Abstract
Rational investors focus on the fundamental and technical analysis in their investment decisions. In fundamental analysis, they consider economic conditions, industry analysis, and company analysis if they use a top-down approach, and vice versa if they use a bottom-up approach. Technical analysis focuses on the historical movement of stock price to predict the future price by using the pattern of a chart. However, in modern finance, investors are not fully rational as they are also affected by the psychological factors when making their investment decisions. These psychological factors then create behavioral biases, which becomes the basic assumption of behavioral finance This research is aimed at investigating the role of availability bias and disposition effect as behavioral biases that make investors irrational in their behaviors and whether it is supported by the Big Five Personality Traits, which include openness, conscientiousness, extraversion, agreeableness, and neuroticism (OCEAN). It needs to explore the influence of fundamental analysis and technical analysis on investment performance with the existence of behavioral biases as mediating variable and personality traits as a moderating variable between fundamental analysis and behavioral biases.
Highlights
According to the data from Statistics Indonesia (BPS), Indonesia’s population of 265,015,300 with GDP over USD 1 trillion is still attractive and remains challenging for investors
There are two types of investment analysis; fundamental analysis and technical analysis that is used in traditional finance and the result is a rational investment decision
Previous studies show that there is a negative correlation between openness and availability bias (Sadi et al, 2011), while there is a positive relationship with disposition effect (Bashir et al, 2013)
Summary
According to the data from Statistics Indonesia (BPS), Indonesia’s population of 265,015,300 (in 2018) with GDP over USD 1 trillion is still attractive and remains challenging for investors. Most of Indonesians still prefer to put their money in the savings account. The ratio of savings and investment is 79:21 (www.idntimes.com). This shows that for Indonesians, investing is not as interesting as savings. The number is still relatively low as compared to populations in Indonesia, which is only 0.93 per cent of the total population. Investors must take some time to analyze the stock to gain maximum profit in their investment
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