Socio Psychological Effect in Investment Decision-Making Mediated by Risk Tolerance

Abstract

Introduction: Investment decision-making is not solely based on rational financial analysis; it is increasingly influenced by socio-psychological factors such as investor behavior, emotions, social norms, and cognitive biases. Understanding how these factors operate is crucial for comprehending investor behavior, especially in volatile markets.

Objectives: This research aimed to analyze how social psychological aspects, including anxiety, positive mood, social media usage, and social interaction, are associated with the investment decision process of stock investors in the Indonesian capital market.

Methods: This research was conducted in four regional areas in Indonesia. This research was conducted in Indonesia because Indonesia's strong collective culture, combined with high social media penetration, creates unique dynamics in information dissemination and investment decision-making. Indonesia's relatively high market volatility also enables research on investors' emotional responses to market fluctuations. Data were collected from 300 retail investors in the Indonesia capital market and was analyzed using the Structural Equation Modeling (SEM) method. The coefficient of determination value showed that 62.4% of investment decisions are explained by anxiety, positive mood, social interaction and social media.

Results: The research findings show that anxiety has a significant negative effect on investment decisions and risk tolerance with p-values of 0.014 and 0.000 respectively. Positive mood does not affect investment decision-making but influences risk tolerance with a p-value of 0.000. Social interaction positively affects both investment decisions and risk tolerance with p-values of 0.005 and 0.000.

Conclusions: Meanwhile, social media has no significant effect on either investment decisions or risk tolerance. Risk tolerance used as an intermediary variable, proved effective in mediating the relationship between anxiety, positive mood, and social interaction. However, this variable did not mediate the connection between social media and investment decisions.