When Risk Tolerance Turns into Irrational Investment Choices: The Moderating Role of Trading Performance
DOI:
https://doi.org/10.47747/fmiic.v1i3.3631Abstract
Indonesia’s capital market has expanded at a remarkable pace. By July 2025, the number of registered individual investor accounts (SIDs) had reached 17,016,329 an 11.42% increase from the 14,871,639 SIDs recorded at the close of 2024 yet national financial literacy still stands at only 65.43%. That gap between market participation and genuine financial understanding leaves many investors exposed to irrational investment behavior, including overtrading, herding, and the disposition effect. This study investigates how risk tolerance shapes irrational investment decisions among individual investors in Sumatera Utara, and whether trading performance moderates that relationship. Using a cross-sectional survey design and PLS-SEM analysis on active SID holders in the province (population approximately 592,876 as of May 2024), we recruited respondents through purposive sampling and confirmed adequate discriminant validity through HTMT values below 0.90. The results show that risk tolerance exerts a positive and significant direct effect on irrational investment decisions (β = 0.369; t = 7.521; p < 0.001), while trading performance does not significantly moderate this relationship (β = 0.004; t = 0.118; p = 0.906). With an R² of 0.674, the model demonstrates substantial predictive power. These findings reinforce risk tolerance as the dominant direct antecedent of irrational investment behavior and suggest that trading performance may be more productively examined as a mediating variable in future work. Practical implications extend to OJK, the Indonesia Stock Exchange (IDX), securities firms, and digital investment platforms, all of which stand to benefit from stronger risk profiling, behavioral-bias-oriented financial literacy programs, and behavioral nudge features tailored to young retail investors.
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