Determinants of Millennial Generation Investment Decisions: The Interaction between Financial Literacy, Overconfidence, and Risk Tolerance in the Capital Market

Abstract

This study investigates the determinants of investment decision-making among the millennial generation in the Indonesian capital market, with a focus on the interaction effects between financial literacy, overconfidence bias, and risk tolerance. Using a quantitative survey approach, data were collected from 320 millennial investors aged 23-40 years who actively participate in the Indonesia Stock Exchange (IDX). Structural Equation Modeling (SEM) was employed to test the proposed hypotheses. The results demonstrate that financial literacy exerts a significant positive effect on investment decisions, while overconfidence bias moderates this relationship by amplifying the tendency to make high-risk investment choices. Risk tolerance was found to play a significant mediating role between financial literacy and actual investment behavior. The interaction effect between overconfidence and risk tolerance reveals that highly overconfident investors with elevated risk tolerance are disproportionately more likely to engage in speculative investment activities. These findings offer practical implications for financial education institutions, capital market regulators, and investment platforms targeting the millennial demographic in Indonesia.