HERDING BEHAVIOUR MARKET INFORMATION AND INDIVIDUAL INVESTOR DECISION-MAKING AT THE NAIROBI SECURITIES EXCHANGE

Abstract

This paper examined the relationship between herding behaviour and individual investor decision-making at the Nairobi Securities Exchange. In addition, the study assessed the moderating effect of market information on the relationship between herding behaviour and individual investor decision-making at the Nairobi Securities Exchange. The study was anchored on behavioural finance theory and was guided by a correlational research design. The study's target population was 2.03 million individual investors who traded at the Nairobi Securities Exchange through the 17 licensed brokerage firms in Kenya. A structured questionnaire was used to collect data and Internal consistency of the instruments was measured using Cronbach’s alpha coefficient, where a coefficient of 0.865 was obtained. The obtained data was analyzed descriptively using frequencies, means, and standard deviation and inferentially by correlation and multiple regression models. The findings revealed that herding behaviour (r = 0.235; β =0.180 p<0.05) had a positive and significant relationship with individual investor decision-making. Jointly, the study established that herding behaviour explains a 59.6% change in individual investor decision-making. In addition, the study established that market information had a positive significant moderating effect on the relationship between herding behaviour and individual investor decision-making as the moderator increased the R2 from 59.6% to 61.0%, which is an R-square change of 1.4%. The study concluded that herding behaviour had a significant relationship with individual investor decision-making at the Nairobi Securities Exchange. The study recommended that investors understand market trends, financial statements, and economic indicators and continue seeking advice from financial experts. NSE should also provide regular market analysis, ensure transparency in market operations to build investor confidence and introduce investment products that cater to different risk profiles, such as low-risk mutual funds. The findings of the study could be of significance to policymakers, financial experts, academicians, scholars, and theoretical developments.