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Beyond Rational Piety: Herding Behavior and the Cognitive Architecture of Islamic Investment Decisions
Corresponding Author(s) : Asri Jaya
Jurnal Minds: Manajemen Ide dan Inspirasi,
Vol. 13 No. 1 (2026): June
Abstract
This study examines how representativeness bias and emotion shape Islamic investment decisions through herding behavior among Indonesian Islamic stock investors. The study contributes to behavioral Islamic finance literature by positioning herding behavior as a cognitive-emotional mechanism in which representativeness bias acts as the dominant trigger while emotion amplifies collective investment tendencies. Using a quantitative approach and PLS-SEM, data were collected from 324 investors who actively transact in Islamic stocks in Indonesia. The findings reveal that representativeness bias significantly influences herding behavior and Islamic investment decisions, while emotion strengthens the relationship between representativeness bias and herding behavior. Herding behavior also mediates the influence of cognitive and emotional factors on investment decisions. These findings imply the importance of strengthening behavioral financial literacy and critical investment judgment to reduce irrational collective behavior in Islamic capital markets.
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- Aharon, D. Y. (2021). Uncertainty, fear and herding behavior: Evidence from size-ranked portfolios. Journal of Behavioral and Experimental Finance, 32, 100613. https://doi.org/10.1016/j.jbef.2021.100613
- Akhtar, F., & Das, N. (2019). Predictors of investment intention in Indian stock markets: Extending the theory of planned behaviour. International Journal of Bank Marketing, 37(1), 97–119. https://doi.org/10.1108/IJBM-08-2017-0167
- Alexakis, C., Chantziaras, A., Economou, F., Eleftheriou, K., & Grose, C. (2023). Animal behavior in capital markets: Herding formation dynamics, trading volume, and the role of COVID-19 pandemic. The North American Journal of Economics and Finance, 67, 101946. https://doi.org/10.1016/j.najef.2023.101946
- Ballinari, D., Caccavaio, M., & Tolotti, M. (2022). Emotions and financial markets: Evidence from sentiment analysis. Finance Research Letters, 46, 102382. https://doi.org/10.1016/j.frl.2021.102382
- Barberis, N. (2018). Psychology-based models of asset prices and trading volume. Journal of Economic Perspectives, 32(3), 1–22. https://doi.org/10.1257/jep.32.3.1
- Bougatef, K., & Nejah, I. (2022). The COVID-19 pandemic and herding behaviour among investors in Shariah-compliant stocks. Journal of Islamic Accounting and Business Research, 13(5), 832–844. https://doi.org/10.1108/JIABR-08-2021-0237
- Bouteska, A., & Regaieg, B. (2020). Loss aversion, overconfidence of investors and their impact on market performance: Evidence from the US stock markets. Journal of Economics, Finance and Administrative Science, 25(50), 451–478. https://doi.org/10.1108/JEFAS-07-2018-0081
- Chaffai, M., & Medhioub, I. (2018). Herding behavior in Islamic GCC stock market: A daily analysis. International Journal of Islamic and Middle Eastern Finance and Management, 11(2), 182–193. https://doi.org/10.1108/IMEFM-08-2017-0220
- Choi, K.-H., & Yoon, S.-M. (2020). Investor sentiment and herding behavior in the Korean stock market. International Journal of Financial Studies, 8(2), 34. https://doi.org/10.3390/ijfs8020034
- Chue, T. K., Gul, F. A., & Mian, G. M. (2019). Aggregate investor sentiment and stock return synchronicity. Journal of Banking & Finance, 108, 105628. https://doi.org/10.1016/j.jbankfin.2019.105628
- Gigerenzer, G. (2018). The bias bias in behavioral economics. Review of Behavioral Economics, 5(3–4), 303–336. https://doi.org/10.1561/105.00000092
- Griffith, J., Najand, M., & Shen, J. (2020). Emotions in the stock market. Journal of Behavioral Finance, 21(1), 42–56. https://doi.org/10.1080/15427560.2019.1672740
- Hirshleifer, D. (2020). Presidential address: Social transmission bias in economics and finance. The Journal of Finance, 75(4), 1779–1831. https://doi.org/10.1111/jofi.12881
References
Aharon, D. Y. (2021). Uncertainty, fear and herding behavior: Evidence from size-ranked portfolios. Journal of Behavioral and Experimental Finance, 32, 100613. https://doi.org/10.1016/j.jbef.2021.100613
Akhtar, F., & Das, N. (2019). Predictors of investment intention in Indian stock markets: Extending the theory of planned behaviour. International Journal of Bank Marketing, 37(1), 97–119. https://doi.org/10.1108/IJBM-08-2017-0167
Alexakis, C., Chantziaras, A., Economou, F., Eleftheriou, K., & Grose, C. (2023). Animal behavior in capital markets: Herding formation dynamics, trading volume, and the role of COVID-19 pandemic. The North American Journal of Economics and Finance, 67, 101946. https://doi.org/10.1016/j.najef.2023.101946
Ballinari, D., Caccavaio, M., & Tolotti, M. (2022). Emotions and financial markets: Evidence from sentiment analysis. Finance Research Letters, 46, 102382. https://doi.org/10.1016/j.frl.2021.102382
Barberis, N. (2018). Psychology-based models of asset prices and trading volume. Journal of Economic Perspectives, 32(3), 1–22. https://doi.org/10.1257/jep.32.3.1
Bougatef, K., & Nejah, I. (2022). The COVID-19 pandemic and herding behaviour among investors in Shariah-compliant stocks. Journal of Islamic Accounting and Business Research, 13(5), 832–844. https://doi.org/10.1108/JIABR-08-2021-0237
Bouteska, A., & Regaieg, B. (2020). Loss aversion, overconfidence of investors and their impact on market performance: Evidence from the US stock markets. Journal of Economics, Finance and Administrative Science, 25(50), 451–478. https://doi.org/10.1108/JEFAS-07-2018-0081
Chaffai, M., & Medhioub, I. (2018). Herding behavior in Islamic GCC stock market: A daily analysis. International Journal of Islamic and Middle Eastern Finance and Management, 11(2), 182–193. https://doi.org/10.1108/IMEFM-08-2017-0220
Choi, K.-H., & Yoon, S.-M. (2020). Investor sentiment and herding behavior in the Korean stock market. International Journal of Financial Studies, 8(2), 34. https://doi.org/10.3390/ijfs8020034
Chue, T. K., Gul, F. A., & Mian, G. M. (2019). Aggregate investor sentiment and stock return synchronicity. Journal of Banking & Finance, 108, 105628. https://doi.org/10.1016/j.jbankfin.2019.105628
Gigerenzer, G. (2018). The bias bias in behavioral economics. Review of Behavioral Economics, 5(3–4), 303–336. https://doi.org/10.1561/105.00000092
Griffith, J., Najand, M., & Shen, J. (2020). Emotions in the stock market. Journal of Behavioral Finance, 21(1), 42–56. https://doi.org/10.1080/15427560.2019.1672740
Hirshleifer, D. (2020). Presidential address: Social transmission bias in economics and finance. The Journal of Finance, 75(4), 1779–1831. https://doi.org/10.1111/jofi.12881