| dc.description.abstract | Investigations into the IPO market in Kenya have shown that, on average, IPOs
provided abnormal return in the immediate aftermarket to investors who purchased at
the initial offering. This seemed to have led to an oversubscription of recent
IPOssome of whose aftermarket performance has since been dismal.This suggests that
investor decisions were potentially influenced by cognitive and emotional biases that
led to their faulty investment decisions as explained by behaviourial finance
theorists.This led to the question; which particular behavioural biases influence
individual investor decisions with respect to IPOs?Thus, the general objective of the
study was to determine the effect of behaviourial biases on individual investor
decisions with respect to IPOs in Kenya. To meet this broad objective, the study
sought: to determine the cognitive biases that affect individual investor decisions, and
to determine the emotional biases that affect individual investor decisions.
Descriptive research design was adopted.The population was estimated at 1.3 million
based on new investor data since the year 2006. Stratified sampling was used based
on gender. The sample comprised of 96 individuals who had invested in an IPO. Data
was collected using a structured questionnaire. Spearman’s rank correlation
coefficient and linear regression modelling techniques were used for analysis. The
data was analysed using SPSS. The findings were presented in figures and tables.
The findings showed that cognitive and emotional biases accounted for 57.5% of the
variance in individual investor decisions towards IPOs at the NSE, with regret
aversion bias (Beta=-.309) possessing the highest explanatory power on the individual
investor decisions.The study findings implied that individual investment decisions
towards IPO were influenced by cognitive biases than they did emotional biases. It
was recommended that investor education is the key to overcoming unfavourable
investment outcomes caused by behavioural biases. In order to manage the excesses
of behavioural influences to investment decision making, training programs that
create investor awareness and ability to identify and guard against cognitive errors
and emotional biases that lead to bad investment choices should be offered to
prospective individual investors | en |
