JILT 2004 (2) - Dimity Kingsford-Smith and Kirsty Williamson
2. The Online Investing Context
3. (In)efficient Markets and Information Seeking Behaviour
4. Community Information-Seeking Behaviour: Generic Theory and Empirical Findings
5. Conceptual Framework and Method
6. Information Seeking by Online Investors in Australia
7. Analysis and Regulatory Implications
How Do Online Investors Seek Information, And
What Does This Mean for Regulation?
Professor Dimity Kingsford-Smith
Director of the Centre for Law in the Digital Economy, Monash University
Research Fellow, Faculty of Information Technology, Monash University, and School of Information Studies, Charles Sturt University
The authors are grateful for the comments of Professor David Nelken and Dr Julia Black on a prior version of this piece, and the helpful contribution of the referees.
This article will first explore the role that information (and its principal sources) plays in investors’ decisions to invest online. It will then compare the findings that are discussed in the introductory sections of the paper to both generic theory and empirical research in the field of information-seeking behaviour. It concludes with an analysis of the implications of these findings for the regulation of online investing.
Keywords: Online investment, regulation, capital markets, personal information sources.
This is a refereed article published on: 30 November 2004.
Citation: Kingsford-Smith and Williamson, 'How Do Online Investors Seek Information, And What Does This Mean for Regulation?', 2004 (2) The Journal of Information, Law and Technology (JILT).<http://www2.warwick.ac.uk/fac/soc/law/elj/jilt/2004_2/kingsford-smithandwilliamson/>.
In recent years, the online revolution has brought global investment markets to the investor’s sitting room. Although there was a drop in numbers of online investors after the ‘tech-stocks bubble’ burst in early 2000, the economies of online investing mean that investors are being drawn back to the medium. Despite the encouragement for individual investors to go online, there has been little research into the regulatory implications of the non-advisory context of their decision making and, outside the United States, no significant treatments of the regulation of online investing generally. Mostly, financial regulators have taken an accommodating posture towards online developments in markets. However, independent research is required to ensure that regulatory decisions are made after careful empirical research and policy analysis rather than because of this accommodating stance.
This is especially important as, not only is online investing much cheaper than broker-advised transactions, but it is presented, through investment advertising and online broker websites, as empowering investors by giving them control over investment decisions. In fact there are reasons to suspect that online investors are as vulnerable as they are empowered. Research shows that investors who switch from traditional telephone advisory to Internet investing do worse. Recent insights from investor psychology show that, ‘after going online, investors trade more actively, more speculatively, and less profitably than before’ due to over confidence.  There are several other cognitive biases that cause investors to lose money and seem to be amplified by online investing. This raises the second reason for caution.
While online investing is a powerful, cost effective investment mode, it is characterised by incentives to trade frequently. For example, aggressive online advertising which ‘conveys a message of convenience, speed, easy wealth, and the risk of “being left behind” in the online era.’ This is intensified by the ease and immediacy of clicking the mouse to trade, rather than talking to a broker on the telephone. Further incentives to trade frequently come from online trading fees that decrease as the number of trades increases. The same is true of the ready availability of margin loans. These are funds borrowed from an online broker to increase the amount but also the risk of invested funds. A third reason for caution is that research also shows that many investors have little understanding of how an online transaction occurs. They do not know whether their trade goes straight through to the market when they click on the mouse. They do not know about time lags affecting the price at which they ultimately buy or sell.
A fourth reason for caution about online investing is the combination of discounted fees or commissions, and vast amounts of investment information delivered without personal advice. Low fees further increase the attractiveness of frequent trading. Huge amounts of information without advice, raises questions about the quality of investment decisions. Sites also make available a variety of charting and portfolio management programs. These assume that online investors will do financial analysis for themselves. A decade ago analysts and brokers did this for them. Is it safe to assume that all online investors do not need investment advice? Will they analyse information to make informed investment decisions? Our pilot research and other evidence discussed below suggests that often the answer is, no.
This article reports the results of a small pilot study of the information-seeking practices of Australian online investors. Included are the ways in which online investors seek financial information, as well as information about the online investing process itself. The study is significant because, despite a great deal having been written on the nature of information efficiency in financial markets, and recent controversy over the value of investment advice and the conduct of advisors, little is known about how investors seek information in non-advisory environments. While once it was possible to infer that most investors would act on the advice of their advisors, how investors make investment decisions in the non-advisory, direct execution circumstances which apply to online investing is much more opaque.
The findings of the research are positioned in relation to theory and empirical research from the generic field of community information-seeking behaviour, including reference to the practices of those seeking information through the Internet as frequently occurs with online investors. They are also set in the context of some important bodies of legal and economic thinking about information, price formation and investment decision making in financial markets: the efficient markets hypothesis, the role of investment advisors and mandatory disclosure law and policy. These bodies of thought have been influential in the way financial regulation has been crafted. Until the advent of online investing it has generally been assumed that ordinary or retail investors act on professional financial advice, a rational distillation of financial information made available under mandatory disclosure rules. Very little attention has been given to the information-seeking habits of investors who do not use an advisor. Financial regulators have generally dealt with the question by requiring the issue of warnings to investors to seek professional advice. But in a context such as online investing where all the incentives are likely to cause investors to ignore such warnings, we think it is important that the information-seeking practices of investors are considered more closely.
In summary, this article will explore:
1. The role of information, and its principal sources, in investors’ decisions to invest online.
2. The relationship of these findings to generic theory and empirical research in the field of information-seeking behaviour.
3. Implications of these findings for regulation of online investing.
2. The Online Investing Context
The 1990s have seen the extension of investment technology, especially through the Internet, to the retail investor markets. In 2002, in Australia, half of the Australian adult population owned shares. In 2001 nearly thirty percent of households enjoyed Internet access and up to 20% of Australian Stock Exchange daily volume was traded online. The rise of the individual investor, often trading online, has been one of the most powerful developments in the capital markets of the last decade. There are a number of reasons for this quick take-up of online investing.
Changes in Trading Patterns in Investing Markets
When an investor wishes to make an online trade, at one end of the spectrum there are traditional full-service firms that offer securities analysis and investment advice, as well as order entry and trade execution services. At the other end there are execution-only brokers that offer trades at a large discount to investors who do not want analysis and advice. It is assumed that the investor herself has analysed the market information and placed an informed order to trade. Investor use of execution-only services offered by discount brokers is therefore driven by the desire to increase returns on trading by reducing transactions costs.
Changes in Provision of Information/Advice in Online Markets
This takeup of investment technology by retail investors relies on different sources of information and advice and involves trading patterns more independent of traditional intermediaries than in the past. Most important is that investment technology allows investors to deal more directly with the markets and issuers of securities. Investors may also obtain financial information directly from a variety of providers, some of which may be virtually unregulated by contrast with traditional sources of investment advice. The Attorney General of New York observed in a recent report:
The advent of the online brokerage industry is fundamentally changing the relationship between broker-dealers and their customers by allowing individuals to manage their own investments in a manner never before possible. Members of the public can now readily access a range of sophisticated research materials and financial data – once available only to market analysts – directly from the websites of most online trading firms. Equipped with this information, investors can, if they choose, make an independent evaluation of stock performance. Investors can also place their trades without the assistance of a registered securities representative by entering an order and submitting it to an online firm for execution by traditional mechanisms.
The most obvious source of information for online investors, is the website of the broker through which the investor obtains execution services. Even a cursory visit to one of these sites discloses a great wealth of financial information, often very up to date. Commonly this information includes market news, company and economic research across many different types of financial products.
The range in Australia would include company shares and fixed income securities, managed funds and superannuation products and also derivatives. Especially for company shares there will be comprehensive information about the depth and volume of the market, sometimes streamed in real time to the investor – an information service which a decade ago would have been available only to professional investors. The websites provide investors with bid and offer prices for shares, the price of the last transaction, the change in the price since opening, the high and low prices since opening, and any breaking news (eg stock exchange trading halts).
As brokers’ sites become more advanced, they are adding portfolio management tools and charting services, which again would have been available only to professional investors a decade ago. They allow individual investors to analyse their own stocks against their choice of financial indicators to decide whether the stock they hold might (or might not), be substituted by another. Some brokers go as far as to include independent recommendations and broker consensus estimates on companies whose stocks are able to be transacted through the broker’s site. They may refresh these analysts’ recommendations daily, posting changes to upgrades and downgrades of stocks. They may also carry daily postings of market commentary from expert analysts. In short, brokers’ websites provide a very great deal of the kind of information which investors traditionally obtained from their broker.
Brokers’ sites do not nearly exhaust the digital sources of financial information that investors may rely on. New providers of this information are relatively unregulated, such as Internet “portals” operated by an Internet Service Provider (ISP). Financial portals allow online investors to obtain financial information, securities analysis programs and general financial advice from them, rather than from an advisor. Another source of unregulated financial information (or perhaps financial rumour) on which investments may be traded is Internet discussion sites (IDSs), more colloquially known as bulletin boards or chat rooms. For the most part used to discuss securities too small to receive attention from analysts, statements posted on Internet discussion sites range from opinions to extravagant predictions, rumours and deliberately false information. Investments traded on the basis of discussion site information do not have the benefit of analysis, and like financial portals, unless operated by a financial professional, discussion sites do not have to be licensed. Up to date investment information is also provided by companies on their own websites. Further, in circumstances that are still quite limited, online investors in the primary market may take advantage of direct marketing by issuers to investors. In Australia, the first electronic distribution of a prospectus occurred in July 1996, though it was accompanied by a paper offer. Following ASIC Policy Statements, website hosts may now publish third parties’ prospectuses, and the application process can be performed completely online.
The Regulatory Response to Date
As already mentioned the regulatory response to the development of online investing has been cautious. The starting point has been the regulatory approach adopted in relation to traditional investing – that where advice is given or certain classes of dealing or trading is done for clients, the provider of these services must hold a regulatory licence. That brings on a cascade of regulatory requirements which are motivated by investor protection, market integrity and prudential soundness objectives. This introduces a bi-polar approach – either a broker is providing advice or other services, or they are not. They either need a licence, or they do not.
The trouble with regulating online investing in this way is that, while large brokers (with whom the bulk of online investing is done) can sustain the licensing requirements, new business forms such as portals, ISPs and companies providing investment information on their websites can not. They do not want to engage with the compliance requirements of being licenced. They do not have the established traditional investment business to cross-subsidise the online version, and the new ways of doing investment business are expensive and risky to develop. These new business forms have therefore, striven to structure their activities to put themselves outside the licensing requirements. Generally, financial services regulators have also striven to assist them in this, trying at the same time to finding ways to protect online investors. To some extent this facilitative stance has also been adopted in relation to the online services of licensed brokers as well. So, for example two of Australia’s largest and most successful licensed online brokers, Commsec and E-Trade, provide on their websites most of the information services described above for online investors. As both are licensed under the Australian Corporations Act 2001 they would, if they were making recommendations to investors to buy, sell or hold particular securities or financial products, have to observe the requirements of the Act in relation to only making recommendations that are suitable to investors. They would, if making recommendations, also have disclosure obligations to the customer, designed to ensure the independence of their recommendations.
The wealth of financial information, the portfolio management and charting tools and the posting of independent analyst recommendations on brokers’ sites are intended to provide a context functionally similar to that of a traditional advisory situation. However, in formal terms the brokers’ sites are designed to stop short of a straight recommendation to an investor. The sponsoring brokers argue that they provide only general financial information and advice, and underline this with warnings such as that from the Commsec website: ‘Disclaimer: This commentary is a general account of the day’s trading and is not intended to be taken as a recommendation to buy, hold or sell any particular stock.’ In other words, from the mass of information on the site the investor must formulate her own recommendation, and if she has the competence, use the portfolio tools and independent recommendations provided to make her own decision…or pay a lot more commission for a traditional investment recommendation. Current ASIC policy accepts that where online information services are delivered in this way, they do not amount to a recommendation that brings on the suitability or independence requirements which are considered central to investor protection in the traditional investing context.
As we have noted, brokers’ sites do not nearly exhaust the digital sources of financial information that investors may rely on. As already mentioned, financial portals allow online investors to obtain financial information, securities analysis programs and general financial advice from them, rather than from an advisor. Portals charge online firms to link (or refer) customers to the firm’s order entry and execution services. Portals cannot provide execution services unless they are licensed to deal in securities. But as they argue that they provide financial information, not advice, regulators do not usually require them to be licensed. They are not required to observe the requirements (such as suitability obligations) to which a licenced investment advisor may be subject. Internet discussion sites (IDSs), more colloquially known as bulletin boards or chat rooms have also received a light regulatory touch.  Instead of licencing, in Australia an ASIC policy provides for a ‘soft law’ regime of regulatory practices – a tangible example of the facilitative approach of financial regulator s to online developments. ASIC Interim Policy Statement 162 provides a regime of voluntary disclosures and warnings which allows IDSs to operate without a licence, provided that “the postings do not involve the offer of any securities product or advice, and otherwise comply with the guidelines”. 
In addition to voluntary disclosure and warnings by IDSs, in Interim Policy Statement 162 ASIC has set out a series of voluntary standards of conduct for the IDS operator. The IDS operator is expected to regulate itself in these areas, and by supervision and exclusion, to also regulate the conduct and speech of those making postings. Operators are also expected to keep information about the identity of people who make postings on the site, and about the postings. They should make the information available to ASIC if it is requested. Clearly these expectations are given motivating force by the latent threat of having to acquire an advisor’s licence. Nevertheless, in contrast to more traditional forms of regulation, they place much of the burden of accomplishing regulatory outcomes on the IDS operator itself. ASIC even goes as far as to acknowledge that IDSs may be taking on the role of “de facto regulators”.
Another source of up to date invesment information is provided by companies on their own websites. Like financial portals and IDSs, issuers do not have advisory obligations to investors, in contrast to licensed brokers. A discussion of the regulatory repsonse to online investing cannot conclude without a mention of investor education which is becoming an important tool in the regulator’s kit in the online age. This is provided both by the regulator and by site sponsors, often at the urging of regulators. Financial information, especially of the ‘tips and hints to avoid losses’ variety, is now a common place on the websites of major financial regulators. These regulators report increasing numbers of financial consumers visiting their sites, and they are an authoritative source of financial consumer education as well as financial information. The New York Attorney General and the US Securities and Exchange Commission have recommended that online brokers devote a substantial portion of their advertising budgets to investor education. Some sites do provide online tutorials and educational content for investors, but this is fragmented and variable in quality. Further there is always the danger that site spponsors will undermine their own education campaigns, with advertising that distracts the consumer from the more sober messages of investor education links and online tutorials.
In summary, the regulatory response to the advent of online investing sites, has been to consider online techniques as being outside the regulatory net, to regulate with a ‘light touch’ or to concentrate resources into educating online investors. The regulatory reticence about imposing suitability and independence requirements on providers of online investment services is an example of the first response. The IDS regime in ASIC Interim Policy Statement 162 is an example of the second approach. Regulators themselves have been particularly resourceful about the third strategy, but less successful at enrolling site sponsors as investor educators. These strategies might be commended while online investing is under commercial development. However, the question remains as to what the final form of online investing regulation should be, given that one day we’ll all invest this way. A central purpose of this pilot study is to study the practices and beliefs of online investors especially in relation to information seeking, so as to make informed recommendations as to the future form and content of online investing regulation, once the developmental phase is past.
3. (In)efficient Markets and Information Seeking Behaviour
The Efficient Capital Markets Hypothesis
A plausible explanation for the lack of research on investor information seeking mentioned in the Introduction may be the influence of the efficient capital markets hypothesis (ECMH) on thinking about the role of information in financial markets. As Jennings et al put it:
The central and least disputed claim of the ECMH is that available information about securities traded in the principal securities markets is impounded into stock prices with sufficient speed that even sophisticated investors cannot systematically profit by trading on newly available information…a market is efficient with respect to specific information if prices act as if everyone knows the information.
The market rapidly digests all information as soon as it becomes available, and impounds this into the price of the investment.In other words, the price of an investment quickly (in ECMH jargon, efficiently), reflects all the information that is known about an investment.
Thus, from the ECMH perspective there is very little to be gained by an individual (or indeed, an institutional investor) spending time and energy on securities research and analysis, that is, on financial information seeking. This is because the mechanisms of the market disperse new information so quickly, and the price adjusts accordingly. This leaves no mispricing lags from which investors can develop strategies which allow them to make consistent profits which are abnormal compared to the performance of the market as a whole. Some adherents even go so far as to assert that mandatory disclosure rules are unnecessary because there are sufficient market incentives on issuers to make accurate, complete and timely disclosure without legal compulsion.
Relatively few regulatory concessions have been accorded this deregulatory thinking on the basis of the ECMH, as securities regulators have been cautious about wholesale changes to disclosure laws. But such has been the influence of ECMH that, with a few conspicuous exceptions, little thought has been given to the mechanisms of information dispersion and price formation, at the individual level. It has been assumed that investors will be price takers not price makers, and as such there is not much interest in the means by which they do (or perhaps do not) undertake information seeking. To the extent that individuals do exercise independent decision-making capacity, they are assumed rather than shown to be objectively rational assessors of risk who act to maximise their own utility or pleasure.
Reservations About the Efficient Capital Markets Hypothesis
This rather deus ex machina view of information dispersal and price formation has been under challenge in the finance literature for a decade or more, though the ECMH has proved very resilient. From the mid-1980’s evidence has been mounting through a series of ‘event studies’ which have shown persistent anomalies in price formation, such as the now well known ‘January Effect’ and ‘small firm effect’. In these it has been shown that following new information, there is a lag in stocks reaching their new long-term or equilibrium price level. It has also been argued that stock prices are much more volatile, over reacting or under reacting to new news or even reacting to no new news at all as was the case with the 1987 market crash. These developments have reignited earlier interest in the actual information seeking and decision-making practices of investors.
Of particular interest for us, it has kindled a growing literature in the implications for securities regulation of the cognitive and behavioural patterns becoming evident in investor decision-making – of both institutional and individual investors.
Most of what has become known as behavioural finance literature, and its legal counterpart in securities regulation, is concerned with how investors, especially individual investors, make trading decisions and the cognitive biases that might influence that decision-making. There has been very much less research on the practices of investors in actually seeking information, though this clearly has potential to influence trading decisions.
Inter-Personal Communication in Investment Information Seeking
In the late 1980s Shiller and Pound studied groups of both individual and institutional investors, to learn about their patterns of communications in the process of making securities trading decisions. For both investor types Shiller and Pound surveyed a group whose members had purchased securities which experienced normal positive returns, and one where securities were undergoing a rapid price increase in the acquisition period. The inclusion of the institutional investors was to examine the contention of ECMH adherents that, although cognitive biases in individual investing decisions might cause price anomalies, these should be attenuated or ‘washed out’ by the decisions of institutional investors or ‘smart money’. Hence, the markets should on the whole remain informationally efficient.
Shiller and Pound found that in both individual and institutional investor groups, initial interest in individual stocks was stimulated at least in part by inter-personal communications. Of the institutional investors in both the normal price and rapid increase groups, most reported that their interest in a stock was motivated by contact with another investment professional, while some said contact with a person not an investment professional was influential. Of the individual investors, about a third of both groups were interested in a stock by a broker, while a third of normal price investors and a half of rapid increase price investors were prompted by a non-broker personal contact. A substantial group of individual investors claimed to be influenced by the knowledge that someone they knew or knew of purchased the stock in question. Although a portion of investors did not nominate inter-personal communications as influential a substantial group claim to have interested others in the stock they were considering, suggesting the importance of word of mouth contacts.
As Shiller and Pound point out, the most striking piece of evidence from the research is that most of both institutional and individual investors denied that they were systematic in their decision to buy stock, though the majority of institutional investors in the normal price group said their decision-making was systematic. The evidence suggests that investors deciding about rapid price increase stocks are more likely to rely in part on inter-personal communications, perhaps due to the additional difficulties of obtaining verifiable information in the context of securities undergoing quick price change. In short, Shiller and Pound found that direct inter-personal communication between peers is of importance in the information seeking and decision-making that precedes securities trading. More recently Shiller has argued that people also try to infer information from observing the actions of others (eg stock purchases), and that prominent opinion entrepreneurs in particular groups or habits of revealing sources of information may influence the subsequent acts of individuals.
In the absence of a sustained interest in information-seeking behaviour by investors in the financial economics literature, we have turned to the more generic theory of information seeking which has developed in other areas – notably at the sociological end of information technology and information systems management. In what follows we build on the empirical and theoretical literature in community information seeking, online investing being one form of such information seeking. In doing so we engage with research on the plurality and variable authority of information sources, and confirm Shiller and Pound’s insights about the importance of inter-personal information seeking, with research from the information seeking area.
4. Community Information-Seeking Behaviour: Generic Theory and Empirical Findings
Considerable theory and empirical research findings, relevant to the present study, have been generated in the field of ‘community information-seeking behaviour’. The information seeking of citizens for investing online is encompassed in this field, which is sometimes labelled ‘information seeking for everyday life’. Prominent in the study of community information-seeking behaviour have been the attempts to discover preferences for information sources, with research findings often leading to further theory generation. Although the studies cited here were foundational, and undertaken in pre-Internet days, we believe they are still relevant.
Bearing out the findings of Shiller and Pound, many of the earlier studies in the community information field showed that people prefer personal sources of information, particularly family, friends and neighbours. Chen and Hernon, who included 'personal experience' with family, friends, neighbours and co-workers to make up an 'interpersonal' category, found a heavy emphasis on personal information providers. The mass media have been shown to be widely used, but not always to supply useful information. The same studies have indicated that institutional sources, e.g., professionals, government departments and libraries, are used less frequently. Now we have the Internet, a readily accessible source of information, but with its own advantages and disadvantages.
Personal Information Sources
There has been a range of explanations offered for the preference for personal information sources. Firstly, the importance of psychological accessibility of sources has been indicated by research on diffusion of innovations. Rogers showed that the most effective communication takes place between two individuals who are alike in such characteristics as beliefs, education and social status. Secondly, personal sources of information are preferred because they are supple and adaptive to people's needs.
The role of 'information gatekeepers' or 'opinion leaders' is also pertinent. The literature concerned with the dissemination of innovations illustrates the importance such people have in the communication of information. Information gatekeepers have more exposure to mass media than their followers, are more gregarious, have more contact with officials of various kinds, are more active in professional associations outside their immediate environment and serve as links between the groups and the outside world.
The Mass Media
Studies of information and the mass media have typically shown that users of print media of all kinds (including books, newspapers, booklets and pamphlets) compared with users of electronic media, especially television) were the only respondents who possessed accurate knowledge for decision making. Print sources of information have been found to be very useful and highly regarded by information seekers in other studies. Wade and Schramm found that the more education people had, the more likely they were to use print as their major source of news and information. The implication is that reliance on television for information is unlikely to be helpful.
Institutional Information Sources
Because institutional sources, including professionals, require greater effort by users, they appear to be used less frequently than personal sources. Mooers' Law explains: An information retrieval system will tend not to be used whenever it is more painful and troublesome for a customer to have information than for him not to have it.
Cooper's theory of information usage is related. This theory states, firstly, that an information seeker has, in any given information-seeking situation, a certain level of effort beyond which he will not go in his attempt to obtain information. Secondly, ‘... the acceptable level of effort is usually, approximately, zero’, for the reason that the eventual reward is uncertain. Included in 'effort' are such factors as money spent, time wasted, risk of delay, frustration and physical strain. Cooper said that: ‘It is the sum total of all these penalties and potential penalties which tempt the would-be user to say to himself “Why bother?”’.
Nevertheless there are some information topics for which it has been shown that citizens are more likely to use professionals than others. Income and finance is included in the topics where professionals are more likely to be used. This is likely because the risk of financial loss is likely to prevail to ensure that investors will make an ‘effort’.
The Advent of the Internet
The research cited above was all undertaken prior to the advent of the Internet. Apart from questions about the level of use of the Internet for everyday life information – and the perceived value of the information available – an interesting question is how the balance of sources used for everyday life information may have changed by the now easy access to information on the Internet. Although there have now been a large number of studies of information searching on the World Wide Web, Kari and Savolainen point out that:
Unfortunately, such endeavours … have often examined the use of the World Wide Web (WWW or Web) as a phenomenon in itself, without explicitly relating it to other sources of information … or its wider frames of reference.
One study that did investigate information seeking on the Internet in relation to other information sources was by Hektor. For this study, there was an extensive literature review and case studies of ten individual citizens, with data collected through interviews and diaries. A key finding was that:
To the respondents, the Internet is a resource to information that is used when a more convenient information system does not resolve the problem at hand, and when it is considered to be the most convenient information system … Occasionally it is a unique source that cannot be substituted, but more often it is a complement or substitute for other sources.
Interestingly, Hektor goes on to say that participants saw the World Wide Web as the most convenient source for ‘market information’, which is a broad term which could include investment information, at least in its online form. Nevertheless, Hektor concluded that ‘it is not considered as a sufficient source as they often return to the search and use other sources before a decision is made and the problem solved’.
Given that our topic involves online investors, it is a reasonable assumption that the Internet will be a significant source of information. The easy access to the Internet means that Mooers’ Law and Cooper’s ‘Why bother’ question are not applicable to Internet use to find information for online investment. To date, no specific study about the role and perceived value of online information in this context could be found in the literature, including through a search of the World Wide Web. This is a key indication of the need for the present study.
The Need for Multiple Sources
Foundational studies have shown that different sources of information are favoured by different community groups. In addition, Williamson concluded from an extensive study: people have different information source preferences and abilities to use specific information sources. This means that there is a need for multiple sources of information to be widely available. Although her study focussed on older people, aged 60 and over, her conclusion is nevertheless applicable to all types of community information and age groups.
5.Conceptual Framework and Method
Interpretivism is the theoretical lens through which this study is conducted.Rather than attempting to ascertain general laws by which humans are said to exist, interpretivist researchers are more concerned with focussing on the ‘processes by which meanings are created, negotiated, sustained, and modified within a specific human context.’
We have also used related ideas of social constructionist theory to justify our investigation of the meanings developed through the interactions of social processes involving people, language and religion. As Schwandt states: 'We do not construct our interpretations in isolation but against a backdrop of shared understandings, practices, language, and so forth.' We believe that there is usually a range of cultural influences, both macro and micro, on each individual and that, when people experience similar cultural impacts, they are likely to have at least some needs and understandings in common. The activity of all our participants, viz online investing, means that they are likely to have at least some shared perceptions of needs for information and elements of information-seeking behaviour in common. We have taken the approach that the patterns that emerge from shared meanings can be used to improve services such as information provision for online investing. We therefore set out, through our qualitative research, to discover the meanings that were shared by participants, as well as those that were not (consensus and dissonance).
From Theory to Method
Modern ethnography is a qualitative method well suited to the aim of understanding and describing the ways in which online investors seek financial information, a method which is also consistent with the theoretical underpinnings of the study – emphasizing, as they do, both individual and shared meanings. Modern ethnography allows the use of a range of techniques, one of which is interviewing, with trustworthiness being enhanced by triangulation of techniques and findings. In the case of this small pilot study, interviewing was the only technique possible. The researchers considered that rich data would emerge from individual, hour-long interviews, and this turned out to be correct.
The sample is a purposive one, selected to suit the needs of the small pilot study. Purposive samples, which are common in qualitative research, are premised on the concept of ‘theoretical sampling’, as discussed by Glaser and Strauss. Theoretical sampling means selecting subjects which represent the major categories of people relevant to the research, e.g., mix of ages, genders, socio-economic/education levels, types of investing. With this approach, there is no compunction to sample multiple cases which do not ‘ … extend or modify emerging theory’.
Although the pilot study included interviews with representatives of two organizations that provide online investment services, E-Trade and COMMSEC, as well as the regulator, Australian Securities and Investments Commission, it is the ten individual investors, who are the focus of this article. All of them were either experienced in the online environment (five participants), or had an acquaintance with the issues involved, in some cases having tried out online investing (five participants). They were selected to reflect a range of demographic characteristics – gender, age, employment, education and income. They included five males and five females. Age groups were fairly evenly split between younger and older investors, with four participants being under 50 years of age, and six over 50. Half were in full-time paid employment; four were retired and one was a younger full-time day trade online investor. There was a range of education levels: although one had a post-graduate university degree, two participants had only high school education and two a non-university tertiary qualification, with the remaining two having undergraduate university degrees. Incomes tended to be at the high end of the scale, with only one participant having an income under $50,000.
In terms of computer and Internet use, all participants had a computer at home and all but one had the Internet at home – which was where they mostly did their online investing. The participant without the Internet at home had access at work. All participants described themselves as frequent or very frequent computer users – with nine out of ten opting for the latter category. Only two participants had less than two years’ Internet experience; with six having had four years plus.
Semi-structured interviews, lasting 1 to1.5 hours were undertaken with each individual interviewee, as well as with representatives of the two organizations that provide online investment services and the regulator. Interviews were conducted by two interviewers in each case and took place between July and November, 2002. As each of our individual interviews began, we asked the investor to complete a table. Against one axis, they were asked to indicate what types of transactions for which they used the Internet.
They could choose as many categories as appropriate, with the choices including: information seeking; trading in domestic Australian shares; trading in international shares; trading interests in a managed investment scheme; trading interests in a superannuation fund; payment transfer related to any trading; and ‘other’ (please explain). They were asked to choose the degree of frequency for all of these activities, choosing between: very frequently (VF) – once or twice per week; frequently (F) – at least once per month; occasional (O) – about once in 3 months; and rarely (R) - not more than 1 or 2 times per year. The other part of the table asked investors what sources they used for financial information, again rating their frequency on the above scale.
The sources of information and advice listed were: information from broker’s site/Internet discussion site; Internet execution with broker advice (Internet advisory); telephone execution with broker advice (telephone advisory); face- to-face advisory; newspapers /journals; printed literature from share brokers/financial; and information or advice from friends and acquaintances’. The filling in of the table was assisted by the interviewers, who discussed each option with the interviewee, thus gleaning extra details and insights during the process. Then the interview followed. This explored reasons for investing online, or for continuing with traditional forms of investment, as well as in-depth discussion of information sources and their advantages and disadvantages.
Analysis of Data
Interviews were audio-taped, with the permission of the interviewees, and then transcribed for analysis. The gathering, coding and analysis of the qualitative data followed the grounded theory method, originally conceived by Glaser and Strauss, but as outlined by Pidgeon and Henwood. Analysis of data was a continuous process with the initial themes and categories, determined after the first few interviews, being continually reassessed and expanded as more data were collected. The full set of transcripts was read by both researchers. In relying on interpretations from more than one researcher, we were seeking to acknowledge the role of constructivist researchers as the primary instruments in the research process, and to reflect on the effect of our own roles as they influenced the research process.
A small amount of quantitative data was collected, as presented in the information about the sample, above. These data were analysed by the Statistical Package for the Social Sciences (SPSS), with the analysis involving only frequency counts, e.g., the number of participants in each age group or the number who engaged in information seeking (together with the frequency of that activity). In presenting the findings, we have attempted, as far as possible, to allow participants to speak for themselves by using quotations to illustrate the views expressed.
6. Information Seeking by Online Investors in Australia
This section presents the findings of the pilot study. As outlined above, they focus on: the role of information, if any, in investors’ decisions to invest – or not to invest - online; the principal sources of information used by investors, whether investing online, or in traditional mode; the reasons for use of these sources of information; the relationship of these findings to generic theory and empirical research in the field of information-seeking behaviour; and the implications of the findings for regulation. To set the scene, the first section outlines the types of investments in which participants were trading, as elicited in the first part of the table, followed by a discussion about how some of our participants began investing online.
Types of Investments and Investment Modes
While all our investors traded in Australian domestic shares, we found no one who used the Internet to invest in any of the other financial products in our list, although a couple of participants used a broker for these other products. Two of the investors traded very frequently using the Internet, the other online investors traded only frequently. One of the non-Internet investors traded very frequently using a broker, the others frequently. Five of the respondents also used the Internet to transfer funds (e.g., from bank to broker) to support their trading orders, and one of these was a non-online investor. Only one of our investors traded in international investments, and that was in government of New Zealand fixed interest securities and shares of New Zealand companies, the investor in question being originally from New Zealand. Three of the group of online investors also used telephone execution through a broker, either advisory or execution only. This tended to be less frequent than their use of Internet trading, although two of the group used these channels frequently – ie as often as they used Internet trading. Most saw telephone execution only trading as a back-up when the Internet mode was not available. Non-Internet investors used these channels much more heavily, all but one using them frequently or very frequently.
Getting Started with Online Investing
All but one of our online investors began investing with a broker, and then moved to online mode, when they felt able to perform for themselves the advisory services they obtained with broker executed transactions. Very commonly, their first online trading account was with Commonwealth Securities, the online arm of which is known as Commsec. This broker’s site was praised as being easy to use, and reliable. Some investors used what was the Commsec Learning Centre, which provided general securities information and information about the online investing process. Some investors, having cut their teeth with Commsec, then moved on to E-Trade and Sanford Securities when they felt more confident, or needed services such as a live feed of market information. Some, however, including the day trader, remained with Commsec, although he used other brokers as well. Online investors who were middle aged or more, tended to have a career background involving information technology, or had a family member who had helped them gain the early competencies necessary to trade online. The one younger investor, who had not gone through the broker execution transitional stage, had been educated with computers, had an early interest in investing itself, and a parent who encouraged him. All online investors spoke of learning about the process of online investing through using a broker’s site, through doing transactions, and through seeking guidance from telephone support services provided by online sites. One of the onliners actually described the process as one of ‘osmosis’, while others implied that this was what happened. While several investors reported attending courses on the nature of investing and the securities themselves, none reported any formal training on the actual process of online investing. They all more or less learnt by doing, and none reported this as causing great difficulty.
The Role of Information in Investing Behaviour
All of the online investors spoke of spending quite large amounts of time on information seeking. One Internet investor who was a day trader spent the equivalent of each working day doing this. Another of the Internet investors spent up to half a day most working days gathering and considering information. Others reported spending a number of hours a day on this. Except for the day trader whose technical approach to trading was by its nature more opportunistic (but not impulsive), all investors reported following a company for relatively long periods (weeks or months) before investing, though not invariably. Although the non-Internet investors were all open to the idea of using the Internet, some of them cited the expenditure of time involved in making their own investment decisions, as an important reason why they used a broker. In two cases, information played a crucial role in the decision not to invest online, at least at the time the interviews took place. In one case, the participant had invested online in the past. In response to the question of why she did not invest online at the moment, she replied:
It's time really and research.Because I've been very busy doing some otherwork, I've really not had that consistent time to analyse the data.
The other investor had tried out online investing some time ago – and found it fraught with frustrations. She was reluctant to try again as she saw the research provided by her broker as valuable: ‘Well it saves me reading all the bits and pieces’. Nevertheless, both of these participants did quite a lot of their own information seeking, including from brokers’ sites. All the interviewees, regardless of whether they invested online or in traditional mode, used a range of sources for information. These sources are discussed below, using quotes from participants, wherever possible.
Brokers’ Sites and Other Online Information
All participants used online information, even investors who did not execute trades on the Internet. The exception was our investor who was not as yet literate in the online world, who was nevertheless motivated to learn. This confirms the theory, mentioned above: that this is an easily accessible source for those with a home computer, who are also competent users. Mooers’ Law and the ‘Why bother?’ theory clearly do not apply when there is little effort involved in this kind of information seeking. Participants clearly viewed online information very favourably, as indicated by this online investor:
More convenient.Probably more impartial in terms of the information/advice that comes in. You don't have the broker's information sales pitch going on concurrently.The few dogs that we've had from brokers in recent years have sort of been a 'we've got something good for you' sort of thing and take it at face value.You don't have that sort of interruption or sort of misinformation going on when you're online and looking at everything before you have to make up your mind.
All our investors, with one exception, even those who did not invest using the Internet, used brokers’ sites very frequently for information seeking. This source of information was very important to them. As one online investor said about the brokers’ sites he used:
The one investor who was the exception mentioned above, used brokers’ sites occasionally when her children could help her, and was keen to become more proficient. She called a broker for advice very frequently. Some of the investors mentioned obtaining information from broker emails as well as logging onto broker sites. Only two investors obtained advice from a broker and then executed using the Internet, one doing this frequently. The other mentioned the implicit obligation to execute through the broker after having sought advice – and this was what he mostly did.
The other frequently used online source was company web sites, especially for annual reports. Additionally there were particular web sites which participants had found, and about which they were sometimes enthusiastic. For example our day trader informed us:
Newspapers, Journals and Printed Information
All the investors used newspapers and journals very frequently to seek information. In fact, most described reading newspapers carefully each day, as this comment from a traditional investor exemplifies:
The Financial Review was the most frequently mentioned newspaper, with even the day trader, who wanted only factual information, rather than analysis, saying when asked about information from newspapers:
One non-Internet investor had even used newspapers to keep a manual weekly log of movements of the share price of the companies she followed which went back nearly two decades.
All but one participant used printed literature, such as reports from companies, brokers or analysts, very frequently or, in one case, frequently. The findings show that most of the online investors used channels other than the Internet, including printed information, although usually less frequently. This multiple channels approach is even more emphatic in pure information seeking (when a trade was not involved at the time). In some cases, Internet investors used newspapers and broker printed literature, etc., just as frequently as broker sites.
Personal Sources of Information
As discussed, above, personal sources of information, such as family, friends and acquaintances, have been found to be widely used for community information in a range of studies. Our findings provide further confirmation: all our participants talked with others who were also investors - ranging from family members, through flat mates to friends and work colleagues. A few investors described how they trusted and respected the investment prowess of members of their family. A couple of older investors particularly said they discussed investing with children, and specifically the actual process of using the Internet for investing where they relied on their children’s greater familiarity with computers. On the other hand, one of the online investors said:
Several other participants reported discussing investing with work colleagues whom they had discovered shared the interest, and even using down time at work to carry out online transactions while chatting with colleagues. Nevertheless, some participants were quite clear that their trust was limited to one or two people whom they respected as knowledgeable:
Finally, several investors we interviewed acknowledged that information gained from friends and acquaintances was likely to be lacking in a significant respect. Investors are sensitive about talking about losses, and investor friends are also sensitive in probing them about losses. This means that information gained from these informal sources may be skewed in favour of good news and omit bad news. Asked what the reactions of friends were to the losses of the 2000 market crash, one investor echoed the comments of several others:
The findings about the significance of personal sources are reinforced in the next section whichexamines an interesting way in which personal sources were involved in individuals’ investing activities.
Social Inter-Communication and Investment Information Seeking
While we knew of the Shiller and Pound study discussed above, we were not prepared to find the level of social inter-communication in investment information seeking that we encountered from our first interview. As mentioned above, all our investors reported speaking to others about their investing activities. Very few reported using chat rooms or bulletin boards, though some had used them in the run up to the 2000 market crash in tech stocks.
There was quite a variety in how structured the social inter-communication was. It ranged from casual conversations to regular semi-formal meetings in pubs and coffee shops, to more formal discussion groups with a common interest in investing, and on to investor clubs in which members contributed to a common fund to learn from making actual investments. At the most structured, there are associations such as the Australian Shareholders Association which conducts regular meetings with a formal agenda but has an opportunity for socialising afterwards, and the Securities Institute of Australia which has a formal program of securities industry education and training. The Australian Stock Exchange also conducts seminars on issues of current interest to investors, which some of our investors reported attending.
One thing we observed very strongly, is the extent to which many investors see investing as a leisure activity. Online investing allows them much more freedom in the degree to which they can do this at leisure, if they have Internet connection at home. The investor, who did not invest online himself but knew a lot about a range of people who did, commented:
The same investor told us:
The degree to which online investing is seen as a leisure activity is again captured by another of our investors who regularly spoke to his flatmate about investing. This flatmate had no spare cash and was ‘trading without cash, practice trading’ as if it were a computer game. That same investor saw online investing as something he enjoyed saying:
This sense of investing as a hobby or leisure activity segued into the activity of attending informally organised social occasions in which investment trends are discussed and there is commonly a speaker who makes an informal presentation on a topic of current interest. Three of our group of investors had recently, or still did, attend such occasions regularly, and several others reported having heard about them.
Another investor, who is female, reported that the shareholders’ group she belonged to had been going about six years and was mainly male. She said:
Another investor who had actually convened one of these investors’ social groups for a while, described a family group which operated an investment club. She told us how the family:
Again, an investor reported a similar formation in an informal all male investor club:
The investor described this activity as fun, even though the investment club was making a loss and had recently called on all members for a top-up in funds!
Despite this widespread social activity focussing on investment, there was also a variety of views about how influential (in the investor’s own perception), the social inter-communication was on the investor’s own investment decisions. One reaction from the day trader to the idea of investors’ groups was:
Another, from the female member of the mostly male investment group, warned us:
The Analogy with Gambling
In relation to the idea of investment as fun or a leisure activity, a number of our investors spoke about investing using the analogy of betting on the horses. It was in this regard that they recognised the context in which it was most likely that one investor would rely on information given by someone else. One investor told us:
When talking about the info tech boom, the day trader captured succinctly a perception that a number of other investors seemed to hold:
The perception was that investors divide into those who take it very seriously [like himself] and those for whom it is really a leisure activity. The first group may spend many, many hours a week on information seeking and analysis (retired investors we interviewed fit this group as well), others in the second group may act more impulsively. One of our investors even had this perception about himself. Describing what he does when warming up for a trade he said:
Later on he elaborated:
Another investor summed up:
7. Analysis and Regulatory Implications
In this section we draw together the insights from our findings and connect them to the theoretical issues raised earlier in the piece. Mostly, however, we are intent on drawing out the regulatory implications of our findings for online investing as it passes out of the developmental phase. We do this somewhat cautiously because of the pilot nature of this study.
Regulating in a Technologically Neutral Fashion
We think that the degree to which the investors we interviewed moved between the actual and virtual modes, is significant. Due to the novelty of the online mode, much attention has been devoted to it as if it were quite distinct from traditional investing. Certainly the case for a lighter regulatory touch has rested heavily on this view. It is true that the interactivity, immediacy and inter-jurisdictionality of the virtual world intensifies some aspects of investing (eg the attractiveness and ease of taking up investment offers), in a fashion not feasible in the actual world. While we think that it is important to be alert to these differences, we suspect that they are differences of degree rather than quality, and this seems to be the current view of financial regulators as well. We think our findings show that it is important that regulation be neutral as between information seeking and execution modes. It is striking how both online and traditional investors, move between actual and online modes. A number of those who identified themselves as online investors, and did in fact complete numerous transactions online, also reported using traditional investing means. Sometimes they used the online mode for those shares in which they traded frequently, using the traditional advisory mode for parcels they intended to hold. Others reported using the online mode for Australian equities and a broker for international equities or other interests such as in managed funds or superannuation, although all these may be purchased online.
Transiting between the actual and virtual modes is not only done between transactions and types of investments, but also within a single transaction. Two online investors reported occasionally seeking information and advice from a broker, and then wishing to execute the ensuing buy decision through the online mode. One investor felt freer to use the broker’s advice in subsequent online acquisitions, while the other, having obtained broker advice, felt the obligation to use the broker for the execution too.
Much discussion of online investing assumes that the investor both seeks information and executes in the same mode – wholly traditional or wholly online. In fact we observed that all but one of our non-online investors was an active information seeker in the online mode, though they executed trades through a broker. The effects of immediacy and interactivity of Internet information may be somewhat attenuated by having to change modes to contact a broker, and the advisory intervention of the broker. Clearly, the effects of information delivered by the Internet may extend beyond just those who execute online, for example to those who use telephone execution only services.
Related to this crossing between the actual and virtual investing modes, is the use by all investors of many channels of finding investment information. This finding confirms research undertaken in the generic field of information-seeking behaviour, which has found that multiple sources are used for community information seeking, with different people having preferences and abilities to use specific sources.
The novelty here is really the new types of information sources involved, and the fact that investors switch from the actual to the virtual and back. Even prior to the availability of online sources, investors used a number of different avenues for collecting investment information: newspapers, tip sheets, TV and radio investing programs and of course their broker. But as we have already said, we were impressed by the extensive use that non-online investors made of online information sources. We were equally impressed by the fact that even very experienced users of online information sources such as our day trader still read the daily papers with particular care given to the financial pages, magazines and hard copy financial newsletters. This points to the continued usefulness of print sources of information. It also bears out the findings of Hektor’s study of the use of the World Wide Web for ‘market information’ where the Web was not considered a sufficient source and where other sources were used before decisions were made.
The generic literature on information seeking and also the work of Shiller and Pound in financial information seeking suggests that the more formal sources of investment information just discussed are likely to be mingled with use of interpersonal or social information sources. After all that has been written about the use of Internet discussion sites such as chat rooms, bulletin boards and real time relay chat networks, we expected to find that the interpersonal or social dimension of information seeking would be exploited through these electronic forms of community. As we have reported this was not in fact the case, and what we found instead is relatively frequent use of a range of real world social sources, by both online and non-online investors.This emphasises again the ease with which investors move back and forwards between investment information media.
In regulatory terms it is therefore dangerous to think about investment activity in discrete online/off-line categories or to ignore the extent of inter-penetration between on and off-line information sources. It is crucial that regulatory policy and rules remain neutral, particularly as between sources or media of investment information. This is particularly so as not to disadvantage those information sources that have been shown empirically to be more accurate than others. Indeed, there are arguments for particular regulatory support for these, in terms of encouraging investors to use them, at least for checking information gained from other sources. We think that as regulatory policy on online investing moves out of the development phase into permanent form, that the lighter regulatory burden that online modes carry be reconsidered given what we now know about investors’ reliance on a multi-media approach to information seeking.
Promotion of Investor Education – Enrolling Private Actors
The reports of our online investors make it clear that they often start by using the advisory broker as a means to educate themselves about investing, and then swap to the online mode. They seem to do this when they feel sufficiently knowledgeable and experienced to take investment decision making into their own hands. Further in moving to online investing, they tend to begin with broker sites which are more supportive of customers, and then either move on to, or add, other sites that have more advanced services (eg data streaming). This should be seen against the background of the fact that none of our investors had attended any course or other formal training in which they actually learnt about how to do online investing, or about how it works. It suggests that if online sites are well designed they can be useful in investor education as well as providing the online investor function. In other words we do not see facilitating online functionality and providing a safe and instructive environment for investors as being objects at odds with each other. We think the possibilities of enrolling online brokers in the investor education process should be a high regulatory priority in developing investor education programs for the online world.
Research in the field of information-seeking behaviour has shown - over a long period of time and in a range of fields including community information - that personal sources of information are widely used and respected. Our findings are therefore very much in keeping with this major body of research. Given the social constructionist component of our conceptual framework, which encouraged us to focus on the ‘shared meanings’ of participants, it was particularly interesting to find that the sharing of information and opinions was very much fostered by the considerable degree of social interaction in which many participants engaged. We think this is also significant in relation to the shared understanding (or at least capacity to recognise) of online investing as a leisure activity, which we discuss further below.
Shiller and Pound's work tells us that personal contacts are important in triggering an interest in a particular investment, and that was definitely the case with our investors. Many would use a tip from a friend, work colleague or investment group acquaintance to begin a trail of investigation. Further, as with Shiller and Pound’s results, we also found that investors reported influencing others, even if they had not reported being influenced themselves. By contrast with Shiller and Pound’s group of individual investors, where about one third of respondents reported being interested in a stock by a broker, none of our investors really made this point. Of course it is to be expected that in a group of online investors where the medium is by nature non-advisory, that information from brokers personally will have a much lesser role to play, but this was also true of most of our non-online investors. They reported mostly using brokers as a further sounding board for decisions they were in the process of making as a result of becoming interested in a stock through other sources, albeit that these might be on the broker’s firm’s website or financial newsletter. In analysing the role of brokers in the online investing world, the tendency to downgrade their importance in providing advice must be set against the fact that their websites are one of the most important sources of information. This suggests to us a change in the way investors see and use brokers, - from a stance of deference, to seeing brokers as a resource of variable usefulness. Returning to the question of interpersonal communication, while Shiller and Pound's research underlines the importance of interpersonal communication, our results show some of the formations through which that communication occurs, though there is much more research to be done to provide a full picture. Our investors disclose a fairly high level of organisation though of a generally informal variety, within groups of investors. These range from family investing clubs to associations such as the Australian Shareholders Association, all the formations showing a substantial social aspect as well as providing specific locations for group communication between like minded members of the investing community. Of course there are also more atomistic contacts between investors – one to one conversations between individuals. We think that the presence of community groups in investment behaviour is significant for a number of reasons.
First, we think this provides some evidence that there are locations for the formation of group sentiments about investing, that would seem to contradict the more atomistic picture of investment decision making presented in more traditional explanations such as the efficient markets hypothesis. While, like Shiller and Pound, we concede that an exploratory pilot study like ours could not possibly disprove such a well established hypothesis, we think that it suggests questioning in a wider way how investors do actually do seek investment information and make decisions. We think that further investigation here could bear valuable empirical and theoretical fruit, and that policy directions will thereby emerge. In particular we suggest research about the dynamics of community groups where opinion about investment matters may be formed and communicated.
Already however, we think that our findings in this area have important regulatory implications in the area of investor education. We think that the investor groups we have identified could be used productively, in the process of investor education. Some of the groups already set out to improve the knowledge of investors, and there is the possibility that they could be enrolled by the regulator in more general investor education initiatives. Again, how this might be done will require further investigation. Nevertheless we think this is a significant regulatory direction, given the importance of investor education in an investing environment where the advisory role of brokers is diminishing. In particular we think that these investor groups might be used to counteract some of the ‘irrational exuberance’ that has been identified in online retail investor decision making.
In formulating such a regulatory strategy, it will be important to know whether these investor groups are mostly recruiting grounds for investment customers, or whether they are truly disinterested. It will also be important to identify opinion leaders in such groups, who may be powerful influencers of opinion. It will be necessary to be assured of their capacities and willingness to promote a public interest perspective, not only a self regarding one. It may be that such opinion leaders themselves would require education in the most effective ways to educate other investors, and in insights such as the tendency of investors to hide their losses in social interaction, and the influence of that trend in group dynamics.
Continuing Need for Investor Protection
The social or group nature of communication about investing, and its identification as a leisure activity by some of our respondents seem to us to be related observations. Our findings suggest that online investors may identify themselves in segments. First, there are those who consider themselves as ‘serious’, who undertake considerable independent research and verification of information they take away from group settings. Second, there are those who are identified by the former group, and who sometimes self-identify, as more casual and oriented to leisure in their investigations and decision making.
Both groups seem to spend quite a lot of time on online investing, though our findings suggest that the leisure group spends it networking and communicating with others, rather than in the fine grind of information seeking and analysis. We wonder whether this more casual attitude to information seeking is induced by the framing of online investing as a leisure activity, and perhaps akin to online gambling. Shiller has suggested that the involvement and apparent approval of gambling by public institutions may have led to a more risk loving approach to other aspects of life, including investment in the stock market. We wonder further whether the supposed gullibility of online retail investors is partially induced by this casual, leisure-related attitude, perhaps accompanied by insufficient information about the stock market generally.
We also think that there is further justification here for regulatory action that takes online investor education very seriously. If the attitude that online investing is a leisure activity, or even as a form of gambling is prevalent, it means that it will be insufficient to educate investors about the factual aspects of online investing. Education for a change of attitude amongst some investors will be required, and that may be much more difficult to achieve. That it is important cannot be doubted in the context of the additional choice and investing autonomy that current policies on tax preferred retirement income accumulation support. This is especially the case, where there are arrangements which allow retirees access to the corpus of their retirement funds on retirement, rather than making them available through pensions or annuity payments. In this situation, there is a premium on ensuring that investment is taken seriously, and not treated as a leisure activity, especially not one akin to gambling.
A further important regulatory implication is that investors who see online investing as leisure or gambling, are not really the empowered variety of investor that advertising for online sites portrays them as. They are really very vulnerable, because their easily influenced and badly informed stance, opens them to all the additional risks of the online mode that are outlined in the Introduction to this article. For them it is important that investor protection remains an objective of the policy and action of financial regulators. In recent years there has been a trend towards assuming that investors, especially online investors, are an undifferentiated group of knowledgeable and diligent decision makers who need neither a broker, nor regulatory protection. Ensuring investor confidence has become the regulatory watchword, along with framing such individuals as empowered by the technological tools of online investing. Our research shows that this is a correct picture of some investors. But it equally shows how dramatically this is not the case for others. A major task for online investment regulation now is to identify ways to protect those who persist in the more casual approach to investment decision making, while supporting but not impeding those who are in fact careful and capable investors.
Regulatory Warnings About Investment Decision Making in the Online World
Mastery of computer skills is an important determinant of whether an investor will invest online or not. But where this is a given, probably the most important single determinant is the time involved in online investment information seeking and analysis. As our findings show, many of our investors spent considerable portions of the day on this activity. Of those in our sample who did not invest online, the time involved was the leading reason why not. This corresponds with observations elsewhere that the time involved (and by implication the amount of information that must be processed), is just too great for the average investor.  We think this suggests that online investors could profit from warnings that good investment decisions take time, and that professional advice may be warranted where significant time cannot be applied to investing.
To reiterate, the aims of our study are to explore the role of information in investors’ decisions to invest online and to identify the implications of these findings for regulation of online investing. We aim to do this by relating our findings to generic theory and empirical research in the field of information-seeking behaviour. In particular we have addressed what we see as a gap in the financial economics and information disclosure literature, which rarely address how investors seek information. Because online investing is deliberately non-advisory the question of how investors seek information can no longer be dodged by assuming they use a broker.
The results of our study are notable in disclosing the multiple channels of information seeking used by investors. The regulatory implication of this is clear – regulation should be technology neutral so as to foster all information channels. The study also shows the importance of social inter-communication in financial information seeking. This raises questions about the picture of investor decision-making presented by financial economics. No longer can the investor be seen as only motivated by objective information, or the distilled financial wisdom of a broker. Opinion, influence and collective sentiment must also be considered. These emanate from the social actors and groups the investor seeks out or is in contact with. This is a line of inquiry consonant with recent theoretical and empirical developments in the behavioural finance literature discussed earlier.
There are also policy implications from these findings about investor social communication. As we have said, we think such groupings could be explored for investor education possibilities. In particular they may be a location for adjusting attitudes to investing so that it is taken more seriously by those inclined to play with money, rather than invest it.
A related finding is the segmentation of investor types – a varegation from very diligent to dilettante. For regulators we think this implies a renewed attention to investor protection strategies and scepticism about the view that all non-advisory investors are capable and empowered. Finally, we think that warnings should be employed to alert investors about the time required for wise investment decision-making.
Notes and References
 D. Langevoort, 'Angels on the Internet: The Elusive Promise of ‘Technological Disintermediation’ for Unregistered Offerings of Securities” (1998) 2 Journal of Small and Emerging Business Law 1 at 1.
 C. Bradley, ‘Online Financial Information: Law and Technological Change’ (2004) Law & Policy (in press)
B.M. Barber and T. Odean ‘Online Investors: Do the Slow Die First?’ (2002) The Review of Financial Studies 15(2) 455, 455-487; Barber and Odean (2000) 'Trading is Hazardous to your Wealth: The Common Stock Performance of Individual Investors', 55 Journal of Finance 773.
 R. Shiller and J. Pound ‘Survey Evidence on Diffusion of Interest and Information Among Investors’ (1989) Journal of Economic Behaviour and Organisation 12, 47-66. This is now extended to online investing: Barber and Odea (2000), (2002); Barber and Odean (2001) “The Internet and the Investor” 15(1) Journal of Economic Perspectives 41-54.
Office of the NY Attorney General Eliot Spitzer, From Wall Street to Web Street: A Report on the Problems and Promise of the Online Brokerage Industry (22 November 1999) 4.
Spitzer, ibid, ch I and passim; Phillips, 'Avoiding Share Scams in Cyberspace', www.asic.gov.au 20 September 1999, p 6; ASIC (August 2000), Survey of On-Line Trading Sites http://www.asic.gov.au
 ASX, Share Ownership Survey 2002 (5 Feb 2003) at http://www.asx.com.au/shareholder/pdf/sharesurvey050203.pdf
 ABS, Australian Social Trends 'Household Use of Computers and the Internet',
 Phillips, op cit., n. 6, 6.
 Spitzer, op cit, n. 5, 2.
 Op cit note 5, p. 1. Also B. A. Bell, ‘Online Brokerages Under Siege for Trading Outages and Delays’ (April 1999) 2 (11) Wallstreetlawyer.com: Securities in the Electronic Age.
 J. Coffee Jr, ‘Brave New World? The Impact(s) of the Internet on Modern Securities Regulation’ (1997) 52 The Business Lawyer 1195, 1223.
 E. Boros, ‘Corporations Online’ 19 Co & Sec LJ (2001) 492-514.
 The best example of this involved the unlisted Spring Street Brewing Company in the USA, too small for an underwriter and with no market maker in the after-market. It offered its shares directly to investors, creating its own primary market. To create a secondary market for its shares it established Wit-Trade, an electronic bulletin board on its website where shareholders could trade their shares. When the SEC found out about the arrangement it did not shut down Wit-Trade. Instead, it made arrangements that allowed trading without requiring registration as a broker-dealer. Coffee, above n 12, 1215–16.
 E. Boros and ASIC, Multimedia Prospectuses and Other Offer Documents: Issues Paper (December 1999) 5.
 ASIC, Electronic Prospectuses, Policy Statement 107 (10 February 2000); Offers of Securities on the Internet, Policy Statement 141 (March 2000).
 Eg s945A Corporations Act 2001 (Cth).
 Eg s947B(2) Corporations Act 2001 (Cth).
 J. Longo, ‘Cyber Enforcement in the Financial Services Sector’, address to the ACCC’s Global Commerce Conference (9 November 1998) 6, available at <www.asic.gov> (visited 29 August 2003).
 The latter requires advice about suitability of a financial product for the investor, and disclosure about fees and product risk to ensure the adviser’s independence.
 J. Coffee Jr, op cit n 12, 1223
 ASIC, Interim Policy Statement – Exposure Draft, Internet Discussion Sites, IPS 162 (15 August 2000). There has been no further action on this Interim Policy Statement, and it may be that Internet discussion sites will be treated as “mere conduits” under the Financial Services Reform Act 2001as elaborated in ASIC Licensing: The Scope of the Licensing Regime: Financial Product Advice and Dealing, Policy Proposal Paper No 1, April 2001. In either case they are less likely to be required to hold a license.
 E. Boros, op cit., n. 13.
: Spitzer, op cit., n. 5, 187; Unger, Keeping Apace in Cyberspace (SEC,1999).
 R. Jennings, H.Marsh, J.Coffee and J. Seligman Securities Regulation Cases and Materials (Foundation Press, 1998) at 239.
 F. H. Easterbrook and D. R. Fishel, The Economic Structure of Corporate Law (1991) 286-290.
 J. Coffee ‘Market Failure and the Economic Case for a Mandatory Disclosure System’ (1984) 70 Virg Law Rev 717.
J. Gordon and L. Kornhauser ‘Efficient Markets, Costly Information and Securities Research’ (1985) 60 NYUL Rev 76.
 Though more generally see R. Gilson and R. Kraakman ‘The Mechanisms of Market Efficiency’ (1984) 70 Virg Law Rev 549.
 E. Fama, ‘Market Efficiency, long term returns and behavioural finance’ 49 (1998) Journal of Financial Economics 283-306.
 R. Shiller, Market Volatility (1989).
 H. Shefrin, Beyond Greed and Fear – Understanding Behavioural Finance and the Psychology of Investing (2000).
 Eg., M Klausner, ‘Sociological Theory and the Behaviour of Financial Markets’ in The Social Dynamics of Financial Markets, eds. Patricia Adler & Peter Adler (1984); W Baker ‘The Social Structure of a National Securities Market’ (1984) 89 Am J Soc 775.
 D. Langevoort ‘Taming the Animal Spirits of the Stock Market: A Behavioural Approach to Securities Regulation’ (15 April 2002) Berkley Olin Program in Law & Economics, Working Paper Series, Paper 64.
http://repositories.cdlib.org/blewp/art64; ‘Investor Psychology and Securities Regulation: Lessons for the Online World’, paper delivered at CLTA conference, Melbourne, Feb 2002, manuscript on file with author; R. Thompson ‘Securities Regulation in an Electronic Age: the Impact of Cognitive Psychology’ (1997) 75 Wash U LQ 779; S. Bainbridge ‘Mandatory Disclosure: A Behavioural Analysis’ 68 (2000) U Cinn L Rev 1023; and more generally C. Sunstein (ed) Behavioural Law And Economics (2000).
 Langevoort, ibid; Shefrin op cit.n 33; R Shiller, Irrational Exuberance (2000).
 Shiller and Pound, op cit., n. 4.
This has also been observed by others, even amongst institutional investors: J Conley and W O’Barr, “The Culture of Capital: An Anthropological Investigation of Institutional Investment” (1992) 70 North Carolina Law Review 832.
 R. Shiller ‘Rhetoric and Economic Behaviour: Conversation, Information and Herd Behaviour’ (May 1995) The American Economic Review 85(2) and Shiller, op cit., n 4.
 Shiller and Pound, op cit. n 4, 28.
C. Lipsman, The Disadvantaged and Library Effectiveness (1972); E. S. Warner, J. Murray and V. E. Palmour, Information Needs of Urban Residents, Final report from the Regional Planning Council of Baltimore and Westat Inc. of Rockville, MD to the U.S. Department of Health, Education and Welfare, Office of Education, Division of Library Programs under contract No. OEC‑O‑71‑455, ED088464 (1973); C. Handfield and E. Hamilton‑Smith, Libraries and People in Melbourne (1975); Library Council of Victoria and Victorian Council of Social Service, The Weststudy Report, A report to the Minister of Environment, Housing and Community Development on the information and library needs of the citizens of the Western Region of Melbourne (1976); J. Macbeth and D. Hitchens, A Report on Community Information Needs (1977); K. Williamson, Library Use and Information Needs in the City of Ringwood (1978) and K. Williamson, Information seeking by users of a Citizens Advice Bureau (1984).
 C. Chen and P. Hernon, Information Seeking (1982).
 Lipsman, op cit., n. 44; B. Dervin and B. S. Greenberg, ‘The communication environment of the urban poor’ in Current Perspectives in Mass Communication, eds. G. Kline and P. Tichenor (1972) 1; Warner et al, op cit., n. 44; Chen and Harman, op cit., n. 45; and T. Gilling, ‘Think I saw some war’, (1993) The Bulletin, 6 July, 27.
 E. M. Rogers, Diffusion of Innovations(1983) 18-19.
 P. Wilson, Public Knowledge(1977) 40.
 E.g. Rogers, op cit., n. 44.
 M. Sandow-Quirk, Information Seeking in Alfredton and Wendouree West (1983) 6.
 E. Katz, ‘'The two-step flow of information: an up-to-date report on an hypothesis’, (1957) Public Opinion Quarterly 21, Spring, 61-78; cited by Sandow-Quirk, op cit., n. 47, p. 8.
 Warner et al, op cit., n. 41, p. 27.
 K. Williamson, ‘Older adults: Information, communication and telecommunications’,PhD thesis, Melbourne: Department of Social Sciences, RMIT (1995), and K. Williamson, ‘Discovered by chance: The role of incidental information acquisition in an ecological model of information use’, (1998) Library and Information Science Research 20(1), 23-40.
 S. Wade and W. Schramm, ‘The mass media as sources of public affairs, science and health knowledge’, (1969) Public Opinion Quarterly 33, 197‑209.
 C. N. Mooers, ‘“Mooers” Law, or why some information systems are used and others are not’, (1960) American Documentation, 11(3), Editorial, unpaged.
 W. S. Cooper, ‘The “why bother” theory of information usage’, (1978) Journal of Informatics 2(1), 2‑5.
 Ibid, p. 2.
 Ibid. p. 3.
 Williamson (1995), op cit., n. 50.
 Kari, Jarkko and Savolainen ‘Towards a contextual model of information seeking on the Web’, in Working Papers of ISIC 2002 –Information Seeking in Context: The Fourth International Conference on Information Seeking in Context, September 11-13, 2002, Universidade Lusiada, Lisbon, Portugal, pp.488-513.
 Ibid, pp. 489.
 Hektor, Anders ‘Information activities on the Internet in everyday life’. Published in Working Papers of ISIC 2002 – Information Seeking in Context: The Fourth International Conference on Information Seeking in Context, September 11-13, 2002 at Universidade Lusiada, Lisbon, Portugal, pp. 447-459.
 Ibid, p. 450.
 Ibid, p. 451.
 Williamson (1995) and (1998), op cit., n. 50.
 Warner et al, op cit., n. 41 and Chen and Hernon, op cit., n. 42. See also Y.S Lincoln and E.G. Guba, Effective Evaluation (1981) who refer to the multiple realities that arise from the interpretive activities of individuals, in perceiving what is real. Similarly the sense-making theory of B. Dervin ‘Information as a User Construct: the Relevance of Perceived Information Needs to Synthesis and Interpretation’ in Knowledge Structures and Use: Implications for Synthesis and Interpretation, eds. S.A. Ward and L.J. Reed (1993).
 See Lincoln and Guba, op cit., n 63 and other references mentioned there.
 P. L. Berger and T. Luckmann, The Social Construction of Reality: A Treatise in the Sociology of Knowledge (1967).
 T. A. Schwandt, ‘Three epistemological stances for qualitative inquiry: Interpretivism, hermaneutics, and the social constructionism’, in Handbook of qualitative research eds. N.K. Denzin and Y.S. Lincoln (2000) 197.
 A. Bow, ‘Ethnographic Techniques’ in Research Methods for Students, Academics and Professionalsed. K. Williamson(2002) 265-279.
 B. G. Glaser and A. S. Strauss, The Discovery of Grounded Theory (1967).
 N. Pidgeon and K. Henwood, ‘Grounded theory: practical implementation’ in Handbook of qualitative research methods for psychology and the social sciences ed. J. T. Richardson (1993) 86-101.
 Each interviewee signed the informed consent form, required by the relevant Ethics Committee.
 Glaser and Strauss, op cit., n. 68.
 Pidgeon and Henwood, op cit., n. 69.
 C. Marshall and G. B. Rossman, Designing Qualitative Research, 3rd ed. (1999); L. F. Locke, W. W. Spirduso and S. J. Silverman, Proposals That Work,4th ed. (2000).
 Lincoln and Guba 1985, op cit., n. 64; Lincoln & Guba, Effective Evaluation (1981).
Mooers op cit note 52.
Cooper op cit note 53.
 Shiller and Pound op cit note 4.
 C. Bradley, op cit., n. 2.
 J. Segal, ‘Managing the Transition to Cyberworld’ 19(8) Co & Sec LJ (2001) 519-531.
 See Parts III and IV above.
 J. Black, ‘Enrolling Actors in Regulatory Systems: Examples from UK Financial Services Regulation’  Public Law 63-91.
 Shiller, op cit., n.36.
 Though see Barber Odean op cit., n 3, 458-460who suggest that investors who lose money will blame someone or something else, though they will attribute successes to themselves.
 Op cit n 36, pp. 40-42, 207.
 B. Black, “Information Asymmetry: The Internet and Securities Offerings” (1998)2 Journal of Small and Emerging Business Law 91; E. Boros, ‘Corporations Online’ 19 Co & Sec LJ (2001) 492-514.