The behavior of Taiwanese investors in asset allocation

Abstract

Purpose

This paper aims to identify traits of Taiwanese investors that deviate from the typical rationale governing financial decisions, through the analysis of their asset preferences and investment criteria. It also highlights the post‐modern portfolio theory to address the behavior of Taiwanese investors found in our result and in other studies.

Design/methodology/approach

The time period between late 2007 and 2008 was our choice for this investigation, being a period of considerable volatility in the Taiwanese market during a major political campaign and a downturn of the economy. We took into account the factors of market environment, investment amount, expected return rate, risk tolerance and investment type to investigate the relationship between these factors and investors' preferences when selecting assets such as mutual funds, stocks, bonds and foreign currency. The analytical hierarchy process (AHP) method was then employed to analyze the survey data.

Findings

Risk tolerance is the most important factor for Taiwanese investors when they design their asset portfolios. However, they prefer stocks to other assets. When market environment and risk tolerance are considered, mutual funds are chosen over and above stocks. Whichever criterion is used, bonds turn out to be the least favored asset.

Originality/value

The AHP application for the purpose of this study has not been found. Our analysis echoes the phenonmena of Taiwan's investment markets known from previous studies. The result clearly provides evidence (e.g. irrational investment and risk‐seeking behavior exhibited by Taiwanese investors) applicable to the field of behavioral finance.

Citation

Chen, A.H.‐., Cheng, K. and Lee, Z. (2011), "The behavior of Taiwanese investors in asset allocation", Asia-Pacific Journal of Business Administration, Vol. 3 No. 1, pp. 62-74. https://doi.org/10.1108/17574321111116405