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