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

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.