Behavioural Finance Efficiency Under the Influence of Country’s Economic Cycle
Keywords:Countries economical cycle, Hodrick-Prescott filter, investment strategies, investment timing, data envelopment analysis
Today’s practice and society habits declare the importance of personal finance management. Latest research confirms the necessity of investment timing strategies based on generated returns which keeps savings work more efficient. Earlier studies involved countries economical cycle and well timed investment decisions according to cycle period. But the main constraint was defined - the decision to purchase security can be difficult since there are many attributes to consider and can include the necessary examination of these attributes, it also can be thought of as a multi-criteria decision-making problem. The purpose of this article is to demonstrate created personal investment decisions model, which allows private investor to make effective investment decisions during different countries economical cycle periods. Research methods used are based on systematic literature analysis, mathematical statistics methods, logical comparative and generalization analysis.
After the systemized literature studies, model of evaluating efficiency of private investor’s decisions created and it consists of five stages: (1) investor behaviour analysis (survey), (2) the determination of the economic cycle stages (Hodrick-Prescott filter method), (3) private investor’s behavioural performance assessment, (4) investment instruments selection (Data Envelopment Analysis Method - multi-criteria decision-making technique) and allocation of savings analysis, (5) the investor's behaviour in performance assessment. This model allows evaluating efficiency of private investor’s investment decisions during different country’s economic cycle phases.Created model application is performed during different stages of Lithuania's economic cycle. Also there is a summary of adaptive model results, in which financial return of investment was compared to effectiveness of average statistical Lithuanian’s residents financial decisions (18 investment portfolios are summarized). It was found that created model could be relatively simply adapted to practice and also could empower private investor to make effective personal finance decisions on the influence of country’s economic cycle. It should be noted, that studies show the amount of average Lithuanian’s revenue loss on the impact of inefficient personal finance management decisions.