Behavioral Finance in Investment: A Systematic Review


1Redawati, 2Fahmi Rizani
1,2Lambung Mangkurat University
DOI : https://doi.org/10.58806/ijirme.2023.v2i10n07

Abstract

Behavioural finance plays an important role in the field of finance. Behavioral finance refers to understanding how human behavior and psychological factors, including human emotions, affect financial decisions. The data used in this research is secondary data, which means data that is not directly provided to data collectors. This type of data comes from literature related to behavioral finance, such as books, journals, scientific articles, and websites. This research uses the systematic literature analysis (SLR) method. This research aims to increase the understanding of the factors that influence financial behavior in decision-making, identify trends regarding the review or study of financial behavior, and predict the type of research to come. It is expected that the findings of this research will provide new knowledge and perspectives on the current field of financial behavior studies. What contributions are needed at this time and may attract other researchers to study financial behavior in investment decision-making.

Keywords:

Behavior Finance, Investment Decision, Systematic Literature Review

References:

1) Abideen, Z. U., Ahmed, Z., Qiu, H., & Zhao, Y. (2023). Do Behavioral Biases Affect Investors’ Investment Decision Making? Evidence from the Pakistani Equity Market. Risks, 11(6), 109. https://doi.org/10.3390/risks11060109

2) Adil, M., Singh, Y., & Ansari, M. S. (2022). How financial literacy moderate the association between behaviour biases and investment decision? Asian Journal of Accounting Research, 7(1), 17–30. https://doi.org/10.1108/AJAR-09-2020-0086

3) Ah Mand, A., Janor, H., Abdul Rahim, R., & Sarmidi, T. (2021). Herding behavior and stock market conditions. PSU Research Review, 7(2), 105–116. https://doi.org/10.1108/prr-10-2020-0033

4) Ahmad, M., & Shah, S. Z. A. (2022). Overconfidence heuristic-driven bias in investment decision-making and performance: mediating effects of risk perception and moderating effects of financial literacy. Journal of Economic and Administrative Sciences, 38(1), 60–90. https://doi.org/10.1108/jeas-07-2020-0116

5) Ahmed, Z., Rasool, S., Saleem, Q., Khan, M. A., & Kanwal, S. (2022). Mediating Role of Risk Perception Between Behavioral Biases and Investor’s Investment Decisions. SAGE Open, 12(2). https://doi.org/10.1177/21582440221097394

6) Andriamahery, A., & Qamruzzaman, M. (2022). Do Access to Finance, Technical Know-How, and Financial Literacy Offer Women Empowerment Through Women’s Entrepreneurial Development? In Frontiers in Psychology (Vol. 12). https://doi.org/10.3389/fpsyg.2021.776844

7) Areiqat, A. Y., Abu-Rumman, A., Al-Alani, Y. S., & Alhorani, A. (2019). Impact of behavioral finance on stock investment decisions applied study on a sample of investors at Amman Stock Exchange. Academy of Accounting and Financial Studies Journal, 23(2), 1–16.

8) Aren, S., & Nayman Hamamci, H. (2020). Relationship between risk aversion, risky investment intention, investment choices: Impact of personality traits and emotion. Kybernetes, 49(11), 2651–2682. https://doi.org/10.1108/K-07-2019-0455

9) Attimani, et al. (2021). Behavioural Finance: The Importance of Psychological Factors in Financial Decision Making. IOSR Journal of Business and Management (IOSR-JBM), 23(4), 25–29. https://doi.org/10.9790/487X-2304042529

10) Baker, H. K., Kumar, S., Goyal, N., & Gaur, V. (2019). How financial literacy and demographic variables relate to behavioral biases. Managerial Finance, 45(1), 124–146. https://doi.org/10.1108/MF-01-2018-0003

11) Başarir, Ç., & Yilmaz, Ö. (2019). Herd behavior and its effects on the purchasing behavior of investors. Contemporary Studies in Economic and Financial Analysis, 101, 215–226. https://doi.org/10.1108/S1569-375920190000101015

12) Bell, D. (1982). Regret in Decision Making Under Uncertainty. Oper Res, V 30(N 5), 961–981. https://doi.org/10.1287/opre.30.5.961

13) Bouri, E., Gupta, R., & Roubaud, D. (2019). Herding behaviour in cryptocurrencies. Finance Research Letters. https://www.sciencedirect.com/science/article/pii/S1544612318303647

14) Breuer, W., Renerken, T., & Salzmann, A. J. (2022). Measuring risk-taking and patience in financial decision making. In Review of Financial Economics (Vol. 40, Issue 1, pp. 97–114). https://doi.org/10.1002/rfe.1142

15) Dangol, J., & Manandhar, R. (2020). Impact of Heuristics on Investment Decisions: The Moderating Role of Locus of Control. Journal of Business and Social Sciences Research, 5(1), 1–14. https://doi.org/10.3126/jbssr.v5i1.30195

16) Fujii, M., Hosomi, C., & Nose, Y. (2021). Equity crowdfunding and financial literacy of individual investors in Japan. Journal of Capital Markets Studies, 5(1), 5–27. https://doi.org/10.1108/jcms-03-2021-0007

17) Hanaffy, J., & Widyastuti, T. (2022). Determinants of Financial Management Behavior and Implications on Investment Decision. International Journal of Innovative Science and Research Technology, 7(8).

18) Husnatarina, F., Arafah, M., Andiyan, A., Azmi, Z., Suzana, Y., & Hartati, A. (2022). The Influence of Investor Intrinsic Motivation on Islamic Stock Investment Decision Making. Proceedings of the International Conference on Social, Economics, Business, and Education (ICSEBE 2021), 205(Icsebe 2021), 39–41. https://doi.org/10.2991/aebmr.k.220107.008

19) Jiang, J., Liao, L., Wang, Z., & Xiang, H. (2019). Financial Literacy and Retail Investors’ Financial Welfare: Evidence from Mutual Fund Investment Outcomes in China Jinglin. Pacific-Basin Finance Journal.

20) Kahneman, Daniel, et al. (1995). Prospect Theory: An Analysis of Decision under Risk. Journal of The Econometric Society.

21) Khalaf, B. A. (2023). an Empirical Investigation on Investor Psychological Biases. Corporate and Business Strategy Review, 4(2), 8–14. https://doi.org/10.22495/cbsrv4i2art1

22) Kostov, K. S. (2020). How Investors Really Make Decisions: What Entrepreneurs Need to Know When Raising Money. Biotechnology Entrepreneurship: Leading, Managing and Commercializing Innovative Technologies, 267–278. https://doi.org/10.1016/B978-0-12-815585-1.00018-8

23) Ladrón de Guevara Cortés, R., Tolosa, L. E., & Rojo, M. P. (2023). Prospect theory in the financial decision-making process: An empirical study of two Argentine universities. Journal of Economics, Finance and Administrative Science. https://doi.org/10.1108/JEFAS-12-2021-0272

24) Lopus, J. S., Amidjono, D. S., & Grimes, P. W. (2019). Improving financial literacy of the poor and vulnerable in Indonesia: An empirical analysis. International Review of Economics Education, 32(May). https://doi.org/10.1016/j.iree.2019.100168

25) Majewski, S., & Majewska, A. (2022). Behavioral portfolio as a tool supporting investment decisions. Procedia Computer Science, 207(Kes), 1713–1722. https://doi.org/10.1016/j.procs.2022.09.229

26) Mittal, S. K. (2022). Behavior biases and investment decision: theoretical and research framework. Qualitative Research in Financial Markets, 14(2), 213–228. https://doi.org/10.1108/QRFM-09-2017-0085

27) Nareswari, N., Salsabila Balqista, A., & Priyo Negoro, N. (2021). The The Impact of Behavioral Aspects on Investment Decision Making. Jurnal Manajemen Dan Keuangan, 10(1), 15–27. https://doi.org/10.33059/jmk.v10i1.3125

28) Nofsinger, J. R. (2017a). The Psychology of Investing. The Psychology of Investing, January 2010. https://doi.org/10.4324/9781315230856

29) Nofsinger, J. R. (2017b). The Psychology of Investing.

30) Omar, A. M. (2023). Utility Theory and Its Application on Investment Decisions in Kenya. 2(1), 48–55. https://doi.org/10.59413/eafj/v2.i1.7

31) P.H, H., & Uchil, R. (2020a). Impact of investor sentiment on decision-making in Indian stock market: an empirical analysis. Journal of Advances in Management Research, 17(1), 66–83. https://doi.org/10.1108/JAMR-03-2019-0041

32) P.H, H., & Uchil, R. (2020b). Influence of investor sentiment and its antecedent on investment decision-making using partial least square technique. Management Research Review, 43(11), 1441–1459. https://doi.org/10.1108/MRR-06-2019-0254

33) Raheja, S., & Dhiman, B. (2020). How do emotional intelligence and behavioral biases of investors determine their investment decisions? Rajagiri Management Journal, 14(1), 35–47. https://doi.org/10.1108/ramj-12-2019-0027

34) Rasool, N., & Ullah, S. (2020). Financial literacy and behavioural biases of individual investors: empirical evidence of Pakistan stock exchange. Journal of Economics, Finance and Administrative Science, 25(50), 261–278. https://doi.org/10.1108/JEFAS-03-2019-0031

35) Ritika, & Kishor, N. (2022). Development and validation of behavioral biases scale: a SEM approach. Review of Behavioral Finance, 14(2), 237–259. https://doi.org/10.1108/RBF-05-2020-0087

36) Sagnak, M., Kazancoglu, Y., Ozkan Ozen, Y. D., & Garza-Reyes, J. A. (2020). Decision-making for risk evaluation: integration of prospect theory with failure modes and effects analysis (FMEA). International Journal of Quality and Reliability Management, 37(6–7), 939–956. https://doi.org/10.1108/IJQRM-01-2020-0013

37) Saputri, S. N., Indrawati, N. K., Amanah, H., & Juwita, J. (2023). Determinant Factors of Herding Behavior and Financial Literacy on Investment Decision and Risk Tolerance as Mediator Factor. 5(2), 47–55.

38) Savitri, E., Hidayat, R., & Bimantara, F. (2023). The Influence of Financial Literacy and Behavior Finance on Investment Decision in the Millenial Generation in the Sub-District Across From Ulu II Palembang City. 621–627.

39) Schuhen, M., Kollmann, S., Seitz, M., Mau, G., & Froitzheim, M. (2022). Financial Literacy of Adults in Germany FILSA Study Results. Journal of Risk and Financial Management, 15(11). https://doi.org/10.3390/jrfm15110488

40) Seraj, A. H. A., Alzain, E., & Alshebami, A. S. (2022). The roles of financial literacy and overconfidence in investment decisions in Saudi Arabia. Frontiers in Psychology, 13, 1–24. https://doi.org/10.3389/fpsyg.2022.1005075

41) Srivastava, M., Sharma, G. D., & Srivastava, A. K. (2019). Human brain and financial behavior: a neurofinance perspective. International Journal of Ethics and Systems, 35(4), 485–503. https://doi.org/10.1108/IJOES-02-2019-0036

42) Van Nguyen, H., Ha, G. H., Nguyen, D. N., Doan, A. H., & Phan, H. T. (2022). Understanding financial literacy and associated factors among adult population in a low-middle income country. Heliyon 8, 8(6), e09638. https://doi.org/10.1016/j.heliyon.2022.e09638

43) Weixiang, S., Qamruzzaman, M., Rui, W., & Kler, R. (2022). An empirical assessment of financial literacy and behavioral biases on investment decision: Fresh evidence from small investor perception. Frontiers in Psychology, 13(September), 1–18. https://doi.org/10.3389/fpsyg.2022.977444