Financial Literacy as a Moderator in Behavioral Biases and Investor Decisions

Authors

  •   Nancy Gupta Research Scholar (Corresponding Author), Amity College of Commerce and Finance Department (ACCF- Department), K3 Block, 2nd Floor, Gate No. - 4, Amity University, Sector - 125, Noida - 201 313, Uttar Pradesh
  •   Rachita Rana Director, Institute of Information Technology & Management, D - 29, Institutional Area, Janakpuri, Guru Gobind Singh Indraprastha University (GGSIPU), New Delhi - 110 058
  •   Deepak Tandon Senior Professor, Jaipuria School of Business, Block - B, Gate No. - 1, Shakti Khand- IV, Indirapuram, Ghaziabad - 201 014, Uttar Pradesh

DOI:

https://doi.org/10.17010/ijf/2025/v19i5/175045

Keywords:

financial literacy

, behavioral biases, investor decision-making, retail investor, moderating effect.

JEL Classification Codes

, G11, G41, G53

Paper Submission Date

, August 25, 2024, Paper sent back for Revision, March 8, 2025, Paper Acceptance Date, April 5, Paper Published Online, May 15, 2025

Abstract

Purpose : The first objective of this research paper was to examine the impact of behavioral biases on investment decisions. Additionally, the second objective was to analyze the moderating role of financial literacy in the relationship between behavioral biases and investment decisions in a developing country like India.

Design/Methodology/Approach : The conceptual framework was based on prospect theory and regret theory. The author considered six independent variables (herding bias, overconfidence bias, endowment bias, loss aversion bias, regret bias, and mental accounting bias), one dependent variable (investment decision), and one moderating variable (financial literacy). Data for the survey was collected using a structured questionnaire from 326 investors in Delhi and Noida.

Findings : The findings of this study revealed that behavioral biases influenced investors’ decisions. Another key finding was that financial literacy moderated the relationship between biases and investment decisions. In summary, higher financial literacy made investors more capable of identifying and overcoming biases. This insight enabled investors to make more logical and well-informed investment decisions.

Practical Implications : The research findings are significant for policymakers, managers, investors, and shareholders. Policymakers could design financial education programs and initiatives to improve financial literacy, fostering a more knowledgeable investor base. This will contribute to greater market stability.

Originality/Value : Previous research frequently examined individual biases but did not explore the potential influence of financial literacy on these biases in conjunction with demographic factors in the Indian context.

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Published

2025-05-15

How to Cite

Gupta, N., Rana, R., & Tandon, D. (2025). Financial Literacy as a Moderator in Behavioral Biases and Investor Decisions. Indian Journal of Finance, 19(5), 79–94. https://doi.org/10.17010/ijf/2025/v19i5/175045

Issue

Volume 19, Issue 5, May 2025

Section

Articles
Crossref
Scopus
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Europe PMC

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