The effect of behavioural factors on individual investor choices at the Nairobi securities exchange
Abstract
The
study of individual investors‟ behavior, based on the behavioral finance theory, is of
interest and a relatively important phenomenon in Kenya. Behavioral finance theories are
based on psychological attempts aimed at explaining how sentiments and cognitive
errors
influence the individual investors‟
behaviors, especially in regard to the investment
decision making process. The objective of this study is to determine the effects of
behavioral factors on individual investor choices at the NSE. There are few st
udies
relating to the individual investors‟ behavior at the NSE. This research examines some of
the existing theories relevant to the behavioral factors and behavioral finance under th
e
theoretical literature review
.
Descriptive design study was used.
Dat
a for the study is primary data collected by the use of interviews and questionnaires
administered to individual investors at the NSE through the sixty three individual
investors selected from the twenty one
listed investment an
d stock brokerage firms wher
e
93.65
% response rate was registered
.
Cronbach‟s Alpha Test was
used to test the internal
consistency reliability of measurements, which are in formats of continuous variables 5
-
point Likert measurements
.
Analysis was
done using Statistical Packages for S
ocial
Scientists. Descriptive statisti
cs and correlation analysis were
used to summarize t
he
research findings. The finding
s of the study establish
ed
factors that determine the
individual investor behavior at the NSE.
These factors were
estab
lished to be v
aried, with
herding, loss aversion, regret aversion, price changes, market information ,
past trends of
stocks, overconfidence and anchoring being
highly affected by their decisions
while
Mental Accounting emerging as the least
significant factor determinin
g the individual
investors‟ behavior
with a low mean
. Future studies are recommended to confirm the
findings of this research on behavioral finance related to individual investors‟ decision
making processes
.
S
ecurities and investment firms should use thes
e findings as reference
for their analysis and prediction of the trends of the security market
.
In
vestors should be
educated in
order to manage and balance the effect of behavioral infl
uences with respect
to
decision making
.
I
nvestors should
also
carefully
consider and carry out research before
making investment decisions and should not be carried away by their earlier loss for their
future investment decisions
Publisher
University of Nairobi