The Effect of Behavioural Factors on Investment Decisions at the Nairobi Securities Exchange

Abstract

The main objective of this study was to establish the behavioural factors influencing individual investors’ decisions at the Nairobi Stock Exchange. The study was guided by the following specific objectives, that is, to find out the effect of risk aversion on investment decisions in Kenyan stock market, to investigate whether prospecting influences decision making in stock market investments, to establish the effect of anchoring on investment decision in Kenyan stock market and to determine the effect of herding on Investment decisions in Kenyan stock market. The target population of this study was 17 investment banks with a sample size of 34 respondents and relied on primary data sources. The study found that the investors in their organizations invest due to herding effect, this has resulted the investment banks to experience emotional biases and congruity. Further the study established that prospecting influences the investment decision making in stock market, however, most of the organizations engage in advising inventors’ on the ways to invest. The study finally found that anchoring influences the investment decision in Kenyan stock market. Availability of the information about stock market investment facilitates inventors’ to reach investment decision. However, investors tend to buy shares when stock price has fallen. The study concluded herding effect, risk aversion, prospecting and anchoring influences the investment decision making in stock market. The study recommended that the investment banks should give their investors the relevant information on prevailing market and economic situations and ensure investment in the stock market is well chosen. The investors should be presented with information in unbiased context and should be offered with the right information at the right time.