this document serves as the basic statistics between the demand gap and the supply gap between electricity causing energy crisis in Pakistan

1. 1
CHAPTER 1
INTRODUCTION
Financial market is a place which helps the buyers and sellers of financial instruments to
meet and to buy/sell those instruments. Thus it strongly supports the allotment of share capital
cross wise in order to become an important ingredient in the productive sectors of the economy.
This allocation of capital helps to keep up strong weather for savings and investment. The
financial system has more dynamic role to play in the economy, than the real system; as it has
always reacted to the needs of the economy to help to complete its goals. In the present financial
system, there are so many investment avenues to choose, today in financial market it has
involved for anyone to decide about these avenues. Some of these investment avenues offer
attractive returns but with high risks, some propose lower returns with very low risks.
1.1. BACKGROUND AND SETTING
In our everyday life we all make decisions which are based on different alternatives
available. Modern society presents us with an increasing number of choices in almost every facet
of our lives. Choice has been shown to enhance people’s sense of self-determination and
motivation to perform tasks, while the increased sense of control associated with choosing leads
to improved psychological and even physical health (Botti and Iyengar 2006). However, growing
literature has reported negative impacts when the number of choices increases since Iyengar and
Lepper’s (2000) paper (Scheibehenne, Greifeneder, & Todd, 2009; Scheibehenne, Greifeneder,
& Todd, 2010). This phenomenon is named as choice overload effect (COE), hypothesizing that

2. 2
when facing too many options regarding decision-making, decision-makers experience cognitive
overload which include choice overload, investment avenues overload, that leads to negative
perceptions in respect of investment choices. (Schwartz, 2004).
Investment inertia is a term used to describe an established company that remains rigid in
its thinking and actions rather than being open to changing industry and company dynamics. It's
easy for company leaders to become complacent when things are going well. Ultimately, inertia
leads to a loss of competitive advantage, trapping businesses in traditional operational patterns
and halting growth. (Kokemuller, Neil. 2017.) When too many choices are available, inertia sets in.
People fail to take action, even on things they want or have agreed to do. This inertia can act as a
barrier to effective financial planning, stopping people from saving and making reasonable allocation
decisions and necessary changes to their portfolios.( Botti, S. and Iyengar, S. 2006)
1.2. IDENTIFICATION OF PROBLEM
Investment inertia is one of the main problems for the economy of Pakistan as it has
offered itself in a number of ways and has affected many different aspects of financial decision-
making. Some of the problems associated with it are more than ninety percent companies are
following the same investment pattern. Out of those companies most of them are working on the
same product line, or are not going for diversification, or family owned companies are expanding
leading to concentration of wealth in few hands and creating status quo. (Zafar, N & Hassan, A.
(2016). Investors who were caught in the market crash are finding it more comfortable to put
their money in the safety of fixed yield investments. People with money to invest have become
frozen in fear from too many investment choices. New investors are intimidated by the

3. 3
complexity of investing and fear having to make a decision. This problem is spurring to several
other problems, one of which is unemployment leading to poor economic growth.
1.3. RESEARCH OBJECTIVE
To identify the factors which lead to Investment Inertia in Pakistan and how to break this
Inertia by identifying new Investment patterns for the Investors.
1.4. RESEARCH QUESTION
The Research Questions addressed in this study are:
What are the factors leading to Investment Inertia in Pakistan.
How can we break the Investment Inertia.
What new Investment patterns can be identified for the Investors in Pakistan.
1.5. SCOPE OF THE STUDY
There are many different type of Investors like angel Investors, pee to peer lending
investors, venture capitalists but this study aims to target only the Personal investors, Institutions
and Foreign Direct Investment. Study will be based on secondary data of different variables
capturing the different aspects and patterns Investment Inertia. In order to conduct this research
annual secondary data was collected. Data period is from 1997 to 2015 (19 years). However due
to data availability constraints, Institutional Investors data for 2006-2015(10 years) could be
collected for conducting this study.
1.6. LIMITATIONS OF THE STUDY
The main Limitations of the study are as follows

4. 4
Only two type of Investors including Private Investors and Institutional Investors
were taken into account.
Out of Institutional Investors, three type of Institutions namely Mutual Funds,
Leasing Companies and Insurance Companies were taken into account due to
time limit constraint
This study is conducted in order to check the Investment Inertia Pattern of
Investors in Pakistan only and this could be another limitation.
1.7. ORGANIZATION OF THE STUDY
This study is organized as follows. Chapter 1 will give an Introduction of the paper,
Chapter 2 will give a detailed Literature Review of the topic, Chapter 3 will talk about the
Methodology used and Data Collection Process. Chapter 4 will give a detailed view of the
Findings of the study followed by Chapter 5 which would include summary, recommendations
and Future Research and the last part will conclude the study .

5. 5
CHAPTER 2
LITERATURE REVIEW
In our everyday life we all make decisions which are based on different alternatives
available. Modern society presents us with an increasing number of choices in almost every facet
of our lives. Individuals, governments and businesses contribute to social wellbeing by
facilitating greater choice. Choice has been shown to enhance people’s sense of self-
determination and motivation to perform tasks, while the increased sense of control associated
with choosing leads to improved psychological and even physical health. Choice can also help
people to be more positive about the decisions they have made (Botti and Iyengar 2006). Choice
in investing is undoubtedly a good thing. Employees who used to depend on company stock
performance or pensions for their retirement savings now have the option to diversify their assets
across many industries, countries and equity styles. (Schulte, E. 2016). They have more control
over the outcome of their investments, and can seek independent advice about how to best grow
their nest eggs. But trying to choose from an ever-expanding list of investment options can
sometimes leave investors at a loss.
Investment inertia is a term used to describe an established company that remains rigid in
its thinking and actions rather than being open to changing industry and company dynamics. It's
easy for company leaders to become complacent when things are going well. Ultimately, inertia
leads to a loss of competitive advantage, trapping businesses in traditional operational patterns
and halting growth. (Kokemuller, Neil. 2017.) When too many choices are available, inertia sets

6. 6
in. People fail to take action, even on things they want or have agreed to do. This inertia can act
as a barrier to effective financial planning, stopping people from saving and making reasonable
allocation decisions and necessary changes to their portfolios.( Botti, S. and Iyengar, S. 2006)
Keeping in mind the importance of both concepts of Choice Overload and Investment
Inertia this study has been conducted to find out how choice overload is effecting Investment
among Investors in Pakistan.
Two kinds of investors are commonly found in the market. Those who are rational
speculators or arbitrageurs trading on the basis of available information and those who trade on
the basis of imperfect information, termed as noise traders (Shleifer and Summers, 1990). Stock
prices tend to deviate from their equilibrium fundamental value when noise trader starts trading
based on imperfect information. Arbitragers, on the other hand, are put liable to stabilize the
prices in market. However arbitrageurs, through their rational decisions, can only dilute the
effect of such shifts in prices instead of eliminating them completely. Theory of limited arbitrage
implies that security prices are not determined merely by information but also by changes in
expectations or sentiments that are not fully justified by information (Shleifer and Summers,
1990).Under and overreaction of investors helps the analysts to forecast the future stock returns
by indicating the regime setting, i.e. a positive information such as earning announcement would
be followed by the overreaction of investors and a series of positive returns (Mulherin, J.H.
(1990). Reversion is the upward or downward adjustment to the early expected prices. After a
series of negative revisions, probability of an upward revision is about one in four however, after
the first upward revision probability becomes one in two. After two upward revisions (after a
series of negative revisions) probability of next positive revision is positive become seven in ten.
Grinblatt, M., Keloharju, M. (2001).

7. 7
Shefrin (2001) finds that in traditional financial concepts, investors are assumed to be
much more concerned about wealth maximization, following basic financial guidelines and
making financial strategies purely on the risk return analysis. On the other hand in practice the
degree of risk investors are willing to undertake is not really the same and relies largely on their
personal perceptions toward risk. A good understanding of behavioral processes and outcomes is
significant for financial planners simply because an understanding of how investors normally
react to market movements.
Thus investors being rational in their decision making are very much aware about
different alternatives and options available and make investment where Value is Maximized as
per the goal of the firm, thus boosting towards the economic progress but this value
maximization is matching with a new concept which is Investment Inertia. Investment inertia is a
term used to describe an established company that remains rigid in its thinking and actions rather
than being open to changing industry and company dynamics
Empirical evidence of inertia also appears in the economic literature. For example,
Madrian and Shea (2001) looked at the reallocation of assets in employees' individual retirement
plans and found a status quo bias resulting from employee procrastination in making or
implementing an optimal savings decision." A related study by Hewitt Associates (a
management consulting firm) found that in 2001, four out of five plan participants did not do any
trading in their retirement plans. Madrian and Shea explain that if the cost of gathering and
evaluating the information needed to make a retirement plan savings decision exceeds the short
run benefit from doing so, individuals will procrastinate." The prediction of Prospect Theory
(Kahneman and Tversky (1979)) that investors tend to hold onto losing stocks too long has also
been observed (Shefrin and Statman (1985).

8. 8
The relationship of investment inertia has been discussed in various papers by different
researchers. For example Hong, L. (2013) while discussing the investment pattern with respect to
Chinese economy found that the positive effect of real estate investment on economic growth is
stronger in short term while in long term turn to be negative. Therefore he stated that housing
investment is an important factor for short-term economy fluctuations and lead to downside risk
in the long term. The effect of real estate investment also relies on the regional economy
development and has periodic characteristics, which is stronger in the eastern region than the mid
west region and the negative enduring impact is strengthened after 2004 (Schwartz, B. (2004).
Furthermore the government expenditure hinders the economy growth and cutting government
expenditure and curbing the wind of extravagance by the new leadership in Finland (Grinblatt,
M., Keloharju, M. (2001).
There has been a positive relationship between domestic and foreign investment on
economic growth and this point and argument has been favored by many researchers. As pointed
out by Zakaria, M (2006) investment is usually directed in sectors that enjoy comparative
advantage, thereby creating economies of scale and linkage effects and hence raising
productivity. Thus according to Zararia M (2006) there are many benefits of Foreign Direct
Investment for any economy and country and among them an important argument is that it
consists of a package of capital, technology management, and market access. For foreign
investment, repayment is required only if investors make profit and when they make profit, they
tend to reinvest their profit rather than remit abroad. Another benefit of foreign investment is a
confidence building effect. While the local economic environment determines the overall degree
of investment confidence in a country, inflows of foreign investment could reinforce the
confidence, thereby contributing to the creation of a virtuous cycle that affects not only local and

9. 9
foreign investment but also foreign trade and production. The inflow of foreign investment into
Pakistan is small and concentrated only to a few sectors. Despite liberalizing its formerly inward-
looking investment regime, significant removal of obstacles to foreign investors, and giving
various incentives, Pakistan’s performance in attracting foreign investment has been lackluster.
Another variable which is causing Investment Inertia among Pakistani Investors is
Investment in Dead Assets and gold is one of them. According to Kamran, A. Israr S & Rizvi S
(2014) gold is considered one of the most precious metals in the world. In Pakistan, gold is also
considered a precious commodity. It is treated as a commodity possessed by the rich. Normally
the gold is used as jewellery. Nowadays, it is being used for investment purpose and industrial
purpose. By looking at the prices of gold we come to know that the demand for gold in Pakistan
is the second highest as compared to other developed and developing nations. Demand for
jewellery is the main driver for the demand of gold. This demand increases specially in the
seasons of festivals and marriages as in Pakistan no wedding ceremony is completed without
gold jewellery. Gold is considered as the most credible way of asset a saving for a rainy day.
Thus investment in Gold is also one of the Investment alternative in which investors are
making investment as because professional across industries have become afraid of the financial
crisis, as demonstrated by scandals at Enron and other major corporations in the early 2000s
which included Worldcom Scandal, Freddie Mac scandal, the Ponzi scheme, and the Lehman
Brothers scam.
According to Mays M (1997) by reviewing the market it has been found that there is
diversity of investment product and diversity of investment motive (that is, of investor types) in
order to support market liquidity. However, if prudential guidelines are too tight for each

10. 10
investor type, then rigid market segmentation arises and the motive to trade dries up, along with
liquidity. On the other hand, if prudential guidelines are too loose and supervisory oversight
insufficient, then the portfolio returns can become unjustifiably volatile and full period losses can
occur. There is clearly a balance to be struck between informed choice and the security of state
guarantee mechanisms.
Thus by looking at the literature review presented above it has been found out that when
lots of choices are prevailing in the economy, there are chances of Inertia among Investors and
this Inertia decreases the productivity of the economy. Among other factors causing Inertia,
decrease in Foreign Direct Investment, Investment by Institutional and Private Investors and
Investment in Gold is perhaps one of the main reasons behind the research questions presented in
our first chapter.

11. 11
CHAPTER 3
DATA AND METHODOLOGY
After going through the Problem Identification, defining the Research Objectives and
Research Questions, data and methodology is discussed in this study. The basic aim is to find out
whether there is Investment Inertia among Investors in Pakistan or not. The statistics has been
gathered from the publications issued by State Bank of Pakistan, ―Financial Statements
Analysis of Companies (Financial) listed on Pakistan Stock Exchange (2006-2011); and
―Balance Sheet Analysis of Joint Stock Companies Listed on Pakistan Stock Exchange
Volume-II (1997-2002) and Volume-III (2003-2006). Information has also been taken from the
“Handbook of Statistics of Pakistan Economy 2015” published by State Bank of Pakistan
3.1- MEASUREMENT OF VARIABLES:
After reviewing and studying different Investment theories and analyzing the Literature Review,
the following measurements have been used
3.1.1. Foreign Direct Investment (FDI):
There are different definitions of Foreign Direct Investment. It is the “investment made to
acquire lasting interest in enterprises, operating outside the economy of the investor”.
Developing economies face large gap between domestic saving and the level of investment and

12. 12
this gap is filled by the inflow of foreign capital called Foreign Direct Investment. There are
numerous authors who have used FDI as the main proxy for Investors. For example there has
been a positive relationship between domestic and foreign investment on economic growth and
this point and argument has been favored by many researchers. As pointed out by Zakaria, M
(2006) investment is usually directed in sectors that enjoy comparative advantage, thereby
creating economies of scale and linkage effects and hence raising productivity.
Data from FDI has been taken from “The handbook of Statistics of Pakistan Economy,
2015” and data for 19 years from 1997-2015 has been taken. This data includes FDI country
wise and FDI by Economic group.
3.1.2. Gross Domestic Product (GDP):
GDP has been defined as the market value of all final goods and services produced
domestically in a single year and is the single most important measure of macroeconomic
performance. It is calculated by adding up Consumption expenditure, Investment Expenditure,
Government Expenditure and the Net of Exports and Imports.
Data from FDI has been taken from “The handbook of Statistics of Pakistan Economy,
2015” and data for 19 years from 1997-2015 has been taken
3.1.3. Institutional Investors:
There are many definitions of Institutional Investors .According to May (2014) The
standard institutional-investor profile falls into one of three types: that of a Leasing company, an
insurance company (both for the general account and specified purpose or unit-linked accounts),
or a mutual fund (or investment trust). The data for these investors were taken from 2006-2015

13. 13
making it a ten years annual data which has been taken from the Balance Sheet Analysis of Joint
Stock Companies Listed on Pakistan Stock Exchange Volume-II (1997-2002) and Volume-III
(2003-2006).
3.1.4. Private Investors:
According to State bank of Pakistan, the Private Investors consist of all those who invest
in the market without the help of any organization and institutions, they fall in investment in
those companies listed in Stock Exchange, and also the Individual investors who are not
Government or Institutional Investors.
3.1.5. Gold prices:
According to Literature it has been found that investors in Pakistan are investing in Gold
ornaments as they consider it less risky source of investment. The data for Gold prices has been
taken from Board of Investment and also from State Banks annual bulletin.
3.2. RESEARCH DESIGN:
After identifying the Research Objectives and variables measurement, the next task is to
define the Research design. This is a very broader concept and it is actually the
operationalization of the data collected. This study is Descriptive in type as it is not based on
any theory but the body of knowledge is known. The data for this study is Secondary in nature
so no Interference is done by either the companies or the investors. This study is Statistical in
its scope as it is not limited, it is on large scale and is focusing towards big population so it is a

14. 14
probability based data. The time horizon for this study is Longitudinal as the data is collected
more than one time for the same work. The approach for this research is Experimental Design
as the time period for some variables were decreased due to unavailability of data and one or
more variable was dropped due to its data unavailability and for this purpose the variables have
been altered or the time period has been altered for some variables.
3.3. METHODOLOGY/RESEARCH TOOLS
Since the data is descriptive in nature and no previous theory has explained the
phenomenon of Investment Inertia so trend analysis has been done to find out the pattern of the
investors with respect investment alternatives. Descriptive statistics are used to describe the basic
features of the data in a study but in this study since we wanted to find out the trend of investors
so with simple graphics analysis, we have managed to form the basis of virtually every
quantitative analysis of data.
3.4. SOURCE OF DATA
The basic aim was to find out investment pattern of different investors and for that
quantitative data was calculated through books, brochures or other sources which are
available.The statistics has been gathered from the publications issued by State Bank of Pakistan,
―Financial Statements Analysis of Companies (Financial) listed on Pakistan Stock Exchange
(2006-2011); and ―Balance Sheet Analysis of Joint Stock Companies Listed on Pakistan Stock
Exchange Volume-II (1997-2002) and Volume-III (2003-2006). Information has also been taken

15. 15
from the “Handbook of Statistics of Pakistan Economy 2015” published by State Bank of
Pakistan

16. 16
CHAPTER 4
FINDINGS & DISCUSSION
This chapter presents the analysis of the data with respect to research objectives and research
question which states whether there is investment inertia prevailing among Pakistani Investors as
shown in their investment pattern or trend. The second objective is to identify those factors
leading towards the creation of this inertia and finally to explain as how to break this inertia by
figuring out different investment avenues available for different investors.
The first section explains the Pakistani Investment pattern by looking at the Investment
trend of investors by comparing Foreign Direct Investment, by investment pattern of institutional
and private investors, and by investment in gold ornaments. There is relationship of domestic and
foreign investment on the economic growth of any economy as shown in literature and is already
explained in the literature review of this paper. Investment is usually directed through different
countries and in different sectors which enjoy complete comparative advantage, by reducing cost
and creating economies of scale. The second section, on the other hand gives an overview of
other necessary factors of Investment Inertia
4.1-EXISTANCE OF INVESTMENT INERTIAAMONG PAKISTANI
INVESTORS
There are many definitions of Investment as far as business is concerned. A much focused
definition is “ the money spent on creating, developing, running or expanding a business with the

17. 17
expectations of future returns” . There are different ways through which the investment pattern
can be checked in support of the research objective and research questions of this paper and
some of them are as follows.
4.1.1 ForeignDirectInvestment and Investment Pattern:
This section reviews the Investment pattern in Pakistan in the form of Foreign Direct
Investment. Foreign direct investment (FDI) is an investment in a business by an investor from
another country for which the foreign investor has stake which includes control or ownership.
Policies of host countries have an important influence on foreign investment decisions. Host
countries can adopt policies of stimulating foreign investment or they can restrict foreign
participation in their economies in various ways. The following table depicts the data on FDI and
its comparison with domestic Investors. The data is taken from the Handbook of Statistics of
Pakistan Economy, 2015 and it covers a period from 1997 to 2016
Year Foreign Direct
Investment as a
percentage of GDP
Domestic Investment
as a Percentage of
GDP
1997 1.1 17.919
1998 0.97 17.711
1999 0.75 15.565
2000 0.64 17.227
2001 0.45 16.996
2002 0.67 16.583
2003 0.96 16.758
2004 0.97 16.578
2005 1.39 19.081
2006 2.57 19.332
2007 3.37 18.787
2008 3.18 19.206
2009 2.21 17.549
2010 1.21 15.805
2011 0.76 14.121

18. 18
The table shows that the inflow of Foreign Direct Investment in Pakistan is very small. In spite
of the fact that the Pakistani Government has liberalized its formally inward looking investment
regime, significant removal of obstacles to foreign investors still it has not been able to attract
investors. By looking at the table we find that the Foreign Direct Investment (as a percentage of
GDP) was 1.1 in 1997 and Domestic Investment as a percentage of GDP was 17.919. this data
started falling till it reached to 0.97 as the percentage of FDI to GDP and 16.578 as the share of
domestic investors in 2004. It rose up to 3.37 in 2007 but has significantly dropped to 0.25 in
2016 showing the decline in the investment trend by the investors and moving toward the
support of having investment inertia in the economy.
2012 0.37 15.076
2013 0.63 14.961
2014 0.7 14.984
2015 0.31 15.118
2016 0.25 15.30

19. 19
Figure 1: Foreign Direct Investment and Investment pattern
This graph shows the relationship and movement of FDI and Investment and confirms the
fact that investment and Foreign Direct Investment increased in 2006-2008 time period due to
liberalization, privatization and deregulation of government and semi-government institutions
but then it gradually declined showing that foreign investors reluctant making investment thus
creating high investment inertia among Pakistani investors.
The major component of the total foreign investment is FDI and In order to find out the
contributories of FDI it is necessary to have information about the flow of FDI country wise and
by Economic group. The following two figures show the flow of FDI country wise and
Economic group wise.
0
5
10
15
20
25
FDI (% of GDP)
Investment(% of
GDP)

20. 20
Figure 2: Foreign Direct Investment by Country
The above figure shows the inflow of FDI from 1997 to 2015. The US and UK have
been the major sources of FDI in Pakistan, although the shares of both US and UK have
fluctuated widely, falling as low as 8.8% for the US and 4.7% for the UK and rising as high as
63.7% and 35.2%, respectively. The share of the US has been, by far, the largest of all the
countries, averaging 32.4% over the last 16 years followed by the UK (12.9%), UAE (11.6%).
It may be noted that China, which has emerged as a major investor globally .As can be seen from
the data attached in annexture, there are only 34 countries of the world which are making and
contributing towards the foreign Direct Investment in Pakistan and as seen, it is found that except
few countries which include the UAE, USA and Middle East countries, there are very few
countries which are investing in Pakistan causing Investment Inertia. There are many reasons
-1000
0
1000
2000
3000
4000
5000
6000
7000
8000

21. 21
behind that but some of them include the uncertainty in the region, the war against terrorism,
poor infrastructure and uncertainty in the Government’s fiscal and monetary policies.
After having examination of the trend and structural pattern of FDI, the next task was to
explore the overall sectoral distribution. This analysis show that there is preferential treatment
given by Government to specific sectors or investor’s preferences to invest in the specific
economic group of any country. The results is shown in the data table (attached in the annexture)
and figure presented below.
Figure 3: Foreign Direct Investment by Economic group
-1000
0
1000
2000
3000
4000
5000
6000
7000
8000

22. 22
There are 36 economic groups which include Foods & Beverages, Cigarettes and
Tobacco, textile, leather, chemicals, petroleum and oil exploration, communication and others
and the result show that the major chunk of the FDI goes to Food and Beverages, Oil & Gas
Exploration, Communication and Financial services which is again showing that in spite of the
fact that the is overloading in the choice regarding investment in different companies or
economic group, the investment is just concentrated in few sectors or companies of the country
showing high investment inertia.
4.1.2- Investment pattern of Institutional Investors and Private
investors:
While reviewing market and market practices, it is found that there are two type of
investors which build up the economy of any country and which include the domestic
Institutional Investors and the Private investors. Both of them play an important role in creating
the diversity of investment motives and investment products. The Institutional Investors profile
falls into one of three types; that of a pension fund, an insurance company, and a mutual fund
investors. The data period is of 10 years that is from 2006-15 keeping in fact the unavailability of
the data of the institutional investors before 2006. The pattern or trend of the institutional
investors with the private investors is shown below

23. 23
Figure 4: Investment Pattern of Institutional Investors and Private Investors
As can be seen from the above graph, there is downwards movement of Investment
pattern in Mutual funds, Leasing Companies, Private Investors and total investment. Thus we can
state that it is only the insurance company sector which is moving ahead. The most consistent
difference between these generic types of institutional investors, is the length of their liabilities
and their resulting demand for bonds of a specific maturity. The Insurance companies have long-
dated liabilities, therefore the amount of investment in these companies is increasing or shows an
upward trend. While on the other hand, pension funds, mutual funds and private investors
investment trend show a continuous decline in the investment pattern
.
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total
Investment
Mutual Fund
Leasing
companies
Insurance
companies
Private
Investors

24. 24
4.1.3: Investment Pattern in Gold:
Gold is considered one of the most precious metals in the world. In Pakistan, gold is also
considered a precious commodity. It is treated as a commodity possessed by the rich. Normally
the gold is used as jewellery. It can also be used for investment purpose and industrial purpose.
The following graph illustrate the price of gold which is increasing due to increase in demand.
One of the reasons for increase in demand is to spend savings by buying Gold coins and Gold
Jewellery.
Figure 5: Investment pattern in Gold
As seen in the graph below, the trend of investment in gold is increasing with the passage of time
showing investment inertia in the economy.
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
Total Investment
Population
Gold prices

25. 25
4.2. OTHER FACTORS LEADING TO INVESTMENT INERTIA:
Investor inertia is a common experience and is well documented. The New
York Stock Exchange (NYSE)'s survey of individual share ownership in the United States,
Shareownership2000" demonstrates that many investors have very low levels of trading activity.
For example they find that “23 percent of stockholders with brokerage accounts report no
trading at all, while 35 percent report trading only once or twice in the last year"
One of the main factor which hinders investment thus causing investment inertia is the
investment climate in Pakistan. Other factors which are hindering towards investments include:
Economic, political, and social stability
Rules regarding entry and operations
Policies on functioning and structure of markets (especially policies governing mergers
and acquisitions)
International agreements on FDI
Privatization policy
Tax policy
Market size and per capita income
Market Growth
Access to regional and global markets
Technological, innovative and other created assets (e.g. brand names),
Physical infrastructure (ports, roads, power, telecom)

26. 26
Investment promotion (including image-building and investment generating activities and
investment-facilitation services)
Investment incentives
(Source: Khan and Kim (1999)

27. 27
CONCLUSION
This study was conducted to find out the factors contributing towards Investment
Inertia among Pakistani Investors in spite of the fact that there is choice overload for
them regarding different investment options. The professionals across industries and
companies have been one of the reasons behind the economic crisis which have resulted
in the demolishing of many giants from the world. There have been scandals at Enron and
other major corporations in the early 2000s which included Worldcom Scandal, Freddie
Mac scandal, the Ponzi scheme, and the Lehman Brothers scam due to which investors
have become reluctant in taking risk and making investment in industries leading to
Inertia.
Investors are prone to many behavioral mistakes that can cost them very hard.
some of them could be: Trying to time the market, trying to pick the winners, chasing
returns, trying to go it alone are among the most common. But the one that can inflict the
most damage over a period of time is when they relate to investment inertia. The causes
of investing inertia are mostly rooted in emotional behaviors with fear being the most
prevalent one like fear of market crash, complexity of investing.
In order to find out the presence of Inertia, secondary data was taken from State
Bank of Pakistan’s “Handbook of Statistics of Pakistan Economy 2015”. The Investment
pattern of Investors was found by looking at the Investment trend in Foreign Direct
Investment, by investment pattern of institutional and private investors, and by
investment in gold ornaments. There is relationship of domestic and foreign investment

28. 28
on the economic growth of any economy as shown in literature and is already explained
in the literature review of this paper. Investment is usually directed through different
countries and in different sectors which enjoy complete comparative advantage, by
reducing cost and creating economies of scale. It was found out that Investors are having
a negative trend of making investment in non-productive assets like gold and real estate
as compared to investing in those assets which generate economic revenue.
The major findings of this research are:
Investors in Pakistan are making more investment in Gold as its price is continuously
increasing showing inflation and increase in demand which is a dead investment
leading to Inertia in the Economy.
More than 90% of companies are following the same investment pattern with the
result that the FDI is low.
Most of companies working on same product line they do not go for diversification
with the result that they are not attracting more investment leading to Investment
Inertia.

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DIRECTION FOR FUTURE
RESEARCH
This study was conducted to find out the pattern of investment inertia among investors in
Pakistan and through secondary data and through descriptive statistics it was found that
Inertia exist and there are some factors which lead to this inertia. However the following
recommendations could be made for future research to take place.
A new framework/model needs to be designed through primary exploration and
through primary data collection to refine this study further.
This study was conducted only with reference to investors in Pakistan. Investors
from other countries could be taken into account also for further research and a
cross investor comparison could be made.
The data from some variables (out of which Investment in Real Estate is one) was
not available due to which this variable was dropped. If data regarding Investment
in Real Estates is made available, it can further enhance the topic.
This analysis was conducted taking only few years. If time period is extended,
much fruitful results can be obtained.

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