Our Regional Culture Influences Our Behaviour When Purchasing a Home. But How Exactly?
We’d all like to buy a house. So, we have some intentions while buying a new house, and culture impacts those expectations. Based on the studies we have prepared this blog article for you, we have focused on how location, culture and the economy impact our purchasing preferences.
Is it true that risk aversion and patience are crucial?
In such a scenario, an American investor with the same wealth and living in similar financial conditions would get the same risk aversion and patience as a German or Chinese investor (inflation, job security etc.). But is this the case? Professor Thorsten Hens from Zurich’s Swiss Finance Institute was intrigued. He conducted a global study on patience and risk aversion with Mei Wang and Marc Oliver Rieger, which was presented in the White Paper “Behavioral Finance: The Psychology of Investing,” published in December 2014 with the assistance of Credit Suisse. This study demonstrated that one’s cultural background does matter. “We were astonished by how much culture impacts individuals’ investment behaviour, even after controlling for variables like inflation rates and acquired wealth,” Hens said.
In this research, 7,000 students from 52 different countries were surveyed.
Between 2007 and 2009, over 7,000 undergraduate economics students in 52 countries received standardized surveys with 30 socioeconomic problems. The study’s findings only covered nations with more than 100 respondents. The polls were translated and adjusted into local currency and living standards to make the responses as comparable as feasible. “It took a lot of effort.” We had to eliminate Chinese and European students attending at US universities, for example, to ensure that the responses only reflected the cultural backgrounds of US students,” Hens stated.
Eastern European investors are more risk-averse than their Western counterparts.
The study demonstrated the impact of cultural differences on investment behaviour and how an individual’s cultural background might affect financial market results. “In cooperation with Nilufer Caliskan, I discovered evidence suggesting the value premium — the difference between projected returns on value companies and growth equities – is bigger in nations with more impatient investors who are risk averse, such as Romania, Lithuania, and Russia.” “Investors from such an area demand a greater value premium in order to hold value equities,” Hens explained. In other terms, Eastern European investors are willing to pay less for cultural assets than Nordic investors, who are more patient and less risk-averse. “A similar observation was made for the equity risk premium – the increased return that an investor expects from a stock versus a risk-free financial asset,” Hens explained. The equity premium is lowest in Anglo-Saxon countries like the United States and the United Kingdom and higher in emerging regions like Latin America and Eastern Europe. In other terms, Anglo-Saxon investors are willing to pay a higher price for stocks than investors from other countries.
In the United States, there are more “ego-Traders” than anywhere else.
Another intriguing conclusion is that market momentum is substantially connected to individualism in the countries analyzed. “In individualistic countries, there are more ‘ego-traders’ seeking quick returns, resulting in a larger market momentum,” Hens explained, giving the United States as an example. More value traders prefer to wait for more significant returns rather than cash in less today in more patient countries such as the Nordic countries and Germany. Africa has the most hesitant investors. African students were most likely to respond that they would prefer a payout of 340 US dollars this month instead of 380 US dollars the next month. To some extent, this can be attributed to the region’s extremely high rates of inflation and inadequate income, but cultural dimensions undoubtedly play a significant role.
Americans and Africans have Similar Risk Aversion.
There were lesser similarities among comparable cultural locations than anticipated at the start of the study in the survey responses. “I would have expected a stronger link in investing behaviour among investors living in locations with similar economic situations, but there was none.” For example, in Eastern Europe, there is a highly high-risk aversion. We predicted a similar level of risk aversion in Africa, another emerging market continent. Still, it turned out to be significantly lower, in line with Anglo-Saxon investors,” said Andrea Cuomo, Head UHNWI Centro Sur at Credit Suisse, who was among the bank’s experts assessing the research. Although Americans were reasonably impatient, patience was lowest in Africa and highest in Northern Europe and Germany. “It was unexpected to learn that Americans are so impatient while living in an ordered society and being so prosperous in comparison to other cultural locations,” stated Professor Hens.
Given the pandemic, Turkey, which reached 7% growth in the first quarter of 2021, has become one of the fastest-growing OECD economies. According to experts’ projections for 2022, this growth will range between 5% and 6%. In this regard, Turkey has a robust economy and has become a desirable location for investment. It is plausible to predict stable growth in global liquidity conditions within economists’ projections.
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