The Effect of Demographic Characteristics on Investor Behaviour at the Nairobi Securities Exchange
Abstract
Traditionally investors have been viewed as economically rational individuals who make
decisions based on all available information. Most recent studies propose that investors are
irrational and systematically over react to good and bad information events. The concept of
rational investors has been supported by Efficient Market Hypothesis and Modern Portfolio
Theory. Other studies have opposed the notion of rational investors have identified psychological
biases that influence decision making process of an investor and leading them to make irrational
decisions. Investors are irrational and make decisions based on some biases.
This study applies Behavioral Finance Theory to explain the effect of demographic
characteristics on investor behaviour. The demographic characteristics investigated are gender,
age, education and income. The behavioral factors tested include overconfidence, anchoring,
herding and loss aversion.
The study concluded that the demographic characteristics have an effect on the way investor
made their investment decisions. Those biases which varied with gender of an investor were
overconfidence which was more prominent with the male investors, while herding and loss
aversion affected female investors more. The younger investors were more affected by the biases
than the older investors. The investors with high level of education were overconfident and less
affected by herding.
The study recommends that investors should include behavioral factors as part of their
consideration when making investment decisions.
Citation
A Research Project Submitted In Partial Fulfillment Of The Requirement For The Award Of The Degree Of Master Of Business Administration School Of Business, University Of NairobiPublisher
University of Nairobi School of Business