Determinant factors of herding behavior and financial literacy on investment decision and risk tolerance as mediator factor
Keywords:
Herding Behavior, Financial Literacy, Risk Tolerance, Investment Decision, Indonesia Stock Exchange (ISE)Abstract
The key objective of this research paper is to estimate the impact of herding behavior and financial literacy on investment decisions by using risk tolerance as a mediator variable among the investors of the stock market in Indonesia Stock Exchange .(ISE). The study has collected 50 sample responses from the investors of Indonesia Stock Exchange (ISE) using five-point Likert scale questionnaire. The study has employed PLS-SEM for data analysis using Smart PLS version 3.2.9. The results of this study reveal the role of herding behavior and financial literacy on investment decision. The findings signify that herding behavior can increase investment decision. However, our study shows that having financial literacy can not increase investment decision. The results suggest that risk tolerance partialy mediates the relationships between the herding behavior on investment decisions. But, the result also show that risk tolerance fully mediates the relationship between financial literacy on investment decisions. This study supports the theory of behavioral finance to the direct and indirect effects that lead to investment decision in Indonesia Stock Exchange (ISE). These findings can provide guidance to the investors in making investment decisions to avoid irrational behavior. Also, providing practical guidelines to investors in investing in the capital market, so that they always pay attention to the movement of the IDX Compos6ite
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