Contact: Prabhudev Konana, (512) 471-5219
Online Investors Seek More Than Profits
November 15, 1999, Austin, TX--The popularity of online investing is skyrocketing, with over 570,000 transactions occurring through 120 online brokerages every day. Why are more people turning to their keyboards instead of dialing their brokers when they are ready to trade?
Professors Prabhudev Konana, and Sridhar Balasubramanian at The University of Texas at Austin, with Nirup Menon of Texas Tech University, surveyed 832 online investors at a major online broker to see what influences their satisfaction and usage patterns. Their findings suggest that investors choose or switch to online investing not only because it is cheaper, faster and more convenient than using traditional brokerages, but also because they enjoy a feeling of empowerment when they make trades online without the help of a broker.
The study describes three types of online investors: experimenters who trade with traditional brokers while only "playing" online; partial adapters who leave a core investment (for example, a retirement fund) in the hands of a regular broker while investing a small percentage of their portfolio value online; and intensive adopters who make all investments online. Surprisingly, only about half of online investors are intensive adopters, the other half being almost equally split between the experimenters and partial adopters. These investors may be experimenting online to learn to manage their investment before switching completely to online brokers, or, more likely, viewing online investing as a source of enjoyment and gratification.
"Online trading is more user-friendly for people making small dollar amount investments that they might feel embarrassed to make through traditional brokers," says Konana, "and it eliminates any fears of receiving 'bad' advice." When investors make successful trades under the guidance of a full-service broker, they take it in stride, feeling that the broker is doing his or her job. But when the outcome is negative, investors are likely to become angry and blame brokers for making a bad decision. When these same investors rely on their own judgment to trade online, however, they are especially proud of their gains, and simply chalk up negative outcomes to bad luck.
Even for traders who lose, money isn't everything. "Some researchers look to return on investment as the best measure of the success of online trading," says Konona. "But for most online investors, enhancing their knowledge about the stock market through trial and error, feeling completely in control of their trades, and enjoying the convenience of online trading seems to offset lower returns." Konona, Balasubramanian and Menon plan further research on this perceived control and knowledge and how it impacts investors' trading decisions.
The mission of The University of Texas at Austin College and Graduate School of Business is to be a premiere institution for business education in the world. Both the undergraduate and graduate programs are consistently ranked among the top 20 business programs--public or private--in the nation.
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