The relationship between investor behavior and portfolio performance at the Nairobi Securities Exchange

Abstract

Extreme unpredicted momentum in global indices and security prices associated with uncertainty and unexplained stock price movements have made life difficult for a rational investor who relies on market fundamentals to make investment decisions. This study attempted to determine the contribution of investor behavior in influencing investor portfolio performance at the Nairobi Securities Exchange using a sample of 385 individual stock investors. The relationship between investor behavior and portfolio performance was tested using multiple regression. The overall model was statistically significant indicating that investor behavior influences portfolio performance with herding and disposition effect having a positive effect on portfolio performance while overconfidence has a negative effect on performance. The findings provide an eye-opener and basis of appreciation of the effect of behavioral biases on the results of trading activities. Stock market players can use these findings to understand the market dynamics and incorporate behavioral factors in analysing capital markets performance.