The Effect of Cognitive Biases on Individual Investment Decisions at the Nairobi Securities Exchange
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Date
2016-10Author
Kungu, Brenda W
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
Behavioral finance explains market anomalies which traditional asset pricing models fail
to explain. This study sought to establish the cognitive biases which influence individual
investment decisions at the Nairobi securities exchange. Descriptive research design was
used. A sample of 69 individual investors was used. Primary data was collected using
self-administered questionnaires. It was analyzed using SPSS Version 22 to generate
frequencies, mean scores, percentages, and multiple regression analysis. Major findings
indicated that results of individual investment decisions were significantly correlated to a
number of cognitive biases including; random walk (r=-.764, p<.01); anchoring (r=-.810,
p<.01); excessive optimism (r=.661, p<.01) and accounting information (r=.609, p<.0).
The study concluded that cognitive biases play a significant role in individual investment
decisions. The study recommends the education of investors to enable them to be
rational, while the Capital Market Authority should track rogue brokers who may over
charge unsuspecting investors for market information. Individual investors should seek
for knowledge from their fund managers before they commit money in particular stocks
so that they put money in stocks that are likely to yield returns as opposed to random
walk. The Nairobi Securities Exchange should also initiate investor education programs
for potential and existing investors so they understand the happenings in the stock
exchange which would guide proper investment.
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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