"Observational studies must begin with a clear research question, a theoretical framework, and a testable hypothesis"

  "Observational studies must begin with a clear research question, a theoretical framework, and a testable hypothesis", contextualized with a finance-related example:

 Observational Studies in Finance: Key Foundations

1. A Clear Research Question

A research question defines the focus of the study. In observational studies, where researchers do not manipulate variables but observe existing phenomena, clarity in the research question is crucial to define what to measure and analyze.

 Finance Example:

“Does financial literacy influence the investment behavior of retail investors in India?”

Here, we aim to observe how levels of financial literacy correlate with types of investment choices (e.g., mutual funds, stocks, FDs), without manipulating any variables.

 2. A Theoretical Framework

A theoretical framework is the foundation based on existing theories or models that explain the relationships among the variables in the research. It helps interpret findings and guides what to observe and how to analyze it.

 Finance Example (continued):
Use the Theory of Planned Behavior (Ajzen, 1991) or the Behavioral Life-Cycle Hypothesis to explain how attitudes, perceived control, and subjective norms (financial knowledge, peer influence) shape investment decisions.

Theoretical Element

Application in Finance Example

Attitude

Beliefs about risk and returns from different investments

Subjective Norms

Influence of family/friends on investment decisions

Perceived Behavioral Control

Investor confidence driven by financial literacy

 3. A Testable Hypothesis

A hypothesis is a specific, testable prediction derived from the theoretical framework and research question. It defines expected relationships between variables and can be tested using data.

 Finance Example (continued):

·         Null Hypothesis (H₀): Financial literacy has no significant effect on the investment behavior of retail investors.

·         Alternative Hypothesis (H₁): Financial literacy has a significant positive effect on the investment behavior of retail investors.

This can be tested using observational data collected through surveys or financial records, analyzed using correlation or regression analysis.

 Summary with Flow

Component

Finance Example

Research Question

Does financial literacy influence retail investors' behavior?

Theoretical Framework

Theory of Planned Behavior

Testable Hypothesis

H₁: Higher literacy → More diversified & informed investments

 Why This Structure is Crucial in Observational Research:

·         Prevents ambiguity in data collection

·         Links empirical evidence to existing theory

·         Facilitates valid and generalizable conclusions

·         Strengthens publication potential and academic rigor

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