INVESTMENT DECISION UNDER RISK:

EMPIRICAL EVIDENCE ON THE MUTUAL FUND MARKET CRISIS IN INDONESIA, 2005

Abstract

Investment decisions under risk may lead investors to behave irrationally in managing their portfolio investments. This study aims to examine the behavior of mutual fund investors in making investment decisions during the mutual fund market crisis in Indonesia in 2005. Specifically, this study examines the effect of investment motives and investment benefits on mutual fund investment performance by considering the fund redemption motives during a mutual fund crisis 2005. This study also controls the effect of different types of investors on empirical models. This study used primary data with a sample of 96 mutual fund investors, of which 46 are investors who have invested in a period of mutual fund crises. This study adopted a factor analysis technique to reduce the number of variables and minimize multicollinearity between independent variables. Furthermore, t-test in multiple regression analysis is used to test the research hypothesis. The results showed that the influence of investment motives and investment benefits on mutual fund investment performance is sensitive to different types of investors. Investors who also invest directly in the capital market seem more sophisticated in managing their portfolios than investors who only invest in the mutual fund market. Investors make redemption of funds in a period of mutual fund crisis caused by misleading factors rather than panic factors. This study found no signs of trauma from investors after experiencing huge investment losses due to the mutual fund crisis in 2005.