Effects of behavioral biases on investment decisions of individual investors at the Nairobi securities exchange
Abstract
The main objective of this study was to establish the effects of behavioral biases on
individual investors’ investment decisions at the Nairobi Securities Exchange. The
specific objectives guiding the study were to establish the effect of stereotyping on
individual investment decisions in the Kenyan stock market, and to investigate the
effects of an investor confidence on the decision making in stock market investments
decisions in the Kenyan stock market. For this study, the target population was the
1,184,723 individual investors trading at the NSE with a sample size of 400
respondents. The study relied on primary data collected using self-administered drop
and pick questionnaires. The research identified 400 potential respondents who agreed
to take part in the study. 211 respondents filled the questionnaires in time for data
analysis, which represented a 52.75% response rate. The relationship between the
behavioral biases and investor choices was tested using multiple regression. Pearson
correlation, was used in testing the relationship between the variables. The study
established that Herding and Stereotyping are negatively correlated against Individual
Investor Decisions. The correlation is however weak as it is close to zero than it is close
to -1. Negative correlation means that when we increase herding and stereotyping the
value of investment decreases while Mental Accounting and Overconfidence were
found to be positively correlated which means when increased value of investment also
increases but they are also weak as they are closer to 0 than they are closer to 1. The
study concluded that herding effect, stereotyping, mental accounting and
Overconfidence influence the investment decision making process in the securities
market. The study recommended that pertinent information on the prevalent market and
economic conditions be availed to investors to ease choice of investments in the
securities market in addition to investors being encouraged to intentionally seek
information and training on how to make rational decisions while investing.
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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