Realities Versus Rhetorics: Focus Shift in Investment Decisions on the Capital Market

Akinyele Akinwumi Idowu ,Adedeji Lateef Olabisi ,Oluwayemisi Kadijat Adeleke ,Nureni Adekunle Lawal

doi:10.7176/rjfa/10-18-07

Abstract

This study focuses on investigating whether historical accounting data (fundamental analysis) can be totally responsible for stock performance and companies return on the Nigerian Stock Exchange. It portrays the extent to which shareholders of listed firms are influenced by various criteria in their investment decisions including reliance on the companies’ annual financial reports provided by the accounting system. The paper tries to show the impact of Behavioural finance in Nigeria Stock Market. This paper use indicators from different areas of financial Statements and Market Capitalisation such as; profitability, EPS, Book and Market value of equity, and Share prices. Also primary data from investors and stake-holders in the market was collected. Data were selected for five year period from 2013 to 2017. The sample of the study consists of five different sectors of companies listed on Nigerian Stock Exchange having five years consecutive data available. For data analysis the study used Pearson correlation technique. The study noted investors’ limited knowledge and understanding of published accounts, which consequently placed limitation on its usefulness to inform their investment decisions. The study therefore concluded that fundamental analysis alone cannot predict stock returns nor determine investors’ decision of the Nigerian listed companies. It was discovered that though relegated to the background, behavioural biases has profound significant relation with Nigerian stock market performance and listed companies on the stock exchange, hence influence investors’ decision. Keywords: Habit, Financial-analysis, Stakeholders, Investment-decisions, Listed-companies. DOI : 10.7176/RJFA/10-18-07 Publication date :September 30 th 2019

Highlights

REALITIES VERSUS RHETORICS: FOCUS SHIFT IN INVESTMENT DECISIONS ON THE CAPITAL MARKET Introduction Investment behavior is defined as how the investors judge, predict, analyze and review the procedures for decision making, which includes investment psychology, information gathering, defining and understanding, research and analysis (Slovic, 1972)
According to Statman (2008), standard finance has four founding blocks: Investors are rational; Markets are efficient; Investors should design their portfolios according to the rules of mean-variance portfolio theory and, in reality, do so; and expected returns are a function of risk and risk alone
Secondary data on Share price, (Book and Market values) EPS, Profitability (PBT), and Book value of Equity and Total Market Capitalization were obtained from the published documents (NSE Fact-book and Financial Statements of Companies)

Summary

Introduction

REALITIES VERSUS RHETORICS: FOCUS SHIFT IN INVESTMENT DECISIONS ON THE CAPITAL MARKET Introduction Investment behavior is defined as how the investors judge, predict, analyze and review the procedures for decision making, which includes investment psychology, information gathering, defining and understanding, research and analysis (Slovic, 1972). Traditional finance has developed in a normative way; it concerns the rational solution to the decision problem by developing ideas and financial tools for how investors should behave rather than how they do behave. In this respect, behavioral finance is descriptive because it offers explanations for what happens rather than what should happen. The concept analyzes charts, past stock pricing and volume data, and examines historical data to find patterns in an attempt to predict future trends It is the analysis of a company’s technical indicators such as price movements, trading volume and business’s strength relative to its peers in the same sector/overall market

Methods

Discussion

Conclusion