THE INTERNATIONAL JOURNAL OF BUSINESS & MANAGEMENT Influence of Behavioural Biases on Investment Decisions of Individual Investors in Nairobi Securities Exchange

: Individual investment financial decision making was influenced by either modern or traditional finance. In traditional finance the individual investor was to determine the intrinsic value of a security to establish whether it’s overvalued, correctly valued or undervalued. The tradition of traditional finance demanded use of mathematical formulae which some individual investors had limited knowledge. In the modern finance theory commonly denoted as behavioral bias applied psychological knowledge to evaluate the investment decision at investors’ disposal. This study therefore sought to establish the effect of behavioral biases on investment decisions of individual investors in Nairobi Securities Exchange. The specific objectives of the study was: to determine the effect of fear of regrets bias on investment decisions of individual investors’ decisions in NSE; to establish the effect of human availability heuristic bias on investment decisions of individual investors in NSE; to examine the effect of mental accounting bias on investment decisions of individual investors in NSE; to explain the effect of anchoring bias on investment decisions of individual investors in NSE; to determine the influence of herd mentality bias on investment decisions of individual investors in NSE and individual investment decisions in NSE. The research was guided by Modern Portfolio Theory, Efficient Market Hypothesis, Prospect Theory, Heuristic Theory and empirical literature on behavioral biases. The research population was individual investors who had invested in both equity and bonds in Nairobi Securities Exchange between 2013-2017 period under study which were 831,000 as individuals and investment banks through which they bought stock which were 22 firms. The study adopted multiple regression models. Purposive sampling was used to select 16 investment banks from which the quota sampling design was adopted to randomly selecting a sample 384 individual investors in the NSE. 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 where p- value (p<0.05) was used to determine the significant on behavioral biases and investment decisions of individual investors. Tests such as reliability tests using Cronbach’s Alpha, normality tests among others were used. Inferential statistics which included correlation analysis and regression analysis was also applied in interpreting the results of the study and tables and graphs which was used to present the data collected for easy understanding. The findings from this research were therefore provided an understanding of how behavioral biases affected investment decisions of individual investors based on the prevailing biases and the eventual outcomes for each investment decisions hence identified the most influencing behavioral finance factors on the company’s individual investors decisions, how their future policies and strategies was to be applied and effected. different mental accounts and registration of events experienced. The scope was focused on anchoring bias on behavioral biases on investment decision making of individual investors; that was own level of productivity. Last but not least it focused on herd mentality bias on behavioral biases on investment decision making of individual investors; that was influence by peers to adopt certain behavior, influenced by peers to follow trend and influenced by peers to purchase items. The target population of the study was be individual investors in NSE. Data was be collected using questionnaires, interview and information gathered from documentary sourced in form of reports and records which covered a time scope from 2013 to 2017. An empirical study in with a of 5750 used. The study incorporated a model which determined the relationship between dividend payout based on the of The model predicted a positive influence of the loss aversion and investors mental accounting) of time discounting on the dividend payout ratio. The study established that loss aversion was the main determinant for corporate dividend policy from sample used for the study. H2: Prospect factors have no significant influence on investment decision among investors at the NSE that wealthier investors with high level of are likely to that they are more competent, meaning overconfidence which result to underperformance which contradicts this finding. The study contradicts the findings of Chen et al., (2007) who indicates that overconfidence of individual investor in China and they found that investor in China trade more frequently than US investor thus underperforming. The study agrees with Kaustia et al., (2008) findings who investigated the effect of anchoring bias on stock return expectations. From their analysis, they found that, it does not matter whether investors are students or professionals, their predictions are affected by an anchor. The study is further in agreement with George and Hwang (2004) findings who analyzed the association between the 12-month high price and profitability of the momentum investing technique. Their findings indicate that the closer the present value is to the anchor, the more successfully one can explain changes in prices. Törngren and Montgomery (2004) analyzed the differences between confidence of professionals and lay persons and their performance in the stock market. They found that lay persons are normally affected by movement of stock price in the past. Past movements act as a reference point for their expectations. The study found that female trade more than male at 40% against 60% respectively which is similar to the findings of Bashir et al., (2013) but it contradicted that of Barber and Odean (2001) and Biais et al., (2005) who found that men trade more than women. Waweru et al., (2008) indicated that price changes of stocks had effect on their investment behavior at some level. Tripathi (2008) in his study found that investors used both fundamental as well as chartist analysis when trading in Indian stock market. Majority of the investors strongly agreed with the fact that many company fundamentals such as size, book to market equity, price earnings ratio and leverage to a large extent affect share prices and hence the application of these variables in the asset pricing model could very