HOW OVERCONFIDENCE, BIAS, AND HERDING AFFECT TRADING DECISIONS: THE MODERATING ROLE OF ACCOUNTING KNOWLEDGE
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Abstract
This study examines the influence of Overconfidence Bias and Herding Behavior on stock trading decisions among retail traders on the Indonesia Stock Exchange, with Accounting Information Knowledge as a moderating variable. The study is motivated by the rapid surge in retail investor participation reaching 20.32 million by the end of 2025, with 52.59% under the age of 30 dominating 52-77% of daily transactions, yet exhibiting irrational trading patterns characterized by panic selling, overtrading, and portfolio returns lagging 5% below the benchmark index. The sample consists of fifty-one retail traders who actively trade on the Indonesia Stock Exchange, selected through purposive sampling. Structural Equation Modeling-Partial Least Squares was employed to test the proposed hypotheses. The results indicate that Overconfidence Bias has a positive and significant effect on Trading Decisions, suggesting that higher overconfidence leads to more aggressive and impulsive trading decisions. Herding Behavior has a positive and significant effect on Trading Decisions, indicating that retail traders tend to make market trends, community opinion, and social media sentiment the primary basis for decision-making. However, Accounting Information Knowledge does not moderate the relationship between Overconfidence Bias and Trading Decisions, nor between Herding Behavior and Trading Decisions, indicating a gap between textual understanding of financial information and analytical application in real-time decision-making. The findings suggest that psychological biases dominate retail trading behavior while accounting knowledge remains passive and unable to function as a cognitive filter, highlighting the need for literacy programs that develop analytical skills rather than merely transferring knowledge.
Keywords:
Overconfidence Bias Herding Behavior Trading Decisions Accounting Knowledge Retail TradersReferences
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