Behavioural Finance Agent: The Influence of Confucianism on Financial Decisions

Bachelor Dissertation

Abstract

This paper investigates the role of Confucianism, the most widespread natural religion in China, as an agent of behavioural finance. A framework centred around three research objectives has thus been designed to investigate: 1) the relationship between Confucianism and financial decisions, 2) the relationship between Confucianism and cognitive biases, and 3) the joint impact of Confucianism and cognitive biases on financial decisions. This study is based on a questionnaire of 690 valid respondents from 21 countries and is analysed by extracting representative latent variables, a Confucian factor and decisional factors. Regressions and mediation analyses are used to verify the proposed relationships. This article contributes to the existing literature in behavioural finance by empirically modelling cultural effect, explicitly Confucianism, on financial decisions. The estimated relationship is proven to be statistically significant and can be well-explained by the theories from Confucianism. These results suggest that Confucianism leads to cognitive biases, and thus affects financial decisions.

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JEL Classification: D91; G41; Z12
Keywords: Confucianism; behavioural finance; cognitive bias; financial decisions