Journal of Economics and Business

ISSN 2615-3726 (Online)

ISSN 2621-5667 (Print)

Published: 26 October 2020

The Herding and Overconfidence Effect on the Decision of Individuals to Invest Stocks

Herlina, Bram Hadianto, Jacinta Winarto, Niken Angginia Nastiti Suwarno

Maranatha Christian University, Indonesia

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10.31014/aior.1992.03.04.288

Pages: 1387-1397

Keywords: individual investors, overconfidence, stocks, the decision to invest, variance-based SEM

Abstract

Investors should reasonably transact their stocks. Unfortunately, not all of them are cogent. They make decisions based on some people's suggestions, such as friends, colleagues, family members, and overconfidence. This study attempts to test and analyze the effect of overconfidence and herding on investors' decision to transact their stocks. This study's population is the investors in the investment gallery, becoming the partner of PT Sinar Mas Sekuritas, in Maranatha Christian University. The investors become the samples taken by a simple random sampling method, and their number is calculated by the Slovin formula with the 10% border of inaccuracy. Based on this formula, the total investors are 74. Unfortunately, only 50 investors participate in this online survey; therefore, the response rate is 67.57%. Consequently, the structural equation model (SEM) based on variance suits the method to test data. After examining two proposed hypotheses, overall, this study concludes that overconfidence is the only determinant having a positive effect on the decision to invest.

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