International Journal of Business and Economy (IJBEC) eISSN: 2682-8359 | Vol. 4 No. 3 [September 2022]
Journal website: http://myjms.mohe.gov.my/index.php/ijbec
THE INFLUENCE OF HERDING BIAS AND
OVERCONFIDENCE ON INVESTMENT DECISION FOR INSTITUT TEKNOLOGI BANDUNG STUDENTS WITH FINANCIAL LITERACY AS MODERATING VARIABLE
Ardhika Nur Pratama1*
1 School of Business and Management, Institute Teknologi Bandung, Bandung, INDONESIA
*Corresponding author: [email protected]
Article Information:
Article history:
Received date : 11 August 2022 Revised date : 25 August 2022 Accepted date : 1 September 2022 Published date : 10 September 2022
To cite this document:
Pratama, A. N. (2022).THE INFLUENCE OF HERDING BIAS AND OVERCONFIDENCE ON INVESTMENT DECISION FOR INSTITUT TEKNOLOGI BANDUNG STUDENTS WITH FINANCIAL LITERACY AS MODERATING VARIABLE. International Journal of Business and Economy, 4(3), 215-229.
Abstract: Nowadays, the disruption of technology forces the development of investment world. The need for investment is increasing so they can get more additional income from capital market. From KSEI report in June 2022, there huge increasement for total investor in Indonesia. Most of them are high school diploma for the education background and students placed the second place for the investor occupation. Since the investing are a part from financial literacy, this creates assumption for all investor that they have medium to high financial literacy. But from the report from OJK in 2019, the current financial literacy index in Indonesia is still 38%.
The gap between increasement number of total investor and financial literacy index create question among them, are the investor in Indonesia make rational investment decision among them or they only follow the hype of investment world because sometimes when people make decision to choose something they are influence by some biases. The example of current biases that usually occurs in investment decision are herding bias and overconfidence bias. This research aims the influence of herding bias and overconfidence towards students investor in Institut Teknologi Bandung with financial literacy as moderate variable to know is there an effect from financial literacy to the herding bias and overconfidence if they have those biases. This research conducted with non-probability sampling with 401 respondent and use moderate regression analysis (MRA) as data analysis method for the financial literacy as moderating variable and age, gender, faculty, monthly income, duration of investment as control variable. The result of this research explain that overconfidence and
1. Introduction
In present condition, financial literacy is the important thing to manage our money or asset that we have and there is some increasement in the market participation because of people become more interest in the financial market that promoted as well by the growth number of financial institutions. Financial literacy itself define the knowledge of various financial skills such as financial management, budgeting and investing (Fernancdo, 2021). It can help people to manage what the next to do for their money they waste it to something that does not important.
If people have knowledge about the financial literacy, they can wise to spend their money and save it for the next. The Indonesian Financial Services Authority conduct a survey in 2013 and found 21.84% were financially literate, possessed knowledge, and trusted in the financial services sector. According to the OJK (Otoritas Jasa Keuangan) survey in 2019, there is improvement to the financial literacy in Indonesia. In 2019, the percentage of the financial literacy index in Indonesia reach 38,03%, raise 8,33% from 2016 (OJK, 2020). From this survey there is little increasement from the financial literacy in Indonesia, especially in the capital market, there is only 4,92% in 2019.
As many people register the investor account for invest in the capital market, they should have to decide to what kind of instrument they will entry. According to the Tanvir, Sufyan and Ahsan (2016), investor decision from their investment is one of several aspect in the investment that is important in the stock exchange investment. And for investment decision, investor has several aspects that can affect the decision, intentionally or unintentionally, emotion can influence investor rationally. In the research, Kahneman and Tversky (1979) explain prospect theory which is related to the idea that humans do not always behave rationally. The involvement of emotions, preferences, traits and various kinds of things inherent in humans often causes humans to not always behave rationally in making decisions. Cognitive and emotional variables influence an investor's investing decision, per Alwahaibi (2019). A rational investor chooses a low-risk, high-return investment while investing. An investor's irrational conduct affects their investing decision while making a choice. This type of investor behavior might lead to portfolio losses rather than profits. Pompian (2006) divides bias into cognitive and emotional that cognitive bias defines as a bias of how we interpret, process, and respond on information while emotional bias focuses on feelings and spontaneity instead of facts.
Overconfidence is an example of cognitive bias and cause the main factor for influencing the decision to invest in a Ponzi scheme (Sari & Nugraha, 2016). Besides the overconfidence bias can influence the investor decision making, herding bias can also affect the decision making for the investor that can lead into investment loss. They pretend to follow other investor investment plan, such as friends, family, or even unknown source from the internet without consider other aspects. The herding bias and overconfidence can have different impact on the investment decision, investor who has herding behavior can use other information as additional herding bias have positive effect for student investment decision. And for the moderating variable, financial literacy does not have significant influence to the herding bias and overconfidence towards the student investment decision.
Keywords: Investment Decision, Herding Bias, Overconfidence, Financial Literacy.
judgement decision rather than follow it without any other decision. And for those two behavior can lead the investor to get more profit or cause more loss.
2. Literature Review Investment Decision
Investment decisions involve obtaining greater revenue from one or more assets in the hope of a future profit. It helps choose alternate investments. Demographics, economic background, social background, gender, and age influence investors' judgments (Novianggie &
Asandimitra, 2019).
Financial Literacy
Financial literacy is the knowledge and ability to understand financial concepts to make financial decisions (OECD, 2013). The investment decision include in this financial decision and for people who have financial literate, it is easier for them to choose whether the best choice for them to invest by using their knowledge to analyze the information about investment instrument (Wardani & Lutfi, 2019).
Herding Bias
Herding bias is the propensity for an investor to follow the investment plan recommendations of a friend, family member, or broker when opting to make an investment. Individual investors are now required to have a solid basis for their investing decisions in order to use them as a point of reference (Qasim et al., 2019). According to the findings of Ghalandari and Ghahremanpour (2013), herding bias has a favorable impact on investment decisions. This study found that the herding bias influences Iranian investors' investment decisions. In addition, they discovered that these investors rely more on the broker's pooled information. Setiawan, Atahau and Robiyanto (2018) found, in contrast, that herding bias has no impact on investment decisions.
Overconfidence
Overconfidence refers to an investor's excessive confidence; as a result, they tend to be overly optimistic about the market in which they invest, anticipating a massive return on their investment and achieving great success. They believe their abilities, knowledge and expectation will gain huge result (Novianggie & Asandimitra, 2019). These investors are overconfident in their skills, knowledge, and future prospects, causing them to trade excessively at a lower level of predicted usefulness. Self-attribution biases support the notion that investors who have a high level of confidence in their trading abilities tend to engage in a high volume of trading, which has a detrimental impact on their returns and is supported by their high trading volume. According to the research conducted by Novianggie and Asandimitra (2019), student investing decisions are correlated with their level of overconfidence. The explanation is that the respondent's response is overly influenced by their own intuition regarding the investment they made. This research connects to Toma's (2015) study, which demonstrated that an investor's level of overconfidence influences the probability of making an investment decision; the more their level of overconfidence, the greater their chances of making an investment decision. Alquraan, Alqisie and Al Shorafa (2016); Khalid, Javed and Shahzad (2018); Qasim et al., (2019) found that overconfidence had a beneficial impact on investing decisions. Ayu Wulandari and Iramani (2014) found that overconfident
behavior has a negative effect on investment decisions. And investors with a high level of financial literacy can influence investing decisions due to their superior knowledge Hayat (2016).
Financial Literacy Moderate Herding Bias and Overconfidence
Hayat (2016) studied Karachi and Islamabad investors' investment decisions. The investigation showed that investors have an inadequate comprehension of financial fundamentals. Financial knowledge cannot moderate the association between herding prejudice and investment decisions. The study found that investors will always follow the herd if their investments continually deliver profits. As a result of this research, investors believe public information is more profitable than they wish and will continue to base future investment decisions on this perception. The investor feels brokers have more reliable information. This result is consistent with the findings from Khalid, Javed and Shahzad (2018) studies, they found that financial literacy cannot attenuate the association between overconfidence and investing decisions.
Higher-skilled investors are more interested in technical and fundamental assessments, the survey found. Knowledgeable investors get greater financial releases. Those with inadequate financial expertise rely on instincts while investing.
2.1 Problem Statement
With the rapid development of the investment world, the need for investment is increasing in general, they assume that when investing, they will get additional income. This makes the role of financial literacy very important, especially in understanding investment products. By having adequate knowledge of finance, it is hoped that the public, especially investors, will be able to make an investment decision that is right in line with expectations, namely getting additional income. Based on the background above, the huge increasement of investor make a huge gap between the financial literacy index and the investor total number in Indonesia. Since the investment is one of the aspects in the financial literacy, are the investor make rational decision when they invest in the capital market and is there are have a significant impact from the herding bias and overconfidence to their investment decision. Moreover, since investing include in the personal financial knowledge, this will create question among them. Is there any influence of financial literacy to the herding bias and overconfidence in the student investment decision. With the investor occupation second largest is the student, this will create a unique question among them. Are the students who invest in the capital market do the rational decision and do the financial literacy that they have can moderate the bias effect among them?
3. Method
Firstly, the researcher identified problems connected with financial literacy and investment decision making. This will include the research question, study purpose, and scope limitation for the problem identification. The researcher will then conduct a literature search for prior studies on the same issue. From the literature review, researchers establish the prior study's hypotheses and conceptual frameworks. In data collecting, the researcher will develop a quantitative research approach and methodology beginning with data gathering technology, respondents, questionnaire, and data analysis method. After that, the researcher will collect data and analyze the data previously gathered via questionnaire. After collecting all of the data, the sample of undergraduate students in the Bandung region will be evaluated using the Moderate Regression Analysis (MRA). This research will conclude and make suggestions based on its findings at the final stage.
3.1 Materials
For the purpose of this study, a quantitative approach is used to measure the effect of financial literacy on herding bias and overconfidence in student investment decisions. Using a structured questionnaire, the researcher collects primary data for this study by distributing questionnaires.
For the purpose of collecting data without having participants answer several questions concerning the current research topic, the survey method is employed (Connaway, 2010).
3.1.1 Samples
On this research, author uses a non-probability sampling method since not all demographic groups have the same probability of being selected as respondents. Non-probability sampling is a sample method in which not all people or population members can be picked as samples.
Respondents for this study must be undergraduate students at Bandung Institute of Technology, between the ages of 18 and 23, as the minimum age for investing in the capital market in Indonesia is 17 years old, and must have previously invested in any instrument.
3.1.2 Site
This research employs non-probability sampling because not all students in all faculties have previously been invested.
3.1.3 Procedures Design
The variables involved in this study are an independent variable, a moderate variable, and a dependent variable. The independent variable, according to Sugiyono (2018), is the variable that causes the dependent variable to emerge or change. The independent variable also influences the dependent variable; the symbol for the independent variable is (X).
Consequently, the dependent variable is the variable affected by the independent variable; the dependent variable is represented by the symbol (Y). In this study, the independent variables are Herding Bias (X1) and Overconfidence (X2), while the moderate variable is Financial Literacy (FL).
Variables
Four sections comprise the questionnaire: personal information, financial literacy, emotional bias, and investment decision. In the first section devoted to personal information, the researcher collects data on the respondent's age, gender, faculty, income, investment term, and investment instrument.
Sample
The population for this sample is undergraduate students from Bandung Institute of Technology in 2022 with current amount of 23.848 students. To determine the sample size, this research use Slovin Formula with 5% margin error because the data will be categorical not continuous data that 5% margin error is acceptable (Hashim, 2010). The minimum sample size that requires for this research from calculating using Slovin Formula is 379 samples.
3.2 Measurement
This survey uses primary data that collected using surveys and uses Google Forms as a tool to collect all the information about respondents' data. In this research, Likert scale 1-5 will be used for collecting the information about the emotional bias. The Likert scale is a type of scale used by researchers to measure research attitudes. Positive and negative statements are most commonly found on the Likert scale. Positive statements are used to measure positive perceptions, and negative statements are used to measure negative perceptions. Researchers used a Likert scale of 1 to 5 ranging from 1 = very disagreeable to 5 = very agreeable. The questionnaire element uses Indonesian because the investigator distributed the questionnaire to respondents who use Indonesian as their primary language. Researchers used online messaging, social media, and email to distribute surveys.
3.3 Data Analysis Descriptive Analysis
This study applies descriptive analysis, which interprets and explains data gathered from a representative sample of respondents. According to research from Malhotra et al. (2016), descriptive analysis will reveal missing or outlier data, as well as a discrepancy between the means and standard deviations of variables measured on a five-point Likert scale. In addition, descriptive statistics can be used to verify that the obtained data do not violate the skewness or kurtosis assumptions, and that the mean and standard deviation fall within the predicted ranges.
In other ways, they will provide an outstanding summary of the sample's features. Statistics include measurements of position (mean, mode, and median), variance (radius, interquartile range, variance, standard deviation, and variation coefficient), and shape (skewness and kurtosis). This type of analysis will be applied to clarify the author's collected data.
Moderate Regression Analysis (MRA)
This research will use Moderate Regression Analysis (MRA) to identify the type of moderating variable. Use predictors in this investigation (herding bias and overconfidence). The interaction test is utilized to assess the impact of the moderating variable on the relationship between the independent and dependent variables. It is necessary to compare the two regression equations in order to determine the type of moderating variable (Novianggie & Asandimitra, 2019).
Reliability and Validity Test
The validity test is used to determine whether a questionnaire is valid. When the questions or statements on a questionnaire are able to reveal something that will be measured by the questionnaire, we say that the questionnaire is valid. The statement questionnaire is deemed valid if rcount is greater than rtable (Ghozali, 2018). The questionnaire is deemed valid if the reproducibility coefficient is greater than 0.90 and the scalability coefficient is greater than 0.60. (Abdi & Rianse, 2008). Using SPSS 24, examine the validity of statements using a Likert scale. The statement questionnaire is deemed valid if rcount is greater than rtable (Ghozali, 2018).
The reliability test of a questionnaire is said to be reliable or reliable if a person's answer to the statement is consistent or stable from time to time (Ghozali, 2018). The reliability test for financial literacy uses the Kurder Richardson (KR) 20 formula because the score obtained is a dichotomy score of 1 (one) and 0 (zero) (Abdi & Rianse, 2008). The reliability test for the
statement questionnaire was measured using the SPSS 24 program. SPSS provides facilities to measure reliability with the Cronbach Alpha statistical test (lambing alpha). A variable is said to be reliable if it gives a Cronbach Alpha value > 0.70 (Ghozali, 2018). The reliability test for the statement questionnaire was measured using the SPSS 24 program. SPSS provides facilities to measure reliability with the Cronbach Alpha statistical test (lambing alpha). A variable is said to be reliable if it gives a Cronbach Alpha value > 0.70 (Ghozali, 2018).
Normality Test
The normality test aims to test whether in the regression model, the confounding or residual variables have a normal distribution. There are 2 (two) ways that can be used to detect whether the residuals are normally distributed or not, namely by graphical analysis and statistical tests (Ghozali, 2018). The statistical test used in this study was the Kolmogorov-Smirnov test. If the significance > 0.05 then the data is normally distributed, otherwise if the significance is < 0.05 then the data is not normally distributed.
Multicollinearity Test
The multicollinearity test aims to test whether the regression model found a correlation between the independent (independent) variables (Ghozali, 2018). Multicollinearity needs to be proven and analyzed statistically by calculating VIF (Variance Inflation Factor). If the tolerance value is > 0.10 and VIF < 10, it means that there is no multicollinearity and if the tolerance value is
< 0.10 and VIF > 10, it means that there is multicollinearity.
Heteroscedasticity Test
The heteroscedasticity test aims to test whether in the regression model there is an inequality of variance from the residuals of one observation to another observation (Ghozali, 2018). This study uses the Glejser test with the consequence that if the significance value is > 0.05 then the data does not contain heteroscedasticity and if the significance value is <0.05 then it contains heteroscedasticity.
To examine the relationship between the independent variable, the dependent variable, the control variable, and the moderating variable, a moderate regression analysis (MRA) was employed for this research. The utilized regression model is as follows:
𝐼𝐷 = 𝛼 + 𝛽1𝐹𝐿 + 𝛽2𝐻𝐵 + 𝛽3𝑂𝐶 + 𝛽4𝐹𝐿. 𝐻𝐵 + 𝛽5𝐹𝐿. 𝑂𝐶 + 𝛽6𝐴𝑔𝑒 + 𝛽7𝐺𝑒𝑛𝑑𝑒𝑟 + 𝛽8𝐹𝑎𝑐𝑢𝑙𝑡𝑦 + 𝛽9𝑀𝑜𝑛𝑡ℎ𝑙𝑦𝐼𝑛𝑐𝑜𝑚𝑒 + 𝛽10𝑇𝐼 + 𝛽11𝐷𝐼 + 𝑒
ID = Investment Decision FL = Financial Literacy HB = Herding Bias OC = Overconfidence TI = Type of Investment DI = Duration of Investment e = Error
3.4 Validity and Reliability Validity Test
Financial Literacy
Table 1: Validity Test Financial Literacy Indicator r-table r-count Sig. Result
FL1 0,1161 0,365 0,000 Valid FL2 0,1161 0,480 0,000 Valid FL3 0,1161 0,338 0,000 Valid FL4 0,1161 0,634 0,000 Valid FL5 0,1161 0,532 0,000 Valid FL6 0,1161 0,534 0,000 Valid FL7 0,1161 0,554 0,000 Valid FL8 0,1161 0,545 0,000 Valid FL9 0,1161 0,530 0,000 Valid FL10 0,1161 0,529 0,000 Valid
Herding Bias
Table 2: Validity Test Herding Bias
Indicator r-table r-count Sig. Result
HB1 0,1161 0,395 0,000 Valid
HB2 0,1161 0,699 0,000 Valid
HB3 0,1161 0,740 0,000 Valid
HB4 0,1161 0,727 0,000 Valid
Overconfidence
Table 3: Validity Test Overconfidence Indicator r-table r-count Sig. Result
OC1 0,1161 0,518 0,000 Valid OC2 0,1161 0,352 0,000 Valid OC3 0,1161 0,643 0,000 Valid OC4 0,1161 0,737 0,000 Valid OC5 0,1161 0,781 0,000 Valid
Investment Decision
Table 4: Validity Test Investment Decision Indicator r-table r-count Sig. Result
ID1 0,1161 0,644 0,000 Valid ID2 0,1161 0,545 0,000 Valid ID3 0,1161 0,771 0,000 Valid ID4 0,1161 0,755 0,000 Valid ID5 0,1161 0,375 0,000 Valid
All the table show that all indicators of variables have an r-count value greater than the r-table and a significant value less than 0.05 so that the indicators of variables are declared valid.
Reliability Test
Reliability tests were carried out to determine whether the indicators studied had reliability by calculating the Cronbach's Alpha value greater than 0.6. The following are the results of the reliability test of the variables studied:
Table 5: Reliability Test
Variable Indicator Cronbach’s Alpha Result
Financial Literacy 10 0,613 Reliable
Herding Bias 4 0,688 Reliable
Overconfidence 5 0,601 Reliable
Investment Decision 5 0,662 Reliable
4. Results and Discussion
In testing the hypothesis, the tests performed were the coefficient of determination test, moderated regression analysis, simultaneous test (F test), and partial test (T test). The following are the tests that will be carried out.
Coefficient of Determination Test
The coefficient of determination test is carried out to see how much influence the independent variable and moderating variable have on the independent variable by using the adjusted R2 value.
Table 6: Coefficient of Determination Test Model Summaryb
Model R R Square
Adjusted R Square
Std. Error of the
Estimate Durbin-Watson
1 .437a .256 .232 .59882 2.065
a. Predictors: (Constant), Type of Investment, OC_FL, Income, HERDING BIAS, Duration of Investment, OVERCONFIDENCE, Age, Faculty, HB_FL, FINANCIAL LITERACY
b. Dependent Variable: INVESTMENT DECISION
Based on the table, the adjusted R2 value is 0.232 and this value indicates that the influence of financial literacy, herding bias, overconfidence, financial literacy moderation and herding bias, as well as financial literacy and overconfidence moderation on investment decisions is 0.232 or 23.2%. The remaining 76.8% (100-23.2=76.8) was influenced by other variables not examined in this study.
Simultaneous Test (F Test)
Simultaneous test or F test is used to test whether the independent variable and moderating variable simultaneously affect the dependent variable. The basis of the calculation is if the significant value must be less than 0.05. The following are the results of the simultaneous test (F test) of this study.
Table 7: Simultaneous Test (F Test) ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 8.330 10 .833 2.323 .012b
Residual 139.847 390 .359
Total 148.178 400
a. Dependent Variable: INVESTMENT DECISION
b. Predictors: (Constant), Type of Investment, OC_FL, Income, HERDING BIAS, Duration of Investment, OVERCONFIDENCE, Age, Faculty, HB_FL, FINANCIAL LITERACY
Based on the table above, the F test value is 2.323 and significant value is 0.012 and this value is smaller than 0.05 (0.012 < 0.05). Based on this value, it can be concluded that the influence of financial literacy herding bias, overconfidence, HB_FL, and OC_FL together has an effect on investment decision.
Partial Test (T Test)
Partial test conducted to determine whether the built hypothesis is accepted or rejected on the basis of measuring a significant value less than 0.05.
Table 8: Partial Test (T Test)
Variable Coefficient Sig. Value Result Financial Literacy 1,725 0,005 Accepted
Herding Bias 0,294 0,006 Accepted
Overconfidence 0,210 0,049 Accepted
HB_FL -0,609 0,121 Rejected
OC_FL -1,148 0,026 Accepted
Age -0,037 0,475 Rejected
Faculty 0,036 0,496 Rejected
Income 0,049 0,346 Rejected
Duration of Investment 0,051 0,328 Rejected Type of Investment 0,013 0,805 Rejected
In this study, the hypothesis uses a direction so that it uses a one-tailed significant value so that the significant value is divided by two. The following describes the results of the partial test (T test):
• The financial literacy variable has a coefficient value of 1.725 with a positive number so that if financial literacy increases by one unit, it will increase investment decision by 1.725. The significant value of the financial literacy variable is 0.005 and this value is smaller than 0.05 (0.005 <0.05) and indicates that the financial literacy variable has an effect on investment decision so that hypothesis 1 is accepted.
• The herding bias variable has a coefficient value of 0.294 with a positive number so that if the herding bias increases by one unit, it will increase the investment decision by 0.294. The significant value of the herding bias variable is 0.006 and this value is smaller than 0.05 (0.006 <0.05) and indicates that the herding bias variable has an effect on investment decision so that hypothesis 2 is accepted.
• The overconfidence variable has a coefficient value of 0.210 with a positive number so that if overconfidence increases by one unit, it will increase investment decision by 0.210. The significant value of the overconfidence variable is 0.049 and this value is smaller than 0.05 (0.049 <0.05) and indicates that the overconfidence variable has an effect on investment decision so that hypothesis 3 is accepted.
• The financial literacy variable which moderates herding bias has a coefficient value of - 0.609 with a negative number so that financial literacy weakens the influence of herding bias on investment decision by 0.609. The significant value of the financial literacy moderation variable on herding bias is 0.121 and this value is greater than 0.05 (0.121
> 0.05) and indicates that the financial literacy variable does not weaken the effect of herding bias on investment decisions, so hypothesis 4a is rejected.
• The financial literacy variable that moderates overconfidence has a coefficient value of -1.148 with a negative number so that financial literacy weakens the influence of overconfidence on investment decisions by 1.148. The significant value of the financial literacy moderation variable on overconfidence is 0.026 and this value is smaller than 0.05 (0.026 <0.05) and indicates that the financial literacy variable weakens the influence of herding bias on investment decisions so that hypothesis 4b is accepted.
• The age variable has a coefficient value of -0.037 with a negative sign so that each age increases by one unit, the investment decision will decrease by 0.037. The significant value of the age variable is 0.475 and this value is greater than 0.05 (0.475 > 0.05) and indicates that the age variable does not affect investment decision.
• The faculty variable has a coefficient value of 0.036 with a positive sign so that each faculty increases by one unit, the investment decision will increase by 0.036. The significant value of the faculty variable is 0.496 and this value is greater than 0.05 (0.496
> 0.05) and indicates that the faculty variable does not affect the investment decision.
• The income variable has a coefficient value of 0.049 with a positive sign so that each income increases by one unit, the investment decision will increase by 0.049. The significant value of the income variable is 0.346 and this value is greater than 0.05 (0.346
> 0.05) and indicates that the income variable does not affect the investment decision.
• The duration of investment variable has a coefficient value of 0.051 with a positive sign so that every time the duration of investment increases by one unit, the investment decision will increase by 0.051. The significant value of the duration of investment variable is 0.328 and this value is greater than 0.05 (0.328 > 0.05) and indicates that the duration of investment variable does not affect investment decision.
• The variable type of investment has a coefficient value of 0.013 with a positive sign so that each type of investment increases by one unit, the investment decision will increase by 0.013. The significant value of the type of investment variable is 0.805 and this value is greater than 0.05 (0.805 > 0.05) and indicates that the type of investment variable does not affect investment decision.
5. Conclusion
The following describes the discussion based on the results of the study:
Effect of Financial Literacy on Investment Decision
Based on the results of the study, it was found that financial literacy had an effect on investment decisions. The results of this study explain that the increasing financial literacy will increase investment decisions. This result is in line with research conducted by Novianggie and Asandimitra (2019) which found that financial literacy has an effect on investment decisions.
The investment decision includes in this financial decision and for people who have financial literate, it is easier for them to choose whether the best choice for them to invest by using their knowledge to analyze the information about investment instrument (Wardani & Lutfi, 2019).
This result is supported by the highest answer value of respondents in answering financial literacy questions based on basic financial literacy and advanced financial literacy by answering 9 out of 10 questions with correct answers. Meanwhile, the highest value of respondents' answers regarding investment decisions is the 5th question, namely budgeted my money well. These results explain that someone with financial literacy will be more careful in making investment decisions because the more someone who has financial literacy will pay attention to investment developments so that when making investment decisions it will not harm them. Financial literacy is needed when someone will make an investment decision based on their ability to understand and apply their expertise in finance so that when making an investment decision, they are very careful so that making investment decisions becomes a place for the funds to be invested. In addition, being supported by high financial literacy causes a high level of consideration for someone to invest, one of which is to prepare investment funds carefully so that investment decision making is stronger, supported by the investment funds they have.
Effect of Herding Bias on Investment Decision
The results of this study found that herding bias has an effect on investment decisions. This result explains that the increasing herding bias will increase the investment decision. The results of this study are in line with research conducted by Ghalandari and Ghahremanpour (2013) which found that herding bias affects investment decisions. Herding bias is the tendency of an investor following other investment plan suggestion that given by their friend, family, or broker in deciding to make an investment. It made the individual investor must have a good choice in with their investment decision so they can make them as the reference in the investment decision (Qasim et al., 2019). This result is also supported by the respondent's highest answer regarding herding bias from question 1, namely I prefer to invest in well-known companies that have wider media coverage and the respondent's highest answer regarding investment decision from question 5 is budgeted my money well. These results explain that when a well-known company has a lot of news in the media, someone will take it as a material consideration in investing in the company. Companies that have a lot of news in the media become famous and attract a lot of public attention to be able to enter into investment trading.
This is one of the behaviors of individuals in a group who are without direction in making
investment decisions based only on how the media covers a company so that it becomes famous and attracts people's attention to invest in the company. This is one of the right bases in making investment decisions because a well-known company will have a great responsibility to the community to maintain its reputation and positive image in the eyes of the community so that the company can continue to be the attention of the wider community. In addition, respondents have budgeted their money well in investing so that they can take the right steps in investing.
The Effect of Overconfidence on Investment Decisions
The result of this research is that overconfidence has an effect on investment decision. These results explain that increasing one's self-confidence will affect the amount of investment decisions taken to make investments. This result is in line with research conducted by Novianggie and Asandimitra (2019) which found that overconfidence has an effect on investment decisions. This result is supported by the respondent's highest answer regarding overconfidence in the second question, namely I take the responsibility of managing my portfolio and I trust my decisions and the respondent's highest answer from investment decision on the 5th question, namely budgeted my money well. These results explain that someone who has high self-confidence will influence their investment decision. This is because high trust makes them their reference material in making investment decisions because they have their own budget to prepare the invested investment funds. When investing, someone will feel confident in predicting future events related to investment so that in making investments that are supported by the capital that has been prepared.
The Effect of Moderating Financial Literacy with Herding Bias and Overconfidence on Investment Decisions
The results of this study found that financial literacy did not weaken the effect of herding bias on investment decisions. This result is in line with the lowest financial literacy of the respondents by answering 0 out of 10 questions given and the lowest value of respondents' answers regarding herding bias, namely my decision making in my investment is based on the votes of the majority of the people closest to me and the lowest score of respondents' answers regarding investment decisions is me. consider fundamental factors in my investment decisions. These results explain that a person's minimal financial literacy makes someone prefer to be able to listen to input from the majority of the closest people's voices compared to seeking information about investment as a material consideration in making investment decisions. This ultimately causes a person's lack of knowledge about investment products and risks so that they cannot analyze investment activities fundamentally.
The Effect of Moderation on Financial Literacy with Overconfidence on Investment Decisions
The results of this study found that financial literacy weakens the effect of overconfidence on investment decisions. These results explain that the increasing financial literacy of a person will reduce his overconfidence in making investment decisions. This result is supported by the highest score of respondents' answers regarding financial literacy with correct answers as many as 9 out of 10 questions given and the highest score of respondents' answers regarding overconfidence, namely I am responsible for managing my portfolio and I trust my decisions and the highest answer of respondents regarding investment decisions is when it comes to investing in the stock market, I will enter when a lot of people enter into trading. These results
explain that a person's high financial literacy will reduce his overconfidence in investing in someone to manage a portfolio and trust his decisions because investing requires a lot of consideration and input in managing and dealing with investment risks. Seeing the number of people entering the trade illustrates that many people carry out investment activities so that the investment climate has a high level of competitiveness and risk. Based on this, it is necessary not only to have confidence in portfolio management and decision making so that financial literacy is also needed in taking investment steps
6. Acknowledgement
Thank you for Allah SWT., my family, friends, and my supervisor in School of Business and Management Bandung Institute Technology. Because from your support I was able to finish this research. And also thank you for all ITB students who have been respondent for my research.
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