How Heuristics and Herding Behaviour Biases Impacting Stock Investment Decisions with Financial Literacy as Moderating Variable

Wijaya, Rita and Sembel, Roy and Malau, Melinda (2023) How Heuristics and Herding Behaviour Biases Impacting Stock Investment Decisions with Financial Literacy as Moderating Variable. South East Asia Journal of Contemporary Business, Economics and Law, 29 (1). pp. 6-12. ISSN 2289-1560

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Abstract

This study aims to analyze how heuristics and herding behavior are influencing the investment decisions of individual investors in Indonesia. In the face of global uncertainty, it will be hard for investors to remain rational. When making stock market investments, many investors are driven by their emotions and biases. These behaviors might lead to losses due to a lack of proper analysis before investing. There has been a significant increase in the participation of investors, but the level of financial literacy is still low. Research on behavioral biases in investment decisions has been conducted, yet there's little literature on financial literacy as a moderating factor. Recent research has demonstrated that investors do not make perfectly rational financial decisions because they are subject to behavioral biases. This study focused on the impact of two independent variables, namely heuristic and herding bias variables, on one dependent variable, stock investment decisions, while considering financial literacy as a moderating variable. The main data gathering method was used to evaluate the proposed hypothesis. The PLS-SEM analysis approach was used to collect data from 118 participants using a structured questionnaire. The impact of the heuristic and herding variables on stock investment decisions had a positive and significant influence. However, the relationship between heuristics and herding variables in Indonesian individual investors' stock investment decisions was not weakened by financial literacy as a moderator. The significant growth of investors in the capital stock market might not give sufficient time for financial literacy to weaken behavioral biases. Investors’ self-perception of financial literacy might not be as knowledgeable as their knowledge. The study's conclusions will assist investors in making logical, trustworthy, and profitable decisions, as well as policymakers, company owners, and other stock exchange stakeholders. Keywords: Behavioral Finance Biases, Financial Literacy, Individual Investors, Stock Investment Decision

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