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Effect of Psychological Factors on Investment Decisions of Millennial Investors in an Emerging Country

Author

Listed:
  • Prabarani Palma Pramita
  • Tuning Rahayu
  • Chindira Kusvirgianie Diono
  • Evelyn Hendriana

Abstract

Behavioral finance research has examined the relationship between overconfidence bias and investment decisions. However, it rarely considers the effect of overconfidence bias on the formation of risk perception and risk tolerance, which eventually direct investment decisions. This research aims to examine the simultaneous effect of overconfidence bias, financial literacy, risk perception, and risk tolerance on investment decisions. Quantitative research by collecting data through an online survey was performed to answer the research questions. Data from 245 Indonesian millennial investors were analyzed using PLS-SEM. The findings supported the direct effect of overconfidence bias and financial literacy on investment decisions. The effects of overconfidence bias and financial literacy on investment decisions via risk tolerance and risk perception were also verified, except for the effect of overconfidence bias on risk perception which did not show a significant effect.

Suggested Citation

  • Prabarani Palma Pramita & Tuning Rahayu & Chindira Kusvirgianie Diono & Evelyn Hendriana, 2023. "Effect of Psychological Factors on Investment Decisions of Millennial Investors in an Emerging Country," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 15(11), pages 1-83, November.
    • Handle: RePEc:ibn:ijefaa:v:15:y:2023:i:11:p:83
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    References listed on IDEAS

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    1. Cabeza-Ramírez, L. Javier & Sánchez-Cañizares, Sandra M. & Santos-Roldán, Luna M. & Fuentes-García, Fernando J., 2022. "Impact of the perceived risk in influencers' product recommendations on their followers' purchase attitudes and intention," Technological Forecasting and Social Change, Elsevier, vol. 184(C).
    2. Mustabsar Awais & M. Fahad Laber & Nilofer Rasheed & Aisha Khursheed, 2016. "Impact of Financial Literacy and Investment Experience on Risk Tolerance and Investment Decisions: Empirical Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 73-79.
    3. Ryan Gibson & David Michayluk & Gerhard Van de Venter, 2013. "Financial risk tolerance: An analysis of unexplored factors," Published Paper Series 2013-1, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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