Effect of behavioral influences on investor portfolio performance at the Nairobi securities exchange
Abstract
This research study was undertaken with the objective to establish how behavioral
influences impact on portfolio performance of retail investors at the Nairobi Securities
Exchange. Portfolio performance was measured using Sharpe ratio, while behavioral
influences were anchoring, loss aversion, herding and overconfidence. A descriptive
research design was used in carrying out this research study. The population of this study
was all the retail investors at the Nairobi Securities exchange estimated to be 1.77 million
in 2016 according to the Capital Market Authority. A sample of one hundred investors
drawn using snowballing technique. Primary data was sourced through structured
questionnaires administered to one hundred respondents through the drop and pick later
method. Secondary data was also obtained on the shares past prices and the Treasury bill
rate from the Nairobi Securities exchange and the Kenya National bureau of statistics
respectively. A final response rate of fifty three percent was achieved. Data collected was
then edited and coded ready for analysis. Data analysis was undertaken using descriptive
statistics and correlation and regression analyses. The study finds that portfolio
performance (measured by Sharpe ratio) and investor overconfidence are negatively
correlated but correlated positively with anchoring, herding, and loss aversion. Overall,
behavioral influences therefore have a weak positive effect on portfolio performance among
retail investors at the Nairobi Securities Exchange. From this study even the financially
literate investors suffer from behavioral effects, from the study eighty seven per cent of
the respondents have financial training. The study recommends that the Nairobi securities
Exchange, Capital Markets Authority and other capital market players clearly appreciate
the role played by the retail investor behavior in influencing share price movements and
use the information as a basis of investor education for purposes of minimizing the
amount of noise trading and price distortion in the Kenyan capital market. It also serves
as a reference point for investors to understand how their behavior affects their portfolio
performance.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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