The Role of Product and Brand Perceptions In Stock Investing: Effects On Investment Considerations, Optimism and Confidence

Abstract

Behavioral finance researchers have been increasingly interested in the links between individual investors’ subjective perceptions about companies and their stock investment decisions. This article aims to provide a systematic examination of how investors’ subjective and affective evaluations of companies’ products and brands, in particular, may influence investors’ propensities to consider those companies as investment targets. The author hypothesizes the effects by applying psychological consumer behavior theories and tests the hypotheses with data gathered from 292 individual investors. The results show that the personal relevance that an investor attaches to a particular company's product domain decreases the consideration that the investor gives to alternative investment targets, while investing in that company's stock. The investor's affective evaluation of the company's product brand has a similar effect. Moreover, the results show that an investor's affective evaluation of a company's brand increases his optimism about the financial returns of the company's stock. Finally, the results suggest that contrary to what might be expected, an investor's familiarity with the company's brand does not decrease the consideration that he gives to alternative investment targets, nor is brand familiarity linked to overconfidence about the financial returns of the company's stock.

Keywords:

• Investing in stocks
• Consumer behavior
• Consideration
• Attitude
• Confidence
• Optimism
• Personal relevance
• Affective evaluation

ACKNOWLEDGEMENT

The author is grateful for personal research grants from Jenny and Antti Wihuri Foundation and the Finnish Foundation for Share Promotion. The research projects Dynastra and GloStra, funded by Tekes and NasdaqOMX Nordic Foundation, have also facilitated the research. Moreover, the author wishes to thank Taimi Laaksonen and Nina Yppärilä for assistance in the data collection.

Notes

1. This also means that an individual can be fairly optimistic about the financial returns of a stock, expecting its mean returns value to be high and/or the probable deviations around the mean to be low but still have rather low confidence in (i.e., doubts about) whether he really has a precise/correct picture of the probability distribution of the returns. The converse situation of relatively low optimism and relatively high confidence is also possible.

2. Note however, again, that it is beyond the scope of this article to delineate whether confidence always means overconfidence in the sense of unreasonably high confidence in one's own expectations (Daniel et al. [2001], Wärneryd [2001]), or the conditions when that is the case. Also note that similarly as for optimism, we do not focus on confidence as a personality trait of an investor but rather as a phenomenon specific to a particular investor's financial expectations about a particular stock (Deaves, Lüders, and Duo [2009], Jonsson and Allwood [2003]).

3. Dropped from the final scale.

4. This may be due to the possibility that respondents interpreted the item to inquire about their relative desire for near term stock returns versus long term stock returns and earnings.