Investor Behavioral Biases in Investment Decision-Making: A Study on The Novice Stock Investors
Abstract
Objectives: The aim of this study was to investigate the influence of overconfidence, disposition effect, herding effect and home bias on the process of making investment decisions in stocks, and to account for the moderating effect of financial literacy.Methodology: The study was carried out on 100 investors in the Investor Saham Pemula (ISP) community who are beginner investors in stocks. Questionnaire, interview and documentation were used to gather data. Moderated Regression Analysis (MRA) was used for data analysis.Findings: Overconfidence and home bias had significant effects on investment decision making; there was no significant effect on Disposition Effect and herding effect. Financial literacy significantly moderated the influence of Disposition Effect on investment decisions at 10%, whereas it did not significantly moderate the influence of other factors namely overconfidence, herd effect, and home bias.Conclusion: psychological factors and financial literacy are key determinants in investor behavior and decision-making. The study underscores the importance of continuous investor education and guidance to assist in addressing behavioral biases on the part of the novice investors and making rational and more data-driven investment decisions for long-term returns.