The Risk Perception as a Mediator Between Herding and Overconfidence on Investment Decision by Gen Z in Indonesia

Lila Maria Kaban, Evita Linata

Abstract


Behavioral finance theory highlights how psychological factors can lead to poor investment decisions, which may threaten investors' trust in the stock market, discourage investments, and hinder economic growth. This study aims to examine how behavioral finance factors, particularly herding bias and overconfidence bias, influence investment decision on the Indonesia Stock Exchange through risk perception. The research was conducted using an online questionnaire distributed to 120 Gen Z stock investors and analyzed using PLS-SEM. The results show that herding and overconfidence biases have a significant positive influence on risk perception. Both herding and overconfidence biases have indirect positive influences on investment decision through risk perception. Although overconfidence bias and risk perception can directly affect investment decision, herding bias fails to do so. These findings highlight the importance of considering an individual's behavioral biases and risk perception, while policymakers should devise strategies to mitigate their impacts; so that investors can benefit from investing, which may eventually lead to the growth of the national economy

Keywords


Behavioral Bias; Financial Psychology; Investment Intention; Perceived Risk; Young Investor

Full Text:

PDF

References


Abideen, Z. U. I., Ahmed, Z., Qiu, H., & Zhao, Y. (2023). Do Behavioral Biases Affect Investors’ Investment Decision Making? Evidence from the Pakistani Equity Market. Risks, 11(6). https://doi.org/10.3390/risks11060109

Abul, S. J. (2019). Factors Influencing Individual Investor Behaviour: Evidence from the Kuwait Stock Exchange. Asian Social Science, 15(3). https://doi.org/10.5539/ass.v15n3p27

Adil, M., Singh, Y., & Ansari, Mohd. S. (2022). How financial literacy moderate the association between behaviour biases and investment decision? Asian Journal of Accounting Research, 7(1), 17–30. https://doi.org/10.1108/AJAR-09-2020-0086

Ahmad, M. (2021). Does underconfidence matter in short-term and long-term investment decisions? Evidence from an emerging market. Management Decision, 59(3), 692–709. https://doi.org/10.1108/MD-07-2019-0972

Ahmed, Z., Rasool, S., Saleem, Q., Khan, M. A., & Kanwal, S. (2022). Mediating Role of Risk Perception Between Behavioral Biases and Investor’s Investment Decisions. SAGE Open, 12(2). https://doi.org/10.1177/21582440221097394

Almansour, B. Y., Elkrghli, S., & Almansour, A. Y. (2023). Behavioral finance factors and investment decisions: A mediating role of risk perception. Cogent Economics and Finance, 11(2). https://doi.org/10.1080/23322039.2023.2239032

Baker, H. K., Kumar, S., Goyal, N., & Gaur, V. (2019). How financial literacy and demographic variables relate to behavioral biases. Managerial Finance, 45(1), 124–146. https://doi.org/10.1108/MF-01-2018-0003

Becker, J.-M., Rai, A., Ringle, C. M., & Völckner, F. (2013). Discovering Unobserved Heterogeneity in Structural Equation Models to Avert Validity Threats. MIS Quarterly, 37(3), 665–694. http://www.jstor.org/stable/43825995

Edward, Y. R., & Kaban, L. M. (2021). The Effect of Transformational Leadership and Competence on Employee Performance with Job Satisfaction as Intervening Variable. Academic Journal of Economic Studies, 6(2), 62–72. https://www.ceeol.com/search/article-detail?id=875899

Hair, J., Hult, G. T., Ringle, C., & Sarstedt, M. (2022). A Primer on Partial Least Squares Structural Equation Modeling (PLS-SEM). SAGE

Hair, J., Risher, J., Sarstedt, M., & Ringle, C. (2019). When to use and how to report the results of PLS-SEM. European Business Review, 31(1), 2–24. https://doi.org/10.1108/EBR-11-2018-0203

Halim, R., & Pamungkas, A. S. (2023). The Influence of Risk Perception, Overconfidence, and Herding Behavior on Investment Decision. International Journal of Application on Economics and Business, 1(1), 521–529. https://doi.org/10.24912/ijaeb.v1i1.521-529

Harsono, N. (2019, February 7). Govt, IDX still hope to attract more to invest in stock market. The Jakarta Post

Henseler, J., Ringle, C. M., & Sarstedt, M. (2015). A new criterion for assessing discriminant validity in variance-based structural equation modeling. Journal of the Academy of Marketing Science, 43(1), 115–135. https://doi.org/10.1007/s11747-014-0403-8

Hossain, T., & Siddiqua, P. (2022). Exploring the influence of behavioral aspects on stock investment decision-making: a study on Bangladeshi individual investors. PSU Research Review. https://doi.org/10.1108/PRR-10-2021-0054

IDN Research Institute. (2023). Indonesia Gen Z Report 2024: Understanding and Uncovering the Behavior, Challenges, and Opportunities

Jain, J. (2020). Evaluation of behavioral biases affecting investment decision making of individual equity investors by fuzzy analytic hierarchy process. Review of Behavioral Finance, 12(3), 297–314. https://doi.org/10.1108/RBF-03-2019-0044

Jaiyeoba, H. B. (2020). Institutional investors vs retail investors: Are psychological biases equally applicable to investor divides in Malaysia? International Journal of Bank Marketing, 38(3), 671–691. https://doi.org/10.1108/IJBM-07-2019-0242

Kartini, K., & Nahda, K. (2021). Behavioral Biases on Investment Decision: A Case Study in Indonesia. Journal of Asian Finance, Economics and Business, 8(3), 1231–1240. https://doi.org/10.13106/jafeb.2021.vol8.no3.1231

KSEI. (2023). Statistik Pasar Modal Indonesia. www.ksei.co.id

Kumar, S., & Goyal, N. (2015). Behavioural biases in investment decision making, a systematic literature review. Qualitative Research in Financial Markets, 7(1), 88–108. https://doi.org/10.1108/QRFM-07-2014-0022

Kumar, S., & Goyal, N. (2016). Evidence on rationality and behavioural biases in investment decision making. Qualitative Research in Financial Markets, 8(4), 270–287. https://doi.org/10.1108/QRFM-05-2016-0016

Madaan, G., & Singh, S. (2019). An analysis of behavioral biases in investment decision-making. International Journal of Financial Research, 10(4), 55–67. https://doi.org/10.5430/ijfr.v10n4p55

Mumaraki, J. N., & Nasieku, T. (2016). Effect of Overconfidence on Individual Investment Decision: Evidence from the Investment Services Sector in Kenya. The International Journal Of Business & Management, 4(10), 254–261. www.theijbm.com

Raut, R. K., Das, N., & Kumar, R. (2018). Extending the Theory of Planned Behaviour: Impact of Past Behavioural Biases on the Investment Decision of Indian Investors. Asian Journal of Business and Accounting, 11(1), 265–291. https://doi.org/10.22452/ajba.vol11no1.9

Ringle, C. M., & Sarstedt, M. (2016). Gain more insight from your PLS-SEM results. Industrial Management & Data Systems, 116(9). https://doi.org/10.1108/IMDS-10-2015-0449

Sabir, S. A., Mohammad, H. Bin, & Shahar, H. B. K. (2019). The Role of Overconfidence and Past Investment Experience in Herding Behaviour with a Moderating Effect of Financial Literacy: Evidence from Pakistan Stock Exchange. Asian Economic and Financial Review, 9(4), 480–490. https://doi.org/10.18488/journal.aefr.2019.94.480.490

Vania, P., & Kaban, L. M. (2022). Analysis of Online Purchase Intention Using Scarcity and Liking as the Persuasion Marketing Strategies. The Opportunity of Digital and Technology Disruption, 291–297. https://ojs.uph.edu/index.php/NCBMA/article/view/5825

Weixiang, S., Qamruzzaman, M., Rui, W., & Kler, R. (2022). An empirical assessment of financial literacy and behavioral biases on investment decision: Fresh evidence from small investor perception. Frontiers in Psychology, 13. https://doi.org/10.3389/fpsyg.2022.977444

Wibowo, M. A., Indrawati, N. K., & Aisjah, S. (2023). The impact of overconfidence and herding bias on stock investment decisions mediated by risk perception. International Journal of Research in Business and Social Science (2147- 4478), 12(5), 174–184. https://doi.org/10.20525/ijrbs.v12i5.2663

Worldometer. (2023). Population of Indonesia (2023 and historical). Worldometer




DOI: https://doi.org/10.18860/mec-j.v8i1.25462

Refbacks

  • There are currently no refbacks.




Editorial Office:
Faculty of Economics,
State Islamic University of Maulana Malik Ibrahim Malang
Gajayana Street 50, Malang-East Java, Indonesia 65144
Phone (+62) 341 558881, Facsimile (+62) 341 558881
e-mail: mecjournal@uin-malang.ac.id

 

 

P-ISSN 2599-3402
E-ISSN 2598-9537

Lisensi Creative Commons

MEC-J is licensed under CC-BY-SA
© All rights reserved 2017.

 

MEC-J INDEXED IN:  

                                  

Member of:

 

View My Stats