The effect of over confidence bias on stock returns of companies listed at the nairobi securities exchange

Abstract

The main objective of this study was to establish the effect of over confidence bias on stock returns of companies listed at the NSE. The target population of this study was the 64 companies listed at the NSE. To conduct the study, secondary data was obtained from NSE. Data collected for this study was analyzed using descriptive statistics and regression analysis. Regression analysis was used to analyze relationship between overconfidence bias and stock returns. The variables studied included profitability, firm size, overconfidence and stock returns. The results indicated that stock returns of the companies listed at the NSE are affected by overconfidence bias.There was a strong positive relationship between stock returns and overconfidence. The co- efficient co-relation of 0.634 indicated that there existed a positive co-relation between the stock returns, overconfidence bias, profitability and firm size. The study also revealed that the overall model did not pass the goodness of fit test since the P value of 0.875 was greater than the level of significance of 0.05.The co-efficients of the variables in the model were 0.008 for overconfidence, 0.058 for profitability and 0.166 for firm size. The study recommends that a regulation framework that would strengthen market over sight and surveillance be put in place.