Factors Influencing Individual Investor Participation in Stock Market

Abstract

Modern Portfolio Theory requires individual investors to hold some risky assets in their portfolio. Many of these risky assets are traded in capital markets; hence the expectation for significant participation by individual investors. Evidence has shown this not to be the case; many individual investors around the world are opting to invest in less risky assets. Tanzania, like many countries around the world, is facing the problem of low individual investors’ participation in its capital market. This study aimed at determining the factors behind the low individual investors’ participation in the Dar es Salaam Stock Exchange. Using data collected from 1600 individuals in the country, it is observed that demographic factors of gender, age and education to have insignificant influence on the participation decision of an individual investor. Only those individuals with a risk-taking attitude are willing to participate in capital markets. The properties of companies offering financial products in these markets have a significant influence on the participation decision. Friends, relatives and brokers advice plays a substantial role in the level of participation of individual investors. To increase individual investors’ participation in Tanzania’s capital market, factors of household income, information availability and capital market awareness should be addressed.