BEHAVIOURAL FACTORS INFLUENCING INVESTMENT DECISIONS AMONG INDIVIDUAL INVESTORS IN NAIROBI SECURITIES EXCHANGE

Abstract

Investment decision making is influenced by either modern or traditional finance. In traditional finance the investor has to determine the intrinsic value of a security to establish whether it’s overvalued, correctly or undervalued. The tradition of traditional finance demands use of mathematical formulae which some investors may have limited knowledge. In the modern finance theory commonly denoted as behavioural finance applies psychological knowledge to evaluate the investment decision at investors’ disposal. The study sought to examine the behavioural factors influencing individual’s investment decision in Nairobi Securities Exchange. Specifically, the research sought to examine the relationship between prospect factors, heuristic factors, herding factors, rationality and investment decision. The research was guided by prospect, herding, heuristic and Expected Utility theories of behavioural finance. The research population was individual investors who had invested in both equity and bonds in the Nairobi Securities Exchange as at the end of third quarter of 2015. The study came up with a sample size of 80 respondents. Simple random sampling technique was used to determine the respondents of the study. Primary data was collected through the use of closed ended questionnaires, pick and drop procedure was used to collect data through the use of registered offices of stock brokers. Descriptive statistics such as mean and standard deviation was used in data analysis. Inferential statistics which included correlation analysis and regression analysis was also used in interpreting the results of the study. Tables and graphs were used to present the data collected for ease of understanding. The results of the study shows that investment decisions in the Nairobi Securities Exchange are positively influenced by behavioural factors including prospect, herding, heuristic and rationality. Key words: Prospect, Heuristic, Herding, Rationality and Investment Decision