The Effect of Behavioral Factors in Investor’s Investment Decision
Keywords:Behavioral Finance, Heuristic Theory, Prospect Theory, Herding Behavior, Market factors, Investor Psychology
Behavioral finance theories are based on psychology, it is an attempt to understand how emotions and cognitive errors influence individual investor’s behaviors. This study investigated the role of behavioral finance towards investor psychology during their investment decision-making at the Indonesian Stock Exchange.
To collect the data needed, a descriptive survey design was chosen. The questionnaires designed have both open-ended and closed-ended questions which use 5-point Likert measurements. Cronbach's Alpha Test was used to test the internal consistency and reliability. Factor analysis and descriptive analysis was used to analyze the data.
The study established that behavioral factors such as availability bias, overconfidence, loss aversion, mental accounting and market factors affected the decisions of the investors operating at the IDX. However, herding behavior shows moderately low results within the investors of IDX.