The determinants of perceived risk: A moderating role of investor sophistication

Abstract

This study investigates the factors affecting perceived risk and the moderating effects of investor sophistication. Young investors are known to possess low financial literacy, exhibit herding behavior, and rely heavily on social media for information. A cross-sectional method was used to collect data through online questionnaires developed with Google Forms. At the same time, partial least squares structural equation modeling was adopted for data analysis using SmartPLS version 4. Purposive sampling was applied using a sample size of 344 young Indonesian investors aged 30 years and below with one year of experience in stock investing. Herding behavior and investor sophistication were adopted as mediating and moderating variables, respectively. The results show that social media influence significantly affects the perceived risk and herding behavior of young investors. Additionally, social media has an indirect impact on perceived risk through herding behavior. In this context, investor sophistication is a critical moderating factor amplifying the effects of social media and herding on perceived risk. This study contributes to prospect theory, behavioral finance, and social influence theory.