The role of behavioural aspects in investment decision-making by listed property fund managers in South Africa

Abstract

This study was necessitated by the fact that, thus far, no prior research on the influence of behavioural aspects on the decision-making framework of listed property fund managers had been undertaken in the South African context. The aim of this study was to determine whether behavioural aspects influence listed property fund managers in South Africa when they make decisions on property investments. To meet this objective, the study investigated the following aspects: • the influence of behavioural aspects on property holding periods; • the influence of various heuristic-driven biases and frame dependence (as behavioural aspects) respectively on the investment decisions of listed property fund managers in South Africa; and • the importance of the use of market sentiment and personal experience rather than market fundamentals in listed property fund managers’ decision-making in South Africa. Questionnaires were sent to 29 listed property fund managers in South Africa. The 17 responses represented 80% of the total market capitalisation of listed property funds in South Africa. The data were analysed using non-parametric statistical measures. The study led to the following important findings: • property holding periods are not influenced by behavioural aspects; • heuristic-driven biases do not influence the property investment decisions of listed property fund managers in South Africa; • frame dependence, through the disposition effect and loss aversion, was a behavioural aspect that affected listed property fund managers’ decision-making; • listed property fund managers in South Africa indicated a strong orientation towards the use of a normative approach in property investment decision-making - market fundamentals and capital budgeting techniques as decision-making criteria were very important to them in their investment decisions; • market sentiment and personal experience were used to some extent by listed property fund managers in South Africa; and • the listed property fund managers in South Africa experience the influence of the national government on the property investment decisions that they as fund managers make as negative, possibly making them, as fund managers, susceptible to behavioural biases. This study’s conclusions indicate that listed property fund managers in South Africa are influenced by behavioural aspects in the form of frame dependence. Difficulties in buying new properties suggest that listed property fund managers in South Africa are, to some extent, loss-averse. This study has pioneered research to establish whether behavioural aspects influence the decision-making of property fund managers in an emerging economy such as that of South Africa.