engleski

Personality as a predictor of students' heuristic and herding biases in determining their predispositions for long-term investment decisions

Making the right investment decision has always been of crucial importance for any investor, since it results in better investment performance and, consequently, a higher level of satisfaction and long-term benefits. In this research, the focus is on students of business economics graduate studies in Croatia, who are expected to have fundamental knowledge of finance and stock investments, as potential investors in financial markets. It has previously been assumed that investment decisions are made in a rational way, taking only the risk and return of an investment into account. However, recent studies have shown that various psychological and behavioural factors influence this decision making process. Therefore, even though students of business economics are supposed to be more rational, it is often not true and their decisions are irrational to some extent. There are many different behavioural factors which can influence these decisions. This paper focuses on heuristics and herding, as some of the most frequently recognized biases which influence investment decisions. However, these behavioural biases themselves can be affected by an individual’s personality characteristics, which consist of two dimensions: stability and plasticity. This research aims at identifying multiple causal relationships between students’ personality characteristics, behavioural biases and predispositions for long-term investment decisions. Data was collected through an online questionnaire among 223 students of graduate studies from Faculty of Economics, Business and Tourism in Split, Croatia. Partial least squares structural equation modelling results show that plasticity positively affects overconfidence heuristic, while stability positively affects representativeness heuristic. Stability also has a negative impact on herding, while availability heuristic is not influenced by personality characteristics. Additionally, overconfidence and representativeness positively affect students' predispositions for long-term investment decisions, while availability and herding affect those predispositions negatively.

behavioural finance, herding, heuristics, investment decisions, personality

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