The Herd Effect: How Financial Literacy Shapes Investment Decisions?

Kusuma Ratnawati; Cicik Retno Wati

Authors

Kusuma Ratnawati Universitas Brawijaya, Malang
Cicik Retno Wati Politeknik Negeri Jember

Keywords:

Financial Literacy, Herding Behavior dan Investment Decision.

Abstract

The era of globalization has impacted the financial and economic sectors, challenging investors to make the right investment decisions amid complex socio-economic phenomena. Financial literacy is considered a crucial component in making rational investment decisions. One of the bias factors affecting investment decisions is herding behavior, where individuals tend to trust the information and decisions of others more than their own judgment. This study attempts to examine the factors influencing investment decisions, i.e. financial literacy and herding behavior. A total of 287 respondents who are stock investors in East Java were gathered. The analysis in this study employs path analysis. Based on the analysis, it was found that financial literacy has a positive and significant effect on herding behavior. Furthermore, financial literacy and herding behavior have a positive and significant influence on investment decisions. This research also tests the role of herding behavior as a mediator, and the results show that herding behavior mediates the effect of financial literacy on investment decisions.

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