Effects of herd behaviour on trading volume and prices of securities at Nairobi Stock Exchange
The study investigated the presence of Herd instinct behaviour and its effect on stocks volume and stock prices in Nairobi Stock Exchange. Herd instinct behaviour refers to action or activity without prior rational thinking as a result of influence from others. Although this behaviour is common in animals, it is nevertheless present in human beings as demonstrated by actions such as mob justice, panic cash withdrawal from banks, hostility of rivals in a sporting activity, hasty trading in stocks during initial public offers (lPO's), among others. Therefore, the study seeks to establish the effect of herd behaviour on volume of stocks traded and stock prices. The researcher of the study used survey design integrated with empirical analysis with a view of determining relationships between herd instinct (independent variable) and securities traded volume and prices (dependent variables). Data was collected mainly from stock investors who either relied on financial analysis from experts or were influenced by others to engage in the stock exchange transactions. The empirical evidence data was provided by Nairobi Stock Exchange (NSE) and Capital Markets Authority (CMA). To determine the existence of herd behaviour concept among investors' chi-square (x,2) method was used while the effect on traded volume was demonstrated through the use of statistical tools like graphs and charts. The study also indicated the effect of herd instinct behaviour on prices through the use of correlation model. The study indicated that during the period of herd instinct, there was a positive correlation ranging from positive 0.6 to positive J. The statistical tools used indicated that herd instinct behaviour had a direct effect on volume of stocks traded while correlation showed high degree of association between stock prices and stocks volume. The study has shown that herd instinct behaviour among investors have a direct effect on stocks traded and stock prices.