The effects of behavioral biases on investment decisions of Filipino millennials and generation Z: Moderating role of financial literacy

• Main Authors: Ang, Liezl Katherine C., Masanque, Jean Ashley A., Nacario, Johannah Mae C., Paguntalan, Renna Mae M.
• Format: text
• Language: English
• Published: Animo Repository 2023
• Subjects: Generation Y—Philippines—Finance, Personal; Generation Z—Philippines—Finance, Personal; Financial literacy—Philippines; Behavioral Economics; Finance
• Online Access: https://animorepository.dlsu.edu.ph/etdb_finman/68; https://animorepository.dlsu.edu.ph/context/etdb_finman/article/1079/viewcontent/The_effects_of_behavioral_biases_on_investment_decisions_of_Filip.pdf
• Institution: De La Salle University

When making investment decisions, investors evaluate and weigh all the information they have gathered. Their financial decisions are influenced by their financial literacy and their ability to assimilate new information. However, investors may filter certain information based on their personal beliefs and preferences resulting in behavioral biases. Previous studies examining the impact of behavioral biases on investment decisions were conducted in other demographic settings. This paper focuses on analyzing the effects of behavioral biases (Overconfidence, Herding, Disposition Effect, and Risk Aversion) on the investment decisions of Filipino Millennials and Generation Z. Primary data were acquired from 390 Filipino retail investors, residing in the National Capital Region (NCR), Philippines. Hierarchical regression was utilized to analyze the collected data. This assessed the relationship between the behavioral biases and investment decisions, and examined the moderating role of financial literacy. The results of the study revealed that among Millennial investors, overconfidence, herding, disposition effect, and risk aversion have a significant impact on their investment decisions. Among Generation Z investors, overconfidence, herding, and disposition effect have a significant impact on investment decisions. However, there was no significant improvement in Generation Z's investment decisions when risk aversion was added to the model. The researchers found that financial literacy moderates the effect of overconfidence, herding, and risk aversion on investment decisions of Millennials, while financial literacy does not moderate the relationship between disposition effect and investment decisions. In comparison, the moderating effect of financial literacy is found to be statistically insignificant among Generation Z.