Examining the Role of Financial Literacy, Cognitive Bias, and Emotional Bias in Shaping Investment Decisions : A Study on the Indonesian Stock Exchange

Authors

  •   Samsul Bahari Assistant Professor, Department of Management Science, Faculty of Islamic Economics and Business, Muhammadiyah University of Buton ORCID logo https://orcid.org/0009-0009-0779-2147
  •   Wa Ode Al Zarliani Associate Professor, Department of Agribusiness, Muhammadiyah University of Buton ORCID logo https://orcid.org/0000-0001-9302-0032
  •   Suriadi Assistant Professor, Department of Management Science, Faculty of Islamic Economics and Business, Muhammadiyah University of Buton
  •   Hasddin Assistant Professor (Corresponding Author), Department of Urban and Regional Planning, Lakidende University, Unaaha ORCID logo https://orcid.org/0000-0002-0114-5274

DOI:

https://doi.org/10.17010/ijf/2025/v19i11/175842

Keywords:

financial literacy, cognitive bias, emotional bias, investment decisions, behavioural finance, and Indonesia Stock Exchange.
JEL Classification Codes : G31, G41, G53
Publication Chronology: Paper Submission Date : October 20, 2024 ; Paper sent back for Revision : March 6, 2025 ; Paper Acceptance Date : April 25, 2025 ; Paper Published Online : November 15, 2025

Abstract

Objective : This study, motivated by the desire to identify the influence of emotional and cognitive biases on financial literacy and investment choices, explored the role of financial information as a mediator of biases (cognitive and emotional) in understanding investment decision-making.

Methods : An explanatory quantitative approach was used to study the behavior of individual investors listed on the Indonesia Stock Exchange. Data of 376 investors were obtained through a simple random sampling method. Structural equation modeling was performed using PLS-SEM.

Findings : The discoveries uncovered that money management knowledge was one of the main factors that profoundly influenced investment decisions. It also intervened as a moderator in the relationship between cognitive and emotional biases and investment choices. The study additionally revealed that cognitive biases weakened investment decisions and increased financial knowledge. At the same time, emotional biases obstructed financial knowledge, despite supporting investment decisions.

Practical Application : The study, which mainly focused on recognizing and limiting biases, could assist investors in straightforward decision-making. Besides, they pointed out the importance of the financial education sector, thus giving policymakers the necessary information to design programs that help increase the investors’ financial literacy level.

Originality : This study extended the realm of behavioral finance by exploring the mediating influence of financial literacy amid cognitive and emotional biases on investment decisions within the Indonesian stock market. Thus, it enhanced comprehension of investor conduct in such emerging economies.

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Published

2025-11-15

How to Cite

Bahari, S., Zarliani, W. O. A., Suriadi, & Hasddin. (2025). Examining the Role of Financial Literacy, Cognitive Bias, and Emotional Bias in Shaping Investment Decisions : A Study on the Indonesian Stock Exchange. Indian Journal of Finance, 19(11), 65–81. https://doi.org/10.17010/ijf/2025/v19i11/175842

Issue

Volume 19, Issue 11, November 2025

Section

Articles
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