Research Background Research Bac c

1 CHAPTER I INTRODUCTION

1.1 Research Background

Many investors choose stocks that have first caught their attention. Barber and Odean 2008 and Da et al. 2009 said that attention is a scarce resource. Attention is the cognitive process of selectively concentrating on one aspect of the environment while ignoring other things Anderson, 2004 as cited in Chen and Yu 2013. Odean 1999 explains that investors limiting their search of stock that have recently caught their attention to manage the problem from the huge of alternatives. So, when investors have a lot of alternatives, attractive alternatives are more to be considered and chosen. And the way investor limiting their search is depend on their preferences. Investors have to make a decision to where and when they invest their resources by considering the risk, expected return and which securities they choose. Basically, when we want to choose a stock, we can consider about two analyses, which is fundamental and technical analysis. According to Liaw 2004 Fundamental analysis examines financial statements that published by the company and economic fundamentals to determine value of securities and its growth prospect. McMillan, et al. 2011 define that technical analysis is study of market trends or patterns that comes from price and volume data which is often graphically displayed. It doesn’t required detail knowledge of the financial instrument. Investors have to get enough information to do the two analyses.

1.1 Research Bac c

kg kground Many ny investors choose s stoc oc ks ks t t ha ha t t ha ha ve ve first caught thei eir r attention. Barber and Od Od ean 2008 a a n nd D D a a et al. 2009 said d tha ha t t at at te te n ntion is a sca a rc rc e resource. At At t tention is is t t he he c c ogniti i ve ve p ro cess of se le ctivel y co nc nc en e tratin ng g on on o one aspec ect of the enviro o nm nm en en t wh h il il e ig no ring other thi ng s Anderson, 2 00 4 as s c c ited d in n Ch Chen e and d Yu 20 13 13 . Ode e an 1999 ex pl ains that in ve stors limi ti ng their s ea r rch of of s s to to ck tha at ha ha ve ve rec c en tl y caught their att ention to mana ge the problem fro m m the e hu hu ge g of f alternat at iv es. So, wh en investors h av e a lo t of alterna ti ve s, attractiv e e alternativ v es es are mo o re to be considered an d ch os en. And th e wa y investor limiting their se search h is dep pen en d on t he ir p p re re fe fe re re nc nc es es. Investors have to make a d d e ecis s io io n to where and when they invest t th thei ei r re reso s ur urce c s by considering the risk, y expected return and which sec ec ur ur i itie ies s th th ey ch choo oose. Ba B i sica ll lly, w w he he n n we wan nt t to to c c ho ho os ose a stoc k k, w we e can cons i ider a a bo bo ut ut two analys ys es es , , whic c h h is is f fundamental a a nd n technic ical analysis. A A cc cc or or di d ng g to o Li Liaw 2004 Fundamental analysis examine e s financia l l statements that published by the company and economic fundame mentals to determine value of securities and its d growth prospect. McMillan, et al. 2 2011 1 define that technical analysis is study of market trends or patterns that comes f from price and volume data which is often 2 Individual investor will rationally use all of the available relevant information to buy stocks that they might to buy. This makes adequate and reliable financial information important in financial decision. According to Rose, Peter S. and Marquis, Milton H. 2008 there are four groups of information sources that relied by the investors, which are debt security prices and yields, stock prices and dividend yields, information on security issuers, and general economic and financial conditions across the entire economy and financial systems. Nowadays, the advance information technology is growing rapidly, especially for the internet development. People can easily get information and data from the internet about what they search, and update their current information to understand what happen around them. This is also give impact for investor behavior. In this modern era, Rose, Peter S. and Marquis, Milton H. 2008 explain that the information revolution providing financial services to the public involves the analysis, storage, and transfer of financial information. Digitized communication through the internet make investors equipped with powerful new tools such as advance gadgets or smart phones to easily getting information resources, monitoring their investment in 24 hours and helps them in decision making. Investors engage with advance gadget when they access information. They can easily get information about stocks that they want to buy, company performance, annual report and everything that publish in the internet to do analysis before they decide to make investment. According to Liaw 2004 information important in fin n an an i cial decision. n Ac A cording to Rose, Peter S. and Marquis, Milton H. . 2 2008 there are four groups of infor orma m tion sources that relied by the inves es t tors, which are de de bt t s s ec ec ur ur it it y y pr pr ic i es and yields, s stock prices and dividend nd yields, inf fo orma ma t tion on security issuers rs , an an d general ec c on o omic and fin nancial co co nd nd it it io io ns acr r os os s th e entire e co nomy a nd d f f in in ancial l s sys ys te te m ms. No No wa da da y ys , th e advance information technology is grow ow in ing g rapi pidl d y, es s pe pe i cially f f or the interne t developm en t. People ca n easily g et t infor rma ma t tion an nd da da ta ta fro o m the internet a bo ut wha t they sea rc h, and updat e thei ir r cu cur rrent inform m atio n to und erstan d what hap pe n arou nd them. T his is also gi v ve impact fo fo r r invest or behavior. In In t his mo de rn n e e ra ra, Ro Ro se se , , Peter S. and d M M ar ar qu qu is is, Milt on H . 2 00 008 8 expla la in in th t at the information revolution prov v id id in ng g financial services to the public inv v ol ol ve ve s th the e an an alysis, storage, and transfer of financial information on . Di Di gi git tiz zed co comm mmun i icat i ion h thro o ug ug h h th the intern rnet et m mak ak e e in investors s eq eq ui uipp p d ed w i it h h powe we rf rful ul new tools su su ch as ad ad v vance gadgets or o smart t phones to eas s il il y y ge g tting g in information resources, monitoring their inve estment in 24 2 hours and helps them in decision making. Investors engage with advanc nce ga adget when they access information. They can easily get information about s s tocks that they want to buy company 3 millions of customers conduct their banking, stock, bond, and trading using online systems. By presenting bills, and delivering account statements, research report and other materials online, companies cut operating cost and improve efficiency. According to Da et al. 2011 abnormal return, abnormal turnover, media reports, and advertising expenditure are the indirect proxies of investors’ attention. Information about list firm that reported in the media cannot give guarantee that the investor receives attention, except the investor read it. Investors’ attention can be seen from the search activity that did by the investor. When the investors try to find information or search all the information about that stock, it means the investor give attention to that stock. This study is using Google search volume index as a direct proxy of investors’ attention. It can be access in Google Trends. Google Trends is a tool that provides the volume of queries on many kinds of industries that will helpful to predict the subsequent data release Choi Hyunyoung and Varian Hall, 2009. The previous researcher, Bank et al. 2011 said that there is relation between the increasing of internet search volume with the trading activity, stock liquidity and return. When the internet search volume increase, the stock liquidity and the stock return will also increase for the short run. Stock will be more liquid when the demand and the supply is high or having high trading activity. According to Da et al. 2009 The reason that this study using Google search volume as a direct proxy of investors’ attention is the popularity of Google among the internet users as the search engine sources to collect information and also the capability of Google search volume index to capture public attention and other materials online, co o mp mpanies cut op p er er at a ing cost and improve efficiency. According to to D Da et al. 2011 abnormal return,

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bn b ormal turnover, media reports, and d advertising expen en di di tu u re re a a re re the he indirect prox xie i s of investors’ attentio o n. Information on a abo bo ut list firm that repo o rt rt ed ed i i n the media ca c nnot give gu u a arantee th tha at t the inv nv e es to r receives attention, ex ex cept t the he i in nvestor re r ad it. Invest st or ors’ s’ a atten n ti ti on c an be seen from th e search activ it y th hat at did d b b y y th the e inve e st s or. Wh Wh en t the i i n nv estors try to fi nd informa ti on or sear ch all the inf or m mation on a ab bout tha hat st stoc oc k k, it m m ea ns the investor give atten tion to th at sto ck. Th is study is us ing Go og le sea rch vo lume ind ex as a di re e ct proxy o f invest or s’ attention. It can be ac ce ss in Go og le T rends. Google Tr en nds is a a too ol that p pro ro vi de s th e vo lu lu me me o o f f qu qu er e ies on many y ki ki nd nd s s of of i i nd ustr ie s th at t w w i ill help p fu fu l l to t predict the subsequent data release se Ch Ch oi Hyunyoung and Varian Hall, 2009 09 . . The previous researcher, Bank et al. 2011 said that ther er e e i is r r el elat at i ion be betw tween h the i increa si sing ng o o f f intern et et s s ea ea rc rch h v volume w w it ith h th the t tr d ad i ing activi vi ty ty , , stock liquid id it it y y an d re e tu tu rn rn. When the int t er e net sear arch volume incr r ea ea se se , , the st st oc oc k k liquidity and the stock return will also inc crease for th he short run. Stock will be more liquid when the demand and the supply i i s high or r having high trading activity. According to Da et al. 20 09 T The reason that this study using Google search volume as a direct proxy of inv v estors’ attention is the popularity of Google 4 which is not capture by news. Google search volume captures the attention of individual investor or retail investor who has limited sources of information. Usually, the institutional investor has more detail source of information. Cited from Antaranews, APJII Asosiasi Penyelenggara Jasa Internet Indonesia stated that Internet users in Indonesia keep increasing http:www.antaranews.com. In the year 2013 it reach 71,19 million users or increase until 13 compare to the year 2012 that reach until 63 million users. According to web sources of techcircle.in, internet users in India reach about 150 million people, and India has become the 3 rd largest internet population in the world after China http:techcircle.vccircle.com. The reasons that researcher interesting to study on these two countries, Indonesia and India because both of them are have some similarities. Indonesia and India are emerging market that become members of G20 http:internasional.kompas.com and the growth of internet users in these two countries are similar https:www.google.compublicdata. Below is the graph of Indonesia and India internet users. Usually, the institutional inves es to tor has more d d et et

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l source of information. Cited from m A Antaranews, APJII Asosiasi Pen nye ye lenggara Jasa Internet Indonesia stated that Int t e erne ne t t us us er er s s in i Indonesia k k eep increasing http: w www.antarane ews ws.c . om o . In the year 201 3 3 it it r rea ac ch 71,19 mil lli li on users or in n c crease u u nt ntil il 1 1 3 3 com m p pa re to the ye ar 2012 th h at at r r ea e ch u unt ntil il 6 6 3 3 millio on n users. Acco rd rdin in g g t to w w eb eb sou rc es of techcirc le .in, internet us er s in I I ndia rea each ch a a bout t 150 mi mi ll ll io i n peo ople , and Indi a has become the 3 rd lar ge st internet p popula lati tion o in th he wo wo rl rl d af f t ter Ch ina http:tech ci rcle.v cc ir cle.co m . Th e reason s th at resea rc he r inte re st in g to stu dy o n these tw wo countrie es s, Indone e sia and India becaus e bo th of them a re h ave some similaritie s s. Indon onesia ia and In I di a are em em er er gi gi ng ng market th h at at b b ec ec om om e me mb er s s of G G 20 20 h ttp:internasional.kompas.com an an d d th th e growth of internet users in these e tw two co coun un tr tr ie ie s are similar https:www.google.compublicdata. Below is s t t he he g g ra raph ph of In Indo donesia an d d I In di dia a in inte te r rnet users s . 5 Figure 1 Development of Internet users in Indonesia and India in the year 1990-2012 Sources :https:www.google.compublicdata Figure 2 Pattern of internet users in Indonesia: Sources: HarianTI http:harianti.com So So ur u ce s s :h ttps : www.google. co mpubl ic data Fi gu re 2 Pa ttern of interne t user s in Indonesia: 6 From data above that cited from HarianTI, it can be seen that 78,49 internet users in Indonesia use the internet to find news and information, 77.81 use to find information about goods and services and 37,67 use to access the others financial facility http:harianti.com. It is interesting to examine the usage of internet in term of investment in those countries, the correlation between the internet usage through Google search engine to find information of stock, company profile, annual report and any subject that support investors to get more knowledge to do investment.

1.2 Problem Statements