EXAMINING THE CONTRIBUTION OF INTERNAL FACTORS OF AN INVESTOR IN DRIVING THE INVESTMENT DECISION

Abstract

The purpose of this study is to investigate the impact of internal psychological factors driving on investor’s investment decision making. The internal psychological factors of investor discussed as the research objects are financial literacy, loss aversion, and overconfidence. Data were collected from questionnaires and fulfilled by investors registered at securities companies in Central Java, Indonesia. Applying multiple regression approach, the results suggest that investor’s financial literacy drives positively in making investment decision; investor’s loss aversion drives negatively in making investment decision, and investor’s overconfidence does not drive in making investment decision. As the implication, market participants should consider financial behavior of investors in observing stock price movement to achieve higher stock returns. Moreover, stock exchange institutions should include the internal psychological factors of investor in formulating their policy to enhance stock market development. KEYWORDS: investment decision, financial literacy, loss aversion, overconfidence.