CHAPTER ONE

INTRODUCTION

1.1 Background of study

Investment decisions are crucial to individuals, organizations, and economies as a whole. The choice of investment involves selecting the most suitable investment option from a range of available alternatives, considering various factors that influence the decision-making process. This study aims to explore the key determinants that influence the choice of investment, providing insights into the factors that shape investment behavior.

Numerous studies have examined the determinants of investment choice. Some of the key findings include: Risk Tolerance: Investors’ risk tolerance is a significant factor in determining their investment choices. Risk-averse individuals tend to prefer low-risk investments, while risk-tolerant investors may seek higher returns by investing in riskier assets. (Sharpe, 1964; Markowitz, 1952) Technological advancements: technology advancement is a significant factor in determining an investment choice. Investors can enhance their decision-making processes and stay competitive in the evolving financial landscape.Long-term investors may opt for investments with higher growth potential, while short-term investors may prioritize liquidity and stability. (Modigliani & Miller, 1958)

Financial Objectives: The financial objectives of investors, such as retirement planning, wealth accumulation, or income generation, play a role in shaping their investment decisions. (Goetzmann & Kumar, 2008)  Investment Knowledge and Experience: Investors with higher levels of financial literacy and investment experience tend to make more informed investment choices. They are more likely to understand the risks and returns associated with different investment options. (Lusardi & Mitchell, 2007)

 Investment Advice and Guidance: Professional investment advice and guidance can significantly influence the choice of investment. Investors may seek advice from financial advisors, brokers, or other experts to make more informed decisions. (Shefrin & Statman, 2012) Economic Conditions: The overall economic environment, including interest rates, inflation, and economic growth, can impact investment choices. Investors may adjust their portfolios based on their expectations of future economic conditions. (Fama & French, 2008) Regulatory Framework: Government regulations and policies related to investments can influence investor behavior. Tax laws, investment restrictions, and consumer protection regulations can shape the available investment options and impact investment decisions. (Stiglitz, 2000)

1.2. Statement of The Problem

The determinant of choice of investment decision has long been a critical factor in the field of finance and economics. Investors face challenges in making optimal investment decisions due to various factors such as risk, return, market conditions, and personal preferences. Historically, investors have relied on traditional financial models and theories to guide their investment decisions. To improve the understanding of the determinant of choice of investment decision, researchers and practitioners( harry Markowitz in 1952), revolutionized the way investors think about diversification and risk management. Behavioral finance has also gained prominence, shedding light on how psychological biases influence investment decisions. Additionally, quantitative techniques such as the capital asset pricing model (CAPM) have been used to estimate expected returns and  assess risk.

Despite these advancements, the determinant of choice of investment decision remains a complex and multifaceted issue. With the rise of big data analytics, machine learning, and algorithmic trading, investors now have access to more sophisticated tools to analyze investment opportunities. Market dynamics have also become more interconnected globally, leading to increased complexity in decision-making. Regulatory changes, such as the implementation of new financial regulations (post-2008financial) crisis, have further impacted the investment landscape.

The ongoing evolution and importance of the determinant of choice of investment decision in the financial industry motivate me to study this issue further. By delving deeper into the factors influencing investment decisions, I aim to contribute to the development of more effective investment strategies.

Understanding how market conditions, technological advancements, and regulatory changes impact investment choices will enable me to make informed decisions and potentially generate better returns for myself and others. Additionally, studying this issue allows me to stay abreast of the latest trends and developments in the field of finance, enhancing my knowledge and skills as a future investor or financial

1.3. Research Question

1.3.1. Main Research Questions.

What are the factors that influence investor’s decision making when selecting investments opportunities

1.3.2 Specific research Questions:

• How does risk tolerance affect investment decisions?
• What impact do technological advancements, have on investment decision-making
• How do government policies on investment decisions affect investment choices

1.4 Research Objectives:

1.4.1. The Main Research Objective

To determine the factors that influence risk tolerance among different investor demographics.

1.4.2 Specific Research Objective

• To investigate the relationship between risk tolerances, affect investment decisions.
• To explore the impact of technological advancements, on investment decision-making.
• To assess the effects of government policies on investment decisions

1.5 Research Hypotheses:

H₁. Risk tolerance has no significant effect on investment decisions

H₂. Technological advancements has no significant effects on investment decision-making.

H₃. Government policies have no effect on investment decisions.