| dc.description.abstract | This research project is a study on the effects of investor psychology on real estate
market prices in Nairobi, Kenya. Chapter one is an introduction to the study which covers
the background to the study, statement of the problem, objectives of the study and
significance of the study. The background to the study covers some brief explanations on
investor psychology, real estate prices, relationship between investor psychology and real
estate prices and real estate market in Kenya. In the statement of the problem, the
controversy between standard or modern finance on one hand, and behavioural finance
on the other, is re-visited. Standard/modern finance is based on rational utilitarianism
while behavioural finance focuses on psychological factors which influence people to
deviate from rationality in decision making. The objective of the study is stated as being
the effects of investor psychology on real estate market prices in Nairobi, Kenya. The
significance of the study is that it will be of benefit to investors and more specifically,
real estate investors; investment advisors and financiers; and academicians and scholars
in the field of behavioural finance.
Chapter two is on literature review. It discusses theories such as prospect theory,
disposition effect theory, efficient markets hypothesis and random walk theory. It also
reviews past literature on psychological factors that influence investment decisions such
as overconfidence, mental accounting, frame dependence, affect, herding and
representativeness. A review is also done of past studies on real estate investment
markets both in Kenya and other parts of the world.
Chapter three is on research methodology. It discusses the research design adopted in the
study, which is the descriptive research design. The population of the study is specified,
which is institutional real estate investors whose offices are located within Nairobi CBD,
who were found to be 68 in number. The sampling design is also specified as simple
random sampling technique. A sample size of 40 respondents was arrived at by using
Slovin’s formula. The data collection method is in form of structured questionnaire to facilitate ease of data analysis. Appropriate models have been used in the study to show
the relationships among the variables being studied.
Chapter four is on data analysis and presentation. It contains responses to research
questions, analysis of the responses and the presentation of outcomes through tables and
charts. The tables and charts show frequency distributions, percentages and means
appropriately. Ratings have been used to measure the extent and importance of
psychological influences on real estate investment decisions and market prices.
Chapter five is on summary and interpretation of findings. It is found out from the study
that indeed, psychological factors influence real estate investment decisions and market
prices. Psychological factors cause shifts in supply and demand, which causes changes in
market prices, that deviate from values based on fundamentals. Fundamentalists can thus
take advantage of resultant mis-pricings. The study recommends that real estate property
dealers be acquainted with the fact that investor psychology plays a great role in
determining investment decisions and market prices. The respondents’ rankings of
psychological factors in order of their importance from the most important to least
important are overconfidence, frame dependence, representativeness, mental accounting,
herding and affect. The chapter ends with the limitations of the study and suggestions for
further research. | en |
