Title: Personality Traits, Culture, and Individual Investor Overconfidence
Author: Tri Kartika Pertiwi,
Universitas Airlangga
Item Type: Thesis (Dissertation)
Abstract
This study aims to examine the factors influencing overconfidence among individual investors on the Indonesia Stock Exchange. Psychological factors are internal factors, and the external environment shapes human behavior. Internal factors can be assessed through personality traits. Personality measurements conducted by researchers using five personality traits or Big Five Personality Traits, with personality dimensions of Agreeableness, Extraversion, Conscientiousness, Neuroticism, and Openness to Experience. External factors are assessed through the culture adopted by investors, consisting of masculinity/femininity, individualism/collectivism, and uncertainty avoidance. This study uses a quantitative approach. Data collection used a survey to obtain information on individual investors. Of the 238 returned questionnaires, 200 questionnaires were usable. The method used for estimation is Partial Least Square (PLS). The estimation results show that conscientiousness has a positive effect on investor overconfidence. Investing in the capital market that contains high uncertainty, with personality traits of conscientiousness, an investor feels that his thoroughness, planning, persistence in his work will produce the right decision, therefore investors trust his own information more than the information of others. With their perseverance and tenacity they assume that investment profits are due to the success of their investment strategy, this will increase overconfidence. The results of the analysis prove that the personality traits of openness have a positive effect on overconfidence, meaning investors who are open to new things, a smart thinker, they assume that their level of ability is above other investors, so they become overconfident. The results of cultural research show that Individualism does not affect investor overconfidence, but collectivism adopted by individual investors increases investor overconfidence, this is reflected in the negative influence of collectivism culture on overconfidence. The respondents of this study were investors on the Indonesia Stock Exchange, where Indonesian society, commonly called the eastern cultural society, prioritizes family. So they tend to obey the opinions of their group, in a collectivism culture, group or family members are willing to help any member who experiences a loss, so in decision making they become overconfident, because there are family members who are ready to help. Therefore, investors in stock trading transactions always interact with their peers and brokers when making investment decisions. The results of the study also show that masculinity influences investor overconfidence. Masculinity culture is oriented towards success, competition, and performance, with a mindset that "live to work." Investing in stocks full of uncertainty is favored by investors with masculine roles and is widely sought after by men. The conclusion of this study is that individual investors on the Indonesia Stock Exchange, particularly in Surabaya, experience an overconfidence bias influenced by the personality traits of conscientiousness, openness to experience, as well as a culture of collectivism and masculinity. The implication of this study is that investors in decision-making under conditions of uncertainty need to consider psychological aspects, by striving for self-control and constant introspection. Investors also need to enrich their investment knowledge from various sources, so that investors do not only consider the information they have.
Keywords: Overconfidence, Big Five Personality, Culture