Herding behavior, information type, and overconfidence bias: an experimental study on novice investors’ investment decisions

Etik Kresnawati, Lina Sofia, Evy Rahman Utami

Abstract


Research aims: By the end of 2023, Indonesian Central Securities Depository data revealed a significant increase in the number of investors dominated by millennial investors (56.41%). They are categorized as novice investors who have distinctive characteristics from professional investors. This study, thus, aims to examine whether herding behavior dominates the characteristics of novice investors and whether information type and overconfidence bias affect the herding behavior of novice investors.
Design/Methodology/Approach: This study used a quasi-experimental 2x2 mixed design on 42 student participants who were members of the Capital Market Study Group. The data obtained were then tested using non-parametric statistics.
Research findings: The test results uncovered that herding dominated the investment behavior of novice investors. This behavior was supported by the information type that participants paid attention to in making decisions. However, testing for overconfidence demonstrated that this variable was not the cause of novice investors' herding behavior.
Theoretical contribution/Originality: The results of this study contribute theoretically to the investment behavior of novice investors by strengthening the argument that they tend to behave herding when making stock investment decisions. Testing with an experimental design allows researchers to confirm that such herding behavior is reinforced by the preference for the information type they use in decision-making. The results also provide insight into the fact that the overconfidence level of novice investors may be different from that of professional investors.
Practitioner/Policy implication: The tendency of herding behavior of novice investors needs attention from the Financial Services Authority as a regulator to consider protection for novice investors who dominate the number of investors in the capital market.
Research limitation/Implication: The tests in this study employed non-parametric statistics, which are not as good as parametric tests, so the study results should be understood wisely. Future research needs to consider the adequacy of the sample and use capital market groups in several universities to improve sample quality.


Keywords


Herding Behavior; Information type; Overconfidence bias; Investment decision; Novice invest

Full Text:

PDF

References


Abidin, S., & Hidayat, R. R. (2016). Pengaruh Faktor-Faktor Teknikal Terhadap Harga Saham (Studi Pada Harga Saham IDX30 di Bursa Efek Indonesia Periode Tahun 2012-2015). Brawijaya University.

Afriani, D., & Halmawati, H. (2019). Pengaruh Cognitive Dissonance Bias, Overconfidence Bias Dan Herding Bias Terhadap Pengambilan Keputusan Investasi. Jurnal Eksplorasi Akuntansi, 1(4), 1650-1665. https://doi.org/10.24036/jea.v1i4.168

Al-Shboul, M. (2012). Asymmetric effects and the herd behavior in the Australian equity market. International Journal of Business and Management, 7(7), 121. https://doi.org/10.5539/ijbm.v7n7p121

Alquraan, T., Alqisie, A., & Al Shorafa, A. (2016). Do behavioral finance factors influence stock investment decisions of individual investors? (Evidences from Saudi Stock Market). American international journal of contemporary research, 6(3), 159-169.

Anggraeni, A., & Almilia, L. S. (2017). Model belief adjustment dalam pengambilan keputusan investasi berdasarkan informasi nonakuntansi. Jurnal ekonomi dan bisnis, 20(1), 30-49. https://doi.org/10.24914/jeb.v20i1.923

Aslam, F., Ferreira, P., Ali, H., & Kauser, S. (2022). Herding behavior during the COVID-19 pandemic: A comparison between Asian and European stock markets based on intraday multifractality. Eurasian Economic Review, 12(2), 333-359. https://doi.org/10.1007/s40822-021-00191-4

Bakar, S., & Yi, A. N. C. (2016). The impact of psychological factors on investors’ decision making in Malaysian stock market: a case of Klang Valley and Pahang. Procedia Economics and Finance, 35, 319-328. https://doi.org/10.1016/S2212-5671(16)00040-X

Brilliand, D. P. E., Hidayat, R. R., & Darmawan, A. (2016). Analisis Fundamental dalam Penilaian Harga Saham dengan Menggunakan Metode Dividen Discounted Model dan Price Earning Ratio (Studi Pada Perusahaan Multinasional Sub Sektor Semen yang terdaftar di Bursa Efek Indonesia Periode 2013-2015). J. Adm. Bisnis, 37.

Brooks, M., & Byrne, A. (2008). Behavioral finance: Theories and evidence. The Research Foundation of CFA Institute. University of Edinburgh.

Chen, Y. F., Yang, S. Y., & Lin, F. L. (2012). Foreign institutional industrial herding in Taiwan stock market. Managerial Finance, 38(3), 325-340. https://doi.org/10.1108/03074351211201442

Choi, N., & Sias, R. W. (2009). Institutional industry herding. Journal of financial economics, 94(3), 469-491. https://doi.org/10.1016/j.jfineco.2008.12.009

Eduardus Tandelilin, S., Hartono, J., & Hanafi, M. M. (2013). Detecting the existence of herding behavior in intraday data: Evidence from the Indonesia stock exchange. Gadjah Mada International Journal of Business, 15(1), 27-44. https://doi.org/10.22146/gamaijb.5399

Enow, S. T. (2023). Detecting the Herding Behaviour in the South African Stock Market and its Implications. International Journal of Economics and Financial Issues, 13(2), 88-92. https://doi.org/10.32479/ijefi.13996

Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The journal of finance, 25(2), 383-417. https://doi.org/10.32479/ijefi.13996

Fathmaningrum, E. S., & Utami, T. P. (2022). Determinants of Investment Decisions in the Capital Market During the COVID-19 Pandemic. Journal of Accounting and Investment, 23(1), 147-169. https://doi.org/10.18196/jai.v23i1.13408

Gavriilidis, K., Kallinterakis, V., & Öztürkkal, B. (2020). Does mood affect institutional herding? Journal of Behavioral and Experimental Finance, 26, 100290. https://doi.org/10.1016/j.jbef.2020.100290

Hirshleifer, D., Subrahmanyam, A., & Titman, S. (1994). Security analysis and trading patterns when some investors receive information before others. The journal of finance, 49(5), 1665-1698. https://doi.org/10.1111/j.1540-6261.1994.tb04777.x

Hudson, Y., Yan, M., & Zhang, D. (2020). Herd behaviour & investor sentiment: Evidence from UK mutual funds. International Review of Financial Analysis, 71, 101494. https://doi.org/10.1016/j.irfa.2020.101494

Jaiyeoba, H. B., & Haron, R. (2016). A qualitative inquiry into the investment decision behaviour of the Malaysian stock market investors. Qualitative Research in Financial Markets, 8(3), 246-267. https://doi.org/10.1108/QRFM-07-2015-0027

Jiang, H., & Verardo, M. (2018). Does herding behavior reveal skill? An analysis of mutual fund performance. The journal of finance, 73(5), 2229-2269. https://doi.org/10.1111/jofi.12699

Kartini, K., & Nugraha, N. F. (2015). Pengaruh illusions of control, overconfidence dan emotion terhadap pengambilan keputusan investasi pada investor di Yogyakarta. Asian Journal of Innovation and Entrepreneurship (AJIE), 4(2), 114-122. https://doi.org/10.20885/ajie.vol4.iss2.art6

Komalasari, P. T. (2016). Information asymmetry and herding behavior. Jurnal Akuntansi dan Keuangan Indonesia, 13(1), 4. https://doi.org/10.21002/jaki.2016.04

Kufepaksi, M. (2008). Overconfident Behavior in a Security Market, the Implication of Self Deceptive Behavior in Price Discovery Processes–a Market Experiment. Jurnal Ekonomi dan Bisnis Indonesia, 23(1), 77-97.

Kumar, S., & Goyal, N. (2015). Behavioural biases in investment decision making–a systematic literature review. Qualitative Research in Financial Markets, 7(1), 88-108. https://doi.org/10.1108/QRFM-07-2014-0022

Lev, B., & Thiagarajan, S. R. (1993). Fundamental information analysis. Journal of accounting research, 31(2), 190-215. https://doi.org/10.2307/2491270

Macenczak, L. A., Campbell, S., Henley, A. B., & Campbell, W. K. (2016). Direct and interactive effects of narcissism and power on overconfidence. Personality and Individual Differences, 91, 113-122. https://doi.org/10.1016/j.paid.2015.11.053

Manurung, A. H. (2012). Teori perilaku keuangan (Behaviour finance). Economics of Management, 41(4), 1-13.

Merkle, C. (2017). Financial overconfidence over time: Foresight, hindsight, and insight of investors. Journal of Banking & Finance, 84, 68-87. https://doi.org/10.1016/j.jbankfin.2017.07.009

Moore, D. A., & Schatz, D. (2017). The three faces of overconfidence. Social and Personality Psychology Compass, 11(8), e12331. https://doi.org/10.1111/spc3.12331

Nahartyo, E. (2012). Desain dan implementasi riset eksperimen. Yogyakarta: UPP STIM YKPN.

Ormos, M., & Joó, I. (2014). Are Hungarian investors reluctant to realize their losses? Economic Modelling, 40, 52-58. https://doi.org/10.1016/j.econmod.2014.03.018

Paramita, R., & Isbanah, Y. (2018). Bias Kognitif Dan Kepribadian Individu: Studi Perilaku Investor Muda di Surabaya. Jurnal Riset Manajemen Sains Indonesia (JRMSI), 9(2). https://doi.org/10.21009/JRMSI.009.2.03

Qasim, M., Hussain, R., Mehboob, I., & Arshad, M. (2019). Impact of herding behavior and overconfidence bias on investors’ decision-making in Pakistan. Accounting, 5(2), 81-90. https://doi.org/10.5267/j.ac.2018.7.001

Rahardjo, S. S. (2015). Trading behavior of foreign vis a vis local investors in the Indonesian stock market. Gadjah Mada International Journal of Business, 17(1), 47-64. https://doi.org/10.22146/gamaijb.6149

Rahman, M., & Gan, S. S. (2020). Generation Y investment decision: an analysis using behavioural factors. Managerial Finance, 46(8), 1023-1041. https://doi.org/10.1108/MF-10-2018-0534

Ramli, I., Agoes, S., & Setyawan, I. R. (2016). Information asymmetry and the role of foreign investors in daily transactions during the crisis; A study of herding in the Indonesian Stock Exchange. Journal of Applied Business Research (JABR), 32(1), 269-288. https://doi.org/10.19030/jabr.v32i1.10178

Ritter, J. R. (2003). Behavioral finance. Pacific-Basin finance journal, 11(4), 429-437. https://doi.org/10.1016/S0927-538X(03)00048-9

Setiawan, Y. C., Atahau, A. D. R., & Robiyanto, R. (2018). Cognitive dissonance bias, overconfidence bias dan herding bias dalam pengambilan keputusan investasi saham. AFRE (Accounting and Financial Review), 1(1). https://doi.org/10.26905/afr.v1i1.1745

Supramono, S., & Wandita, M. (2017). Confirmation bias, self-attribution bias, dan overconfidence dalam transaksi saham. Jurnal Keuangan Dan Perbankan, 21(1), 25-36. https://doi.org/10.26905/jkdp.v21i1.1224

Umboh, J. E., & Atahau, A. D. R. (2019). Investment interest and consumptive behaviour of student investors: between rationality and irrationality. JDM (Jurnal Dinamika Manajemen), 10(1), 14-31. https://doi.org/10.15294/jdm.v10i1.16837

Utami, L. D., & Kartini, K. (2016). Faktor demografis, personality traits, dan overconfidence (Survey terhadap investor saham di Yogyakarta). Jurnal Siasat Bisnis, 20(2), 181. https://doi.org/10.20885/jsb.vol20.iss2.art6

Wibowo, B. (2019). Idiosyncratic Volatility and Herd Behavior: Indonesia Stock Market Case. Jurnal Bisnis dan Manajemen, 20(1), 49-58. https://doi.org/10.24198/jbm.v20i1.275

Wijaya, T., & Meirisa, F. (2019). Pengaruh Perilaku Herding dan Volatilitas IHSG terhadap Return Pasar di Bursa Efek Indonesia. Jurnal Inspirasi Bisnis dan Manajemen, 3(2), 91-104. https://doi.org/10.33603/jibm.v3i2.2513

Wulandari, D. A., & Iramani, R. (2014). Studi experienced regret, risk tolerance, overconfidance dan risk perception pada pengambilan keputusan investasi. Journal of Business & Banking, 4(1), 55-66. https://doi.org/10.14414/jbb.v4i1.293

Xia, T., Wang, Z., & Li, K. (2014). Financial literacy overconfidence and stock market participation. Social indicators research, 119, 1233-1245. https://doi.org/10.1007/s11205-013-0555-9

Yu, H., Dan, M., Ma, Q., & Jin, J. (2018). They all do it, will you? Event-related potential evidence of herding behavior in online peer-to-peer lending. Neuroscience Letters, 681, 1-5. https://doi.org/10.1016/j.neulet.2018.05.021




DOI: https://doi.org/10.18196/jai.v25i1.14823

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Office:
Ruang Jurnal Fakultas Ekonomi dan Bisnis UMY
Gedung Ki Bagus Hadikusuma (E4) Lantai 2, Kampus Terpadu Universitas Muhammadiyah Yogyakarta,
Jalan Brawijaya (Lingkar Selatan), Tamantirto, Kasihan, Bantul, Daerah Istimewa Yogyakarta, Indonesia, 55183
Website: journal.umy.ac.id/index.php/ai - E-mail: jai@umy.ac.id

Journal of Accounting and Investment is licensed under Creative Commons Attribution Attribution-NonCommercial-NoDerivatives 4.0 International License

View My Stats