INFLUENCE OF BEHAVIORAL BIASES AND FINANCIAL LITERACY ON INVESTMENT DECISIONS AMONG INDONESIAN STOCK MARKET INVESTORS

• Main Author: Wira Baswara, Bryan
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/85854
• Institution: Institut Teknologi Bandung

The purpose of this study is to investigate the influence of behavioral biases and financial literacy on investment decisions among Indonesian stock market investors. Behavioral biases, including anchoring bias, representativeness bias, loss aversion, overconfidence bias, optimism bias, and herding, are cognitive and emotional factors that can significantly distort investment decision-making processes. Alongside these biases, financial literacy, defined as the knowledge and understanding of financial concepts and risks, plays a crucial role in shaping investor behavior and decision-making. This research adopts a quantitative approach, utilizing the Partial Least Squares Structural Equation Modeling (PLS-SEM) method to analyze data collected from 209 valid respondents who are active investors in the Indonesian stock market. The study's findings reveal that, among the behavioral biases studied, overconfidence bias and financial literacy have a significant and positive impact on investment decisions. In contrast, the other biases such as anchoring, representativeness, loss aversion, optimism, and herding did not exhibit a statistically significant effect on investment decisions. The results underscore the importance of overconfidence bias in the decision-making process of Indonesian investors, suggesting that investors who exhibit high levels of overconfidence are more likely to make bolder investment decisions, potentially leading to higher risk-taking and trading frequency. Financial literacy also emerges as a crucial determinant, with higher levels of financial knowledge and understanding correlating with more informed and rational investment decisions.