An Empirical Study on the Influence of Financial Literacy, Overconfidence, and Attitudinal Biases on Investment Decisions

Abstract

This study investigates the impact of financial literacy, overconfidence, and investor attitude on investment decisions, employing Partial Least Squares Structural Equation Modeling (PLS-SEM) to analyze survey data collected from individual investors. The measurement model demonstrated strong psychometric properties, with Cronbach’s alpha and composite reliability values exceeding recommended thresholds, and Average Variance Extracted (AVE) values confirming convergent validity. Discriminant validity was established through both the Fornell-Larcker criterion and the Heterotrait-Monotrait ratio (HTMT), with all indicators showing acceptable levels of distinctiveness. These findings contribute to the behavioral finance literature by demonstrating how cognitive biases and attitudes intersect with financial literacy to influence investment choices. The study offers practical implications for financial educators, policymakers, and advisors aiming to enhance sound investment practices and mitigate behavioral biases among individual investors.