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BEHAVIOURAL FACTORS INFLUENCING INVESTMENT DECISION IN STOCK MARKET: A SURVEY OF INVESTMENT BANKS IN KENYA


Jane Njeri Wamae

Masters Student, Jomo Kenyatta University of Agriculture and Technology, Kenya


ABSTRACT

Decision-making is process of choosing a particular alternative from a number of alternatives. It is an activity that follows after proper evaluation of all the alternatives. Decision making by individual investors is usually based on their personal factors such as age, education, income, and investment portfolio.  The investor as decision maker has no control over the states of nature that will prevail in future but the future states of nature will certainly affect the outcome of any strategy that an investor may adopt. Effective decision-making in stock market requires better insight, and understanding of human nature in a global perspective, apart from sharp financial skills and ability to gain best out of investments. The main objective of this study was to establish the behavioral 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. The study relied mostly on primary data sources. The study employed a stratified random sampling technique in coming up with a sample size of 47 respondents. The study generated both qualitative and quantitative data where quantitative data was coded and entered into Statistical Packages for Social Scientists (SPSS Version 17.0) and analyzed using descriptive statistics. The study concluded herding effect, risk aversion, prospecting and anchoring influences the investment decision making in stock market. The study recommended that since herding effect or behavior is relevant to the individuals, market environment and atmosphere, the investment banks should give their investors the relevant information to ensure that they are well versed with the prevailing market and economic situations. The study also recommended that since risk aversion influences investment decision of the individuals in stock market, there is need for the relevant organizations to ensure that their investment in the stock market are well chosen to ensure that the interests of the investors are well taken care of. The study further recommended that since prospecting influences the investment decision making in stock market the investors respond differently to equivalent situations depending on whether it is presented in the context of a loss or a gain. Finally the study recommends that since anchoring has an influence on the investment decision in the stock market and mainly investors assume current prices are about right then the investors should be offered with the right information in the right time since it plays a role when investors form expectations about future returns.


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