Examining the moderating role of financial literacy between determinants of individual behaviour and investment decision-making for Iraqi investors

Abstract

Behavioural finance argues that an investor's decision-making process for investments is influenced by a complex mixture of factors that have a role in an investor's decision-making process. The study of behavioural aspects in financial markets is somewhat of an emerging concept and the determinants are not considerably addressed. In the same context, it's argued that financial literacy has a substantial part in predicting investments. However, past studies neglect to examine the moderation effect of financial literacy on an individual's investment decision in the stock market. The primary objective of this study is to examine the relationship between determinants of investor behaviour and an individual's investment decisions considering the moderating effect of financial literacy in such relationships. The targeted population and key informants were drawn from the individual investors invested in companies listed on the Iraq stock exchange. An online survey-based method was used to collect data from individual investors in Iraq to help validate the hypothesised relationships. Variance-based SEM, known as the SmartPLS method, was applied in this study. The study found that firm image coincidence, accounting information, neutral information, advocate recommendations, and personal financial needs have a significant positive relationship with individual investment decision-making of Iraqi investors. Financial literacy was found to be a significant moderator in these relationships.