Social media impact on trading behavior: An examination among Indonesian young adult investors with capital market literacy as a mediator

The decline in financial literacy about capital markets among Indonesians raises concerns that the growing number of investors is at risk of financial fraud. This study introduces a novel approach to comprehensively examine how Indonesian young adults make investment choices, mainly when influenced by social media and their different literacy levels about financial markets in the digital age context. The central and dual roles of capital market literacy as an independent and intervening variable expand upon the existing framework of related studies. An empirical online survey with a valid sample of 314 respondents from Indonesia is used as the primary data for the study. Using the partial structural equation model, our results indicate that both social media and capital market literacy directly and positively impact investors' trading behavior. This suggests that a deeper understanding of capital market literacy, coupled with the influence of social media, plays a crucial role in shaping how investors engage in trading activities. Furthermore, this study also found that the mediating role of capital market literacy significantly affects trading behavior, indicating its importance in explaining how social media influences investment decisions among young adults


Introduction
Investments have gained significant popularity in recent times.According to data from the IDX, the number of mutual fund investors in Indonesia experienced a remarkable 78% surge in 2020, reaching a total of 3.2 million investors (Prasetyantoko, 2022).As of August 2021, a significant portion of these investors falls under the category of young investors, those under 40 years old, comprising 2.083 million investors, representing 78.9% of the total number of stock investors (Sonny, 2021).The prominent trend is the increasing involvement of Millennials and Gen Z, who dominate transactions in the country's capital market, making up a significant 80 percent share.However, despite its substantial growth and contribution to the number of stock market transactions, numerous investment fraud cases have plagued the nation over the past few decades.These scams have left victims not only defrauded of billions of rupiah but have resulted in losses reaching trillions of rupiah.The root cause of this issue lies in the lack of investment literacy and the massive influence of social media influencers among young investors.Many young individuals aspire to achieve substantial investment returns without fully understanding the associated risks.
The trading behavior of investors, whether buying, selling, or holding, is undoubtedly motivated by various factors.Factors related to investor behavior according to Loibl and Hira, (2009), namely the media used to obtain information, one of which is social media (Wang et al., 2016).Various kinds of information about stock performance platforms can be found on social media, like websites (Farkas & Keshk, 2019), blog (Rickett, 2016), and twitter (Chahine & Malhotra, 2018).Social media greatly influence young generations, and this influence is often mediated through social media influencers, as indicated by the research of (Arora et al., 2019) and (Jerslev, 2016).An influencer can be described as an individual who consistently generates content on various social media platforms and has many followers (Kim et al., 2021).A study from Handranata et al. (2022) found a positive and significant influence between stock influencers and stock market participation.
Interestingly, the study found that while they do listen to experts, individuals tend to follow the crowd more when influenced by friends, relatives, siblings, and parents (Gupta & Goyal, 2022).Sokolova & Kefi (2020) further support these findings by asserting that a strong engagement between social media influencers and their followers can also positively impact purchase intention, mirroring the effectiveness seen in the marketing domain (Yuan & Lou, 2020).However, despite these insights, it is noteworthy that more studies need to examine the influence of social media influencers as a determinant factor in stock investments.This research gap highlights the need to further investigate this emerging area of interest.
In addition to social media influencers, financial literacy is recognized as a significant factor in shaping investor behavior (Dinç Aydemir & Aren, 2017).Proficiency in financial matters equips investors with a deeper understanding of monetary concepts and finance, which can be directly applied in the capital market.Numerous researchers from van Rooij et al. (2011), Klapper et al. (2013), Mouna & Jarboui (2015) and Sivaramakhrisnan et al.
(2017) have posited a strong connection between financial literacy and decision-making processes within the capital market.Raut (2020) emphasized that investors with inadequate capital market knowledge may make irrational decisions, a phenomenon often observed in young adult investors.Previous studies consistently highlighted the worrisome fact that young adults often lack fundamental financial knowledge (Lusardi et al., 2014) and financial literacy (Lusardi & Scheresberg, 2013), leaving them not-prepared to confront the myriad financial challenges that life presents (Mottola, 2015).Therefore, it is becoming increasingly evident that acquiring financial literacy is not merely a desire but a necessary skill for young adults, as it can enable them to effectively navigate financial setbacks and make critical financial decisions (van Rooij et al., 2011).Financial literacy is "the understanding of fundamental economic and financial principles, coupled with the capacity to apply this knowledge and employ various financial skills to efficiently manage financial resources, thereby ensuring long-term financial stability and well-being" (Furrebøe & Nyhus, 2022).
Financial literacy plays a pivotal dual role in the context of investment behavior, serving as both an independent and mediator variable.Firstly, financial literacy is an independent variable, directly influencing investment behavior.Individuals with a higher level of financial literacy possess a better understanding of financial concepts, investment options, and risk factors (Lusardi et al., 2014;Copur & Gutter, 2019;Adil et al., 2022).Secondly, financial literacy is a mediator variable that facilitates the relationship between various external factors, such as media influence or social connections, and investment behavior (Fessler et al., 2020;Yahaya et al., 2019).For instance, when individuals are exposed to investment information on social media or through influencers, their level of financial literacy can determine how effectively they process and apply this information.Financially literate individuals are better equipped to discern credible sources, critically assess investment advice, and make rational decisions (Lusardi et al., 2014).
In contrast, those with lower financial literacy may struggle to differentiate between informed guidance and speculative recommendations, potentially leading to impulsive or uninformed investment behaviors.To the best of our knowledge, limited research explores the nuanced ways financial literacy, specifically capital market literacy, mediates the influence of internal and external factors on investment decision-making.Bridging this gap, our study specifically focuses on the mediation role of capital market literacy, rather than general financial literacy, in the relationship between external influences, such as social media exposure or social connections, and investment behavior.The rationale for this focus is recognizing that capital market literacy is relevant for individuals engaged in investing and trading within the financial markets.Delving into this specialized subset of financial literacy, we aim to contribute to a more thorough understanding of the factors that shape investor behavior, especially among the young adult generation in Indonesia.

Trading Behavior
Investor trading behavior is part of financial behavior, which basically explains the biases that may occur when investors make investment decisions (Kapoor & Prosad, 2017).
Investors are only sometimes rational in using information available in the market, so that investment decisions are no longer based on fundamental factors but rather follow the behavior of the majority of investors in the market or often called herding behavior.Herding behavior is characterized by investors mimicking the actions of their peers.At the same time, in the context of millennials, it refers to their inclination to trade stocks in alignment with the trading activities of fellow millennials.
In 2008, the Indonesian Capital Market witnessed a phenomenon characterized by herding behavior, where most foreign investors engaged in mass selling of their shares, primarily driven by liquidity needs.This behavior, in turn, triggered domestic investors, who did not necessarily require liquidity, to follow suit.Consequently, despite favorable macroeconomic and issuer fundamentals, the stock index experienced a significant and abrupt decline.In addition to herding behavior, investors occasionally succumb to rumors, market issues, or engage in noise trading activities.These behaviors often stem from investors' challenges in critically assessing circulating rumors or issues intentionally disseminated to sow uncertainty, particularly during bearish market conditions.The ultimate goal is to entice investors to buy shares when they encounter positive rumors and, conversely, to sell based on negative hearsay.However, trading shares based on rumors, without conducting thorough analysis, exposes investors to elevated levels of risk, potentially exceeding their acceptable risk thresholds The explanation above places information as an important factor influencing investor decisions.This is by Ajzen's opinion that information consisting of knowledge, media, and experience will have an impact on investor behavior in the capital market.Therefore, this research will link the media as a source of information, knowledge and investor trading behavior.

Social Media
Researchers have used social media to explore the complex behavior of young adult investors in the capital market (Duz Tan & Tas, 2021).This is because the main capital market players, namely brokers and traders, really believe that content about the capital market on social media can move stock prices (Zhang et al., 2016).In its development, social media is not only a medium for providing data, information, and economic and financial news but has also become an online discussion medium for sharing ideas and information and getting solutions to problems related to investment decisions between investors and issuers (Chahine & Malhotra, 2018) or fellow investors (Talwar et al., 2021).
With interaction, investors' insight will increase and they can decide whether the information can be used in decision making.It can be concluded that interaction between investors and issuers as well as fellow investors can reduce information asymmetry, namely that no one party has more information than another party and can minimize biased investor behavior (Miller & Skinner, 2015), and increasing the level of financial literacy (Yanto et al., 2021).The ability of investors to interpret information read on social media is very important because often the content on social media is a repetition of news about the performance of certain shares and can lead some or even all investors to take irrational actions because they think the news is new information.In fact the news is "stale" news, even though (Jiao et al., 2016) found that shares that were often discussed on social media experienced an increase in volatility of around 50 percent and a 25 percent increase in trading volume from the previous period, and could form stock prices in a certain range (Sul et al., 2017).
In particular, the findings of Jiao et al. (2016) indicate that investors who take this opportunity are investors who have a good understanding of stock performance.Hence, they are able to get abnormal returns in that period, but in the following period these investors will categorize information repeatedly.discussed on social media as 'stale' news.Stock buying activities based on repeated news will lead investors to act speculatively and have the potential to influence stock price movements in a certain direction.The implication of the description above is that investors' ability to process information and news on social media is very necessary (Ali Al Atoom et al., 2021), otherwise, social media will not have a significant impact on decision making (Ahmed et al., 2019), because investors do not understand the usefulness of the information read on social media.Based on the explanation above, the hypothesis proposed is as follows.
H1: Social media has a significant and positive effect on the trading behavior of young adult investors.
H2: Social media significantly and positively increases the capital market literacy of young adult investors.

Financial Literacy and Capital Market Literacy
Financial literacy is a concept of how an individual understands financial knowledge and the individual's ability to use this knowledge to improve the quality of decision making in order to achieve economic prosperity (Li, 2020).So even with limited resources, if individuals are equipped with good knowledge they will be able to make decisions in various fields, for example investment decisions (van Rooij et al., 2011;Gerrans & Hershey, 2017; Chahuan & Dey, 2020).Increasing individual financial literacy has become the main goal of capital market regulators because it has an impact on market efficiency.In this research, the terms financial literacy and capital market literacy are used interchangeably or are usually used for the same meaning as long as they are not specifically mentioned as terms for banking, insurance, pawnshops, and/or other financial institutions Even more, Ping et al. (2020) in their research have uses the term stock trading literacy as an equation for financial literacy.Bannier & Neubert (2016) and Setiawan et al. (2022) using the term financial literacy, in their research found that individuals who understand well the benefits and risks of financial assets are more willing to invest in financial markets, including investing in risky assets and vice versa.The reluctance to invest in high-risk assets, like stocks, often stems from concerns about the rapid price fluctuations that can lead to capital losses.This is where the concept of segmented financial literacy, particularly capital market literacy, becomes crucial.Capital market literacy equips individuals with the knowledge and skills necessary to comprehend the dynamics of financial markets, including the intricacies of stock trading and the factors influencing stock prices.A higher level of capital market literacy empowers investors to make informed decisions, mitigating the perceived risks associated with stock market investments and recognize opportunities for capital growth.Understanding how the capital market works is one of the technical mastery skills because financial literacy is one way to deal with market uncertainty and can increase positive sentiment towards the market return index and stock trading volume transactions simultaneously (Meng et al., 2020).
The central role of financial literacy in decision making is beyond doubt.However, it is necessary to pay attention to the measurement of financial literacy from several previous studies which still concentrated on knowledge of accounting information and financial analysis.In this research, the measurement of capital market literacy needs to be adjusted to the characteristics of the respondents, namely the majority of short-term investors.Hence, an understanding of technical analysis is essential.
H3: Capital market literacy significantly and positively affects the trading behavior of young adult investors.

The Mediating Role of Capital Market Literacy
The empirical studies described previously still concentrate on the role of capital market literacy as an independent variable.Several studies have found that the role of financial literacy as a mediating variable is powerful in the relationship between lotus of control and intention to invest in risk assets Dinc Aydemir & Aren (2017), overconfidence heuristic with biased investment decisions (Ahmad & Shah, 2022), as well as the impact of learning by level of participation in the stock market (Hermansson et al., 2022).This research will explore the relationship between social media and investors' stock trading behavior with the mediating role of capital market literacy because it can understand the complexity of bivariate relationships.Researchers consider the relationship between social media, capital market literacy and investor trading behavior to be linear, and this is proven by the findings of Xiao & Porto (2017) and Prasetya, et al. (2021) that financial literacy is a strong mediator between financial education, financial satisfaction, and comprehensive sustainability.
Meanwhile, the non-linear relationship between variables actually places financial literacy not as a mediator between overconfidence and risk tolerance and investment decisions (Kasoga, 2021).H4: Capital market literacy mediates the relationship between social media and trading behavior of young adult investors.

Methods
The primary objective of this study is to investigate the relationship between social media exposure, financial literacy, and investor behavior.Additionally, this study will assess the potential mediating role of financial literacy in the link between social media and investor Furthermore, young adults increasingly rely on social media as a primary source of information, including financial advice.By the recommendation by Hair et al. (2017), which suggests a sample size of at least 200 but not exceeding 400, a total of 388 individuals participated in the present study.However, 74 responses were excluded as they only completed part of the questionnaire.As a result, the final sample for this study comprised 314 respondents aged between 18 and 29 years old.The respondents' profile reveals that 66 percent of them are male investors, while 34 percent are female investors.Regarding their professions, the majority are private employees (33 percent), followed by self-employed individuals (26 percent), undergraduate students (23 percent), and others (18 percent).
Approximately 73.8 percent of respondents report an income exceeding IDR 10,000,000 Social media impact on trading behavior: An examination among Indonesian young adult investors with capital market literacy as a mediator by Junaidi, Nurhidayah (with 1 USD equaling IDR 14,000), and the majority possess over a year of experience in stock trading.In terms of information sources, websites are the most commonly used by investors for gathering information on stock performance before making trading decisions, followed by Twitter and Instagram.The details of the constructs and measurement items used in the study are provided in Table 1, with social media items adapted from Ahn et al. (2007), capital market literacy items sourced from van Rooij et al. ( 2011), and investor behavior items drawn from Ahn et al. (2007).
The outer model evaluation examines the relationships between latent variables and the indicators that constitute them.This assessment involves three key tests: convergent, discriminant, and reliability tests.Assessment of loading factor values and average variance extracted (AVE) determines convergent validity.Validity is confirmed if loading factor values exceed 0.70, and AVE values exceed 0.50 (Hair et al., 2009).Reliability is assessed through composite reliability (CR) and Cronbach's alpha, with instrument reliability established if parameter values exceed 0.7.Table 2 shows that the validity and reliability tests have met the specified requirements, therefore, hypothesis testing can be continued.
Furthermore, the inner model evaluation conducted to assess the magnitude of relationships between constructs.Three key evaluations, including the coefficient of determination (R 2 ), predictive relevance (Q 2 ), and goodness of fit (GoF), are employed to examine the inner model's results.Table 3 shows that the R 2 evaluation results indicate that the CML and IB constructs can be accounted for by the exogenous variables to the extent of 45.2% and 43.3%, respectively, categorizing their relationship as moderate (Ghozali & Latan, 2012).In the Q 2 assessment, it is revealed that 68.9% of the IB variable's variation can be anticipated by the CML and SM constructs, with the remaining portion attributable to external variables not included in the research model.This 68.9% value falls into the strong model category (Hair et al., 2017).Furthermore, the calculated goodness of fit (GoF) value of 0.568 signifies the model's robust capability to elucidate empirical data.It categorizes it as "GoF Large," as it exceeds the threshold of 0.38 (Tenenhaus et al., 2005).Social media has a positive effect on investor behavior, which means that the quality of information on social media can increase the trading of millennial investors.The loading factor of social media that contributes to increasing investor trading is that stock performance information on social media is easy to understand.This finding aligns with the theory of planned behavior that information media is related to individual behavior.In addition, the results of this study are consistent with previous studies that signal quality of information has an impact on investors' trading behavior (Epstein & Schneider, 2008).As global capital market risks increase substantially in response to the pandemic (Meng et al., 2020), the use of information on websites, especially clearly stated information such as buying or selling recommendations, is increasing (Miller & Skinner, 2015).Submission of stock performance information in easy-to-understand and straightforward sentences enables investors to make decisions as quickly as possible, whether to sell or buy shares.This is indicated by the activeness of investors in buying and selling trading by utilizing various information about the stock market on social media.But during the pandemic, the majority of investors sell daily, although there are still investors who buy weekly.The selling action by investors is a response to the declining stock price performance in the short term (Huang et al., 2015), and is a form of preventive investors to avoid losses.
Social media has a positive effect on the capital market literacy or CML of millennial investors.The social media loading factor that gives the biggest contribution to increasing investor CML is that stock performance information on social media is easy to understand.
Investors perceive positively the information contained in social media which means that investors benefit from the information (Ahn et al., 2007).Various kinds of information related to stock performance indicators can be easily found on social media, both the opinions of capital market experts and reviews of investments that can increase investors' knowledge (Karaa & Kuğu, 2016) about capital market conditions.Submission of information easily really helps investors identify the performance of the capital market, whether in bullish or bearish conditions.In addition, this information is used as a guide by investors to predict stock price movements and identify profitable stocks.This knowledge is very much needed by investors, given the negative effects caused by the pandemic on stock returns (Alfaro et al., 2020), so that investors are able to determine when is the right time to enter and exit the market.
Capital market literacy has a positive effect on investors' trading behavior.The loading factor that gives the biggest contribution to investor behavior in trading is the ability of investors to identify capital market conditions, especially when the performance of the capital market is declining or bearish.This finding is consistent with studies conducted by Sivaramakrishnan et al., (2017) 2009), investors' financial knowledge has a negative effect on investors' investment decisions, this is due to differences in the characteristics of investors who are respondents (Haridas & Uchil, 2020).The findings of this study indicate that Indonesian millennial investors have good knowledge of the capital market.Investors with knowledge of capital market conditions, especially when the market is bearish, tend to sell.It makes sense that well-informed investors are well aware of the potential loss if they don't sell their shares immediately when market performance declines.However, because of their knowledge, investors still buy stocks during the pandemic.This is because investors tend to choose shares of companies that get good ratings even though the stock market is in a declining condition (Peng et al., 2015).
The study also proved that capital market literacy is able to mediate social media relations and investor trading behavior.In the midst of fluctuating Indonesian capital market conditions, capital market literacy has an extraordinary role for investors.Investor knowledge about capital market conditions can be obtained from various media, one of which is social media as a medium that is inseparable from the activities of the millennial generation (Wang et al., 2016).Information about stock performance on social media, especially websites as the media most often used by both male and female investors can significantly increase knowledge so that it will guide investors to make decisions, whether to sell or buy, especially when buying actions because it is related to placing funds in certain shares, and if you misinterpret market conditions, the loss will be in the form of capital loss that investors will obtain.Therefore, the majority of investors buy, but on a weekly basis; this is a form of caution from investors.However, investors are selling daily and weekly because it is the right momentum to release share ownership amid rapidly changing and unpredictable market conditions due to the pandemic.Over time, investor confidence in the performance of the Indonesian capital market has begun to increase, this can be seen in the response of investors who are willing to trade in the future.

Conclusion and Suggestion
This study explores the impact of social media on investor trading behavior, with a focus on the mediating role of capital market literacy.The findings indicate that investors tend to exhibit rational behavior when the information they access on social media platforms is clear and easily comprehensible.Moreover, the research results highlight that capital market literacy has a positive effect on increasing investor participation in the capital market.
Specifically, capital market literacy acts as a full mediator in the relationship between social media and investor trading behavior.This mediation is based on linear relationships and contributes to enhancing investors' understanding of the capital market dynamics.As a practical implication, the study suggests that investors should not solely rely on information for their investment decisions but should also consider their trading experience.Future research endeavors could delve into investigating the sustainability of investor trading, particularly in the context of Indonesia, given the prevalence of passive investors in the market.

Table 2 . Validity and Reliability
Social media impact on trading behavior: An examination among Indonesian young adult investors with capital market literacy as a mediator by Junaidi, Nurhidayah behavior.Data collection for this study utilized a standardized survey design to gather responses from individual investors.A convenience sampling technique was initially employed, where a message containing a link to the online questionnaire was disseminated across various social networking sites, including Instagram, Facebook, and LinkedIn.
young adults for several reasons.Firstly, this age group represents the largest demographic of social media users, spending the most time on social media compared to other age groups.

Table 3 .
Inner Model Evaluation Mouna & Jarboui (2015)1))andMouna & Jarboui (2015)that the main factor influencing investors' decisions to participate in the capital market is knowledge of stock instruments.The better investors' understanding of capital market instruments, the higher the involvement of investors in the capital market.The results of this study also prove that with high capital market literacy, young adult investors can minimize herding behavior, because at the same time not all investors have the same response to the information they receive.Different responses are a sign that investors have the ability to process information well because they understand the usefulness of the information received.