2009 (Issue No. 133) Investor Behaviour and Decision-Making Style: A Malaysian Perspective Wong Wee Chun and Dr Lai Ming Ming Forecasting Accuracy of Dividend Growth Model and Price Earnings Ratio Model on Malaysian Stocks Tee Peck Ling, Chou Chee Wai, Kan Zhe Quan, Loo Huai Cheng and Tan Soh Kee Preservation of Investment Capital During the 2008 Global Financial Crisis: Growth Stocks Versus Value Stocks in the Hong Kong Stock Exchange Dr Tan Hui Boon Tan and Lim Chee Ming Director’s Pay Performance: A Study on Malaysian Government-Linked Companies Tee Chwee Ming and Dr Hooy Chee Wooi Synopsis Investor Behaviour and Decision-Making Style: A Malaysian Perspective Wong Wee Chun and Dr Lai Ming Ming Investing in the stock market requires undertaking significant considerations and making optimum decisions. However, humans are constantly susceptible to cognitive errors and these create biases in their judgements. A deep understanding of the investor behaviour underlying investment decisions should help investors make sound investment decisions. This study examines the common underlying investor behaviour of Malaysian stock market investors. Using a structured questionnaire, data for the study were collected from 290 stock market investors from April to June 2007. The findings showed that the investment decisions of stock market investors were somehow influenced by behavioural biases and the results indicated that representativeness and price anchoring to be important contributory factors to the decision-making process. They were highly averse to loss or allowing fear of loss to impact their investment decisions. Overconfidence was another aspect of behavioural bias that seemed to influence Malaysian stock market investors. Overconfidence appeared strong despite investors having little knowledge and skills of stock market investing. Top Forecasting Accuracy of Dividend Growth Model and Price Earnings Ratio Model on Malaysian Stocks Tee Peck Ling, Chou Chee Wai, Kan Zhe Quan, Loo Huai Cheng and Tan Soh Kee Since 1958, various stock valuation models were developed to assess the true value of stocks. Each model has its own assumptions to simplify complex, random and volatile data into a predicted fair value for a stock. Generally, investors will buy stocks when they are undervalued (actual stock price traded in the market is lower than predicted fair value) and sell them when they are overvalued (actual stock price traded in the market is higher than predicted fair value). Nevertheless, due to differences in assumptions and subjective judgements underlying each of the stock valuation models, a company’s stock could be seen as overvalued under a particular model while seen as undervalued according to other models. Such inconsistency has prompted the co-authors to examine the forecast accuracy of two most commonly known stock valuation models, i.e. Dividend Growth Model (DGM) and Price-Earnings Ratio Model (PERM) and determine which has relatively lower forecast errors in the Malaysian stock market. They also examine whether the differential in forecast performance between DGM and PERM is related to a company stock’s liquidity, degree of financial leverage and growth rate. This research uses a sample of 98 Bursa Malaysia Main Board companies that fulfilled the assumptions of both DGM and PERM from 1996 to 2005. Using compare mean t-tests, the results reveal that there is a significant difference in mean forecast error between DGM and PERM, with PERM showing greater accuracy (lower mean forecast error) compared to DGM. These results are not only observed for the overall testing on the sample of 98 companies, but also hold similarly after we divided our sample companies according to categories based on the level of company’s stock liquidity, leverage and growth. The results are generally consistent with past studies. Graham and Dodd (1934) stressed the importance of PE ratio in valuing a firm’s stock. Moreover, Jaffe, Keim and Westerfield (1989) concluded that valuation based on PE ratio is useful for investment decision-making and Bong-Soo Lee (2006) found that dividends played less essential role in stock valuation compared to earnings. Furthermore, by using linear regression, company characteristics (stock liquidity, leverage and growth) are found to be negatively related to differential forecast error (DGM forecast error minus PERM forecast error), i.e. PERM model is preferred to DGM with a larger extent when a company has low stock liquidity, low leverage and negative growth rate. Top Preservation of Investment Capital During the 2008 Global Financial Crisis: Growth Stocks Versus Value Stocks in the Hong Kong Stock Exchange Dr Tan Hui Boon Tan and Lim Chee Ming This paper aims to shed some light on the performance or ‘resilience’ of two major classifications of stocks – growth stocks and value stocks, during the 2008 global financial crisis. Growth stocks can be classified as a stock issue that generates a higher rate of return than other stocks in the market with similar risk characteristics. Value stocks are stocks that appear to be undervalued for some reasons besides earning growth potential. This study investigates the issue of value and growth-stock strategies in the Hong Kong stock market during the 2008 financial crisis. By observing the stock performance of more than 1,000 companies listed in the stock exchange, we find that the value-stock strategies are more ‘loss resistant’ than growth-stock strategies during the sample period under four valuation ratios i.e. book-to-market, earnings-to-price, cash-to-price and dividend-to-price ratios. In this empirical study, the authors observe that the Hong Kong stocks exhibit strong firm characteristics and also significant capitalisation effect on stock performance. The very small stocks appeared to suffer lesser losses in market value than the large capitalisation stocks based on the four valuation measures during the recent crisis period. Top Director’s Pay Performance: A Study on Malaysian Government-Linked Companies Tee Chwee Ming and Dr Hooy Chee Wooi The main objective of this research is to conduct a preliminary empirical study on the pay-performance relationship in Malaysian government-linked companies (GLCs). A cross sectional analysis was performed on 38 GLCs using 2005 data. The results show that, with the exception of market capitalisation, all the variables are not significant determinants of GLC director remuneration. In the case of stock returns and return on equity (ROE), the relationship is negative. Implicitly, our result seems to suggest that GLC directors are more interested in increasing firm size than achieving sustainable performance. Top Back