Decoding Market Signals: How Generation Z Investors in Indonesia Make Investment Decisions

Abstract

Research Aims:  This study examines the impact of overconfidence and risk perception on investment decision-making among Generation Z investors in Indonesia, using Signalling Theory to understand how they interpret market signals and make financial decisions Design/methodology/approach: This quantitative study adopts an explanatory research approach with purposive sampling of 300 active Generation Z investors in the Jakarta Stock Exchange (IDX). Data is collected via an online questionnaire and analysed using Structural Equation Modelling (SEM) with AMOS to assess causal relationships. Research Findings:  The study finds that overconfidence has a significant positive effect on investment decision-making, indicating that Generation Z investors who overestimate their financial knowledge tend to engage in riskier and more frequent trading activities. Conversely, risk perception has a significant negative effect on investment decision-making, suggesting that investors who perceive higher risks are more likely to adopt cautious and conservative investment strategies. Additionally, the combined influence of overconfidence and risk perception highlights the interplay between psychological biases and rational risk assessments, reinforcing the role of Signalling Theory in explaining how market information and digital influences shape Gen Z investors' financial behaviours. Theoretical Contribution/Originality: This study extends Signalling Theory by highlighting how digital finance platforms and social media influence Gen Z investors' decision-making. It provides empirical insights into behavioural finance in emerging markets, particularly among young retail investors.