Abstract
The study examined emotional biases and its effect on investor’s decision making in Nigeria Primary data were employed and the population consists of clients of the top 10 stockbroking firms registered by the Nigerian Stock Exchange as at 31st January, 2018. These firms were selected because they contributed to 68.72% of total value of transactions as at 31st January, 2018. Data on emotional biases and investment decision making among investors in Nigeria were obtained through structured questionnaire which was administered to 30 clients of each stockbroking firm, totalling 300. Data analysis was done using percentages and logistic regression analysis. Findings showed that emotional biases, represented by loss-aversion bias, overconfidence bias, regret-aversion bias and herding bias were prevalent to Nigerian investors and also significantly influenced investor’s decision making in Nigeria. The study suggests that investors should improve the understanding of various emotional biases and traits exhibited by them, adopt a suitable decision technique to avoid this and seek experts’ opinion when making investment decisions.
Highlights
One of the major causes for the emergence of Behavioural finance paradigm from an academic viewpoint is due to several difficulties confronted by the traditional finance theories in predicting investor’s behaviour and understanding financial phenomenon
The population consisted of clients of the top 10 stockbroking firms registered by the Nigerian Stock Exchange as at 31st January, 2017
Data on effect of emotional biases on investment decision making among investors in Nigeria were obtained through structured questionnaire which was administered to 30 clients of each stockbroking firm, totalling 300
Summary
One of the major causes for the emergence of Behavioural finance paradigm from an academic viewpoint is due to several difficulties confronted by the traditional finance theories in predicting investor’s behaviour and understanding financial phenomenon. The study examined behavioural biases like overconfidence, anchoring bias, confirmation bias, hindsight bias, gamblers fallacy, and herding bias which were identified to have significant effect on the investment decision making process of investors in India. Ibrahim & Umar (2017) studied behavioural factors and its effect on the performance of investment in the capital market in Nigerian It concluded that investment decision making were significantly swayed by prospect factors, heuristic, rationality and herding among Nigerian individual investors. The studies investigation revealed that self-attribution and overconfidence affect perceived market efficiency negatively and further recommended that increase in personal knowledge of investors about behavioural biases and conducting a substantial survey of investment prospects could help reduce the negative effect of various biases and heuristics on investment decisions which subsequently enhance market efficiencies.
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