INVESTOR BEHAVIOR AND COMMON STOCK INVESTMENT DECISIONS AMONG INDIVIDUAL INVESTORS AT NAIROBI SECURITIES EXCHANGE, KENYA
Cherotich Monicah - Master of Business Administration Student (Finance), Kenyatta University, Kenya
Dr. Vincent Shiundu - Lecturer, Department of Accounting and Finance, Kenyatta University, Kenya
ABSTRACT
The traditional theory of finance assumes that investors act rationally on the quest of wealth maximization, and that they follow the basic tenets of risk and return in determining which ventures to spend money on. However, various authors who have examined investors’ behaviour avow that heuristic driven biases and emotions cloud the investors’ judgment, and often negate the rules of rational economic decision making. According to these studies, investors are in fact irrational, and are largely influenced by behavioural factors that introduce biases in their decisions. Behavioural finance is the phenomena where psychology and economics are combined in explaining the irrational decision making processes of economic agents. Psychology explores various facets of human behaviour, and explains how human behaviour deviates from traditional economic assumptions about human behaviour. Proponents of the behavioural finance ideology state that investment decisions are characterized by emotional factors such as endowment, loss aversion, regret aversion and mental accounting, herding behaviour and cognitive factors including overconfidence, gamblers fallacy, hindsight biases and over confidence. This study aimed to determine the investor behavior and investment decision among individual investors at the NSE, which was also the overriding objective of the study. The following theories were employed in the study, Modern Portfolio, Heuristic and Prospect theory. Descriptive research design was used to provide insight on the research problem by describing the behavioural factors that influence individual investment decisions. The target population for this study was the 1,000 individuals’ investor who trade at the NSE and had permanent residential address in Nairobi. Primary data was obtained through closed and open-ended questionnaires that were self-administered. Some questionnaires were emailed to the respondents, depending on the agreed media with the respondent. The investors were reached through judgmental sampling technique. Multiple regression analysis method of data analysis was adopted. Descriptive statistical measures such as the mean, mode and standard deviation were calculated using SPSS. It was presented in form of frequencies, percentages, tables, pie charts and bar graphs. Qualitative data was analyzed by means of content analysis. The study findings from model summary revealed that R squared was 0.802 which implies that 80.2% of changes on individual investors at NSE, Kenya are explained by the independent variables of the study. The findings revealed that there is a significant relationship between the investor behavior and investment decision since the P-value is less than 0.05. According to the regression equation established, taking all factors (Herding effects, Risk aversion, Anchoring effect and Loss aversion) constant at zero, the investment decisions will be 4.212. The study provided a P-Value of 0.003 which is lower than the significance level of 0.05, thus investor behaviour significant influence investment decisions among individual investors at the NSE, Kenya. The study concluded that investors’ behaviour influence individual investors on investment decision making of individual investors at NSE, Kenya. The study recommended that Nairobi Stock Securities should continuously share information which is geared towards positively influencing investment decision. Through this information investor will be in a position to make wise investment decisions.
