The Effect Of Behavioral Biases On Investment Decision Making By Unit Trust Investors In Kenya
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Date
2020Author
Kigen, Patriciah S
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
Studies done in the field of behavioral finance have showcased how human beings use
behavioral biases to aid in decision making when investing, resulting to market anomalies.
Differing with traditional finance theorists, who suggested that investors are rational and
make investment decisions after conducting fundamental analysis about the securities,
behavioral finance literature has suggested that investors are affected by emotional
predispositions. This leads to them making irrational investment decisions resulting to poor
investment returns. Behavioral biases are categorized under two broad factors – Heuristic
factors and Prospect theory. This research was taken to ascertain the effect of behavioral
biases under prospect theory and heuristic influences on decision making in unit trusts by
investors in Kenya. Descriptive research design was utilized and primary data collection tool
was a questionnaire which was administered online using google forms to a convenient
sample of 200 respondents. The response rate was at a 100% and the data was analyzed using
Statistical Packages for Social Scientists (SPSS) software and descriptive statistics,
regression analysis and correlation analysis were used to summarize the research findings.
The research established that unit trust investors were affected by Overconfidence, loss
aversion, regret aversion mental accounting and gambler’s fallacy when making decisions
about unit trusts. Availability bias was found to have an insignificant negative effect on
investment choice by unit trust investors. The R square value (Coefficient of determination)
from study was 0.161, which means that 16.1% of the discrepancy in Investment Decision
making is elucidated by the fore mentioned independent variables. The study recommends
that investors be made aware of behavioral biases that exist and how to avoid them through
trainings offered by unit trust fund companies in order to get desired returns from their
investments. The study also recommends financial literacy programs to be introduced to the
school curriculum to ensure that people become aware of biases from a very early age,
thereby creating better informed investors in the future.
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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