The Influence of Financial Literacy, Risk Perception, and Overconfidence on Investment Decisions in Emerging Markets

Abstract

This study examines the influence of financial literacy, risk perception, and overconfidence on investment decisions in emerging markets. Understanding these factors is important because investment decisions are shaped not only by financial knowledge but also by investors’ perceptions of uncertainty and confidence in their own judgments. This study adopts a quantitative research approach and applies Partial Least Squares Structural Equation Modeling (PLS-SEM) to examine the relationships among the variables. The proposed model evaluates the effects of financial literacy, risk perception, and overconfidence on investment decisions. The example results indicate that financial literacy has the strongest positive and significant relationship with investment decisions (β = 0.421, p < 0.001), followed by risk perception (β = 0.286, p < 0.001) and overconfidence (β = 0.194, p = 0.006). The model explains 58.4% of the variance in investment decisions, suggesting that the three predictors jointly account for a substantial proportion of the variation in the outcome variable within the example analysis. These findings emphasize the importance of financial knowledge in evaluating investment alternatives, risk awareness in assessing uncertainty, and understanding behavioral biases when making investment choices. The study offers practical implications for financial education providers, financial institutions, and policymakers seeking to promote more informed investment behavior in emerging markets. However, the reported numerical results must be verified using actual empirical data before the abstract can be presented as a report of completed research.