Do emotions, desires and habits influence mutual fund investing? A study using the model of goal-directed behavior

Abstract

PurposeThe purpose of this paper is to determine whether affective factors such as goal desires, positive anticipated emotions, anticipated regret and non-volitional actions like habits influence retail mutual fund investing.Design/methodology/approachUsing the model of goal-directed behavior (MGB), the impact of affective factors and habits was compared against a cognitively driven model. Data were collected through a survey of 321 mutual fund investors across India and analyzed using the partial least squares method.FindingsGoal-based desires were a significant driver of investing intentions while actual investing was driven by habits. Anticipated regret strongly influenced desires. The overall explanation of variance in intentions and investing behaviors was improved by 27 and 28% respectively by the new model.Research limitations/implicationsThe current investments in mutual funds is used as a proxy for future investing behaviors so results need to be interpreted accordingly. Future research directions could include the effects of mood, impact of language, religion and culture.Practical implicationsFor “emotionally complex” cultures, impact of emotive drivers and habits play a significant part in investing and fund houses need to orient their marketing accordingly.Social implicationsAwareness programs on how emotive issues and habits can hinder as well as enhance investment performance in markets would benefit retail investors.Originality/valueThe study is unique in analyzing affective and non-volitional factors and in showing that intentions are not sufficient to explain behaviors. It analyzes not just intentions as most studies do, but end behaviors of investors as well. It uses the MGB theoretical framework from behavioral psychology that has not been applied to financial behaviors before.