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THE RELATIONSHIP BETWEEN BEHAVIORAL BIASES AND PORTFOLIO PERFORMANCE AMONG INDIVIDUAL INVESTORS AT THE NAIROBI SECURITIES EXCHANGE
Behavioral finance, unlike conventional finance, holds the view that those who invest do not always do things as would normally be expected in their investing choices in the securities markets as they are at times swayed by behavioral predispositions, raising the question of how the performance of their portfolios are affected by their behavioral predispositions. This study’s broad objective was to assess how individual investors’ behavioural biases related to their portfolio-performance at the NSE. Specifically, the study evaluated how herding, loss aversion, overconfidence and anchoring biases related to the individual investors’ portfolio performance at the NSE. A descriptive cross-sectional studydesign was adopted. Total study participants were 384 individuals who traded at NSE who responded to a researcher-prescribed questionnaire. Study data analyzing utilized descriptive statistics that included frequencies, mean scores and percentages while multiple regression analysis was utilized to analyze how the regressors related with the outcome variable at 5% significance level. The analytical software was SPSS Version 24. Findings were depicted in figures and tables. Leading study results showed that a positive and statistically notable connection was established between the individual investors’ portfolio performance and several behavioral biases including herding (β = 0.439, p < 0.05), overconfidence (β = 0.367, p < 0.05) and anchoring (β = 0.512, p < 0.05). However, connection with loss aversion bias was negative and notable (β = -0.248, p < 0.05). It were concluded that behavioral biases had a notable influence on portfolio performance among individual investors at the NSE. It is recommended that NSE in collaboration with CMA should initiate investor education programs or workshops with a view of enriching potential and existing individual investors’ understanding of how the stock market operates hence aiding them in making judicious investments. Individual investors should consider seeking guidance and necessary information from existing stock brokers and fund managers to ensure their decisions of investing at the NSE were informed.
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