDanger" and " and ""Propensity”Propensity” - Risk is perceived - Risk is perceived as "as "FortuneFortune” and “” and “OpportunityOpportunity" " or as an accidental event and or as an accidental event and ""DangerDanger". Two words from the ". Two words from the second periphery "second periphery "AdrenalinAdrenalin" " and "and "HazardHazard" further pinpoint " further pinpoint to the “lucky chance”, while to the “lucky chance”, while the words "the words "lowlow" and "" and "choicechoice" " express the necessity to express the necessity to control the Risk. control the Risk.

A “network” ("Access", A “network” ("Access", "Connection", "Computer", "E-"Connection", "Computer", "E-mail", "Network") which is mail", "Network") which is efficient and free ("Progress", efficient and free ("Progress", "Freedom", "Fast”, "Freedom", "Fast”, "Technology”), as well as useful "Technology”), as well as useful for gathering information for gathering information ("Communication", ("Communication", "Information", "News") and for "Information", "News") and for practical purposes ("Job").practical purposes ("Job").

Investments on Stock marketInvestments on Stock market

The core of Stock Market Investments ("Shares") refers to one of The core of Stock Market Investments ("Shares") refers to one of the instruments used to play in Stock Market, while the others to the instruments used to play in Stock Market, while the others to the problems of investments: the need to acquire knowledge the problems of investments: the need to acquire knowledge ("Knowledge", "Information"), to control the Risk ("Risk", ("Knowledge", "Information"), to control the Risk ("Risk", "Security") and finally to have an express and low cost service "Security") and finally to have an express and low cost service ("Costs", "Queue", "Rapidity", "Services").("Costs", "Queue", "Rapidity", "Services").

STOCK MARKETSTOCK MARKET

Low risk propensityLow risk propensity Medium-high risk Medium-high risk propensitypropensity

The sub-population with low risk attitudes, represented the Stock Market as an instrument in the hands of other people (Consultant and Promoters), while the subpopulation with a medium-high level of risk Propensity represented the Stock Market as a safe place for those who practice efficiency and competency, calculating and analysing indexes and parameters.

• These results confirm those found out from the print media analysis on the Social Representation of Risk in Stock Market: risk as "Danger" or as "Opportunity".

• It also comes out that the more aggressive investors represent Internet as a specific instrument for searching and collecting the information to better invest on the Stock Market, and the Risk as an event of "playful" destiny, offering the opportunity to make a profitable investment.

Stock Market, Risk and InternetStock Market, Risk and Internet

Time perception, social Time perception, social interaction, media...interaction, media...

The orientation toward the past constitutes a mediator of The orientation toward the past constitutes a mediator of less risky attitudes of investment.less risky attitudes of investment.

High levels of knowledge are connected with low High levels of knowledge are connected with low orientation to the past, a high educational level and orientation to the past, a high educational level and typology of working activity. This result confirms an action typology of working activity. This result confirms an action of mediation of the knowledge on those variables affecting of mediation of the knowledge on those variables affecting the risk attitudes of the investor.the risk attitudes of the investor.

The perceived media influence seems to play a less The perceived media influence seems to play a less defined role, even if nearly half of the investors collects defined role, even if nearly half of the investors collects financial information via print media and all the investors financial information via print media and all the investors consults various instruments of mass information. consults various instruments of mass information.

Through the analysis of the Optimal Scaling procedure it Through the analysis of the Optimal Scaling procedure it has been hovewer possible to underline a relation has been hovewer possible to underline a relation between such dimensions and three areas. The Auto-between such dimensions and three areas. The Auto-directed tendency is associated to a low orientation directed tendency is associated to a low orientation towards the past, while the Hetero-directed to a high level towards the past, while the Hetero-directed to a high level of orientation towards the past, low control and planning of orientation towards the past, low control and planning and low instant orientation.and low instant orientation.

1,51,00,50,0-0,5-1,0

Dimension 1 - Risk Aversion-Propensity

1,5

1,0

0,5

0,0

-0,5

-1,0

-1,5

Dim

en

sio

n 2

- H

et e

ro-A

ut o

dir

ec

t io

n

Other

Pensioners

Entrepeneurs/Professionals

Manager/Executive

Clerk

Teacher

Workmen

Unemployed

medium-high risk propension

Low risk propension

High risk identity

Medium level of risk identity

Low level of risk identity

High proximity influence

Low proximity influence

Large investorMedium investor

Small investor

High orientation to the Past

Low orientation to the Past

High Media influence

Medium level of Media influence

Low level of Media influence

High orientation to the Instant

Low orientation to the Instant

High level of Expertise

Medium level of Expertise

Low level of Expertise

Social events

Economic-Social events

Economic events

Other

High level of Knowledge

Medium level of Knowledge

Low level of Knowledge

High level of Control and Planning

Low Control and Planning

Miscellaneous means

On-line

Bank/Post office

Promoters

Autodirection

Hetero-Auto direction

Heterodirection

Working activity

Risk Propension

Risk Identity

Proximity Influence

Percentage of CapitalInvested

Past

Media Perceived Influence

Instant

Expertise

Events

Economic Knowledge

Control and Planning

Channels of Investmentused

Auto-Heterodirection

Variable Principal Normalization.

Joint Plot of Category Points

Supplementary variables;

∆ Area of the Identity profile ;

� Area of the Behaviour;

◊ Area of the socialization and communication agencies.

Sub-populations:Sub-populations: The analysis of the Optimal Scaling has The analysis of the Optimal Scaling has

identified three completely distinguished areas identified three completely distinguished areas corresponding to a triple typology of investors:corresponding to a triple typology of investors:

Two on the left of the axis of the formers that identify Two on the left of the axis of the formers that identify Hetero-directed and Hetero-Autodirected investors. Hetero-directed and Hetero-Autodirected investors. The Hetero-directed have low scores of Risk The Hetero-directed have low scores of Risk Propensity and invest through Promoters, Propensity and invest through Promoters, Intermediaries and Advisers. The Hetero-Autodirected Intermediaries and Advisers. The Hetero-Autodirected have medium scores of Risk Propensity and uses the have medium scores of Risk Propensity and uses the traditional places of the economic transactions: Bank traditional places of the economic transactions: Bank and Post office. and Post office.

One on the right of such axis that identifies the One on the right of such axis that identifies the Autodirected investors with high level of Risk Autodirected investors with high level of Risk Propensity investing high percentage of capital per Propensity investing high percentage of capital per family estate, via the Internet.family estate, via the Internet.

FindingsFindings

The two studies are placed in a research area of the The two studies are placed in a research area of the economic psychology related to the Stock Market economic psychology related to the Stock Market psychology, worthy of developments and psychology, worthy of developments and deepenings, considering the importance of the deepenings, considering the importance of the investments that, in the scenario of our globalized investments that, in the scenario of our globalized economy, involve all the markets, and not only economy, involve all the markets, and not only the experts, but also everyday people. the experts, but also everyday people.

The results of the two studies (the print media The results of the two studies (the print media analysis and the multimethodological interview to analysis and the multimethodological interview to the investors) underlined that the social the investors) underlined that the social representation of Investment on Stock Market and representation of Investment on Stock Market and Risk are interlinked and bipolarised in two Risk are interlinked and bipolarised in two modalities such as opportunity and danger. The modalities such as opportunity and danger. The Associative Network of Investment on Stock Associative Network of Investment on Stock Market stressed the investor’s representation of Market stressed the investor’s representation of risk as a control ability.risk as a control ability.

Stock Market

2nd Investor

Other I

Object

Investing Market Structure Investing Method Investing Instruments

Other Investors Intermediares Experts

1st Investor

Stock Markets Knowledge Avaible Funds Temporal Orientation Behavioural Styles

M

EDIA

Rat

iona

l con

trol

of

the

risk

Chance

Danger

Traditional

On-line

RISK

Thank you for your Thank you for your attention!attention!