Volume 2, Issue 4, November 2017, Page: 131-137
Effect of Behavioural Biases on Investments at the Rwanda Stock Exchange
Jacob Niyoyita Mahina, Faculty of Business Studies, University of Tourism, Technology and Business Studies, Kigali, Rwanda
Willy Muturi, Facultyof School of Business, Department of Economics, Accounting and Finance, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Memba Florence, Facultyof School of Business, Department of Economics, Accounting and Finance, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Received: May 27, 2017;       Accepted: Jul. 5, 2017;       Published: Aug. 9, 2017
DOI: 10.11648/j.ijafrm.20170204.11      View  1672      Downloads  117
The main objective of this study was to establish the effect of behavioural biases on investment in the Rwanda Stock Exchange. The specific objectives were to establish the effects of self-serving bias, over-optimism bias, loss aversion, self- attribution bias and confirmatory bias on investment in the Rwanda stock exchange. The prospect theory, heuristics theory and herding theory formed the foundation of this study. The underlying epistemology of this research was positivist; focusing on examining earlier established theories under the assumption that reality is objectively given and can be described by measurable properties independent of the observer and the instruments. The study used cross-sectional descriptive survey research design to ascertain and establish the effect of behavioural biases on investment in the Rwanda stock exchange. The target population comprised of 13,543 individual, group investors at the Rwanda Stock Exchange. Random sampling was used where the targeted population was individual investors to finally yield a sample size of 374 respondents. A questionnaire was used to collect the primary data. Data analysis involved the use of descriptive and inferential statistics. A linear regression model was used to predict the probability of different possibility outcomes of dependent variables, helping to predict the probability of an investor to invest in Rwanda Stok Exchange. The results confirmed that there was a significant positive linear relationship between self-serving bias, over-optimism bias, loss aversion bias, self-attribution bias, confirmatory bias and Investment in Rwanda stock market. The study also concluded that most investors suffered from behavioural biases in investment in stock markets. The study further recommends that the individual investors to seek the advice of stock brokers/fund managers to advise them accordingly in terms of performance of a specific security in which an investor would wish to invest in.
Self-Serving Bias, Over-Optimism Bias, Loss Aversion, Self-Attribution Bias, Confirmatory Bias, Investment, Rwanda Stock Exchange
To cite this article
Jacob Niyoyita Mahina, Willy Muturi, Memba Florence, Effect of Behavioural Biases on Investments at the Rwanda Stock Exchange, International Journal of Accounting, Finance and Risk Management. Vol. 2, No. 4, 2017, pp. 131-137. doi: 10.11648/j.ijafrm.20170204.11
Copyright © 2017 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Babarinde, O. (2012). The private equity market in Africa: trends, opportunities, challenges, and impact. The Journal of Private Equity, 16(1), 56-73.
Baker, M., Ruback, R. S., & Wurgler, J. (2005). Behavioral Corporate Finance : A Survey. Journal of Financial Economics.
Banerjee, A. V. (1992). A simple model of herd behavior. The Quarterly Journal of Economics, 107(3), 797-817.
Barberis, N., & Thaler, R. (2003). A survey of behavioral finance. Handbook of the Economics of Finance, 1, 1053-1128.
Bikhchandani, S., Hirshleifer, D., & Welch, I. (1992). A theory of fads, fashion, custom, and cultural change as informational cascades. Journal of political Economy, 100(5), 992-1026.
Bizimana, H. (2010). Drivers that influence susceptibility to HIV infection among students of higher institute of agriculture and animal husbandry (ISAE)-Rwanda.
Chang, K. H., Young, M. N., Hildawa, M. I., Santos, I. J. R., & Pan, C. H. (2015). Portfolio selection problem considering behavioral stocks. In Proceedings of the World Congress on Engineering (Vol. 2).
Daniel, K. D., D. Hirshleifer, and A. Subrahmanyam, 1998, Investor psychology and security market under- and overreactions, Journal of Finance 53, 1839–1886.
Dancy, C. P. and J. Reidy, (2004) “Statistics without maths for psychology” IEEE Statistics without maths for psychology.
Dardenne, B., Leyens, J. (1995). Confirmation bias as a social skill. Personality and Social Psychology Bulletin, 21, 1229-1239.
De Bondt, W. F., & Thaler, R. H. (1995). Financial decision-making in markets and firms: A behavioral perspective. Handbooks in operations research and management science, 9, 385-410.
Dunusinghe, P., & Ranasinghe, (2015) A. Behavioural Factors Influence on Investment Performance: A Survey of Individual Investors at Colombo Stock Exchange.
Gervais, S., & Odean, T. (2001). Learning to be overconfident. Review of Financial studies, 14(1), 1-27.
Ghelichi, M. A., Nakhjavan, B., & Gharehdaghi, M. (2016). Impact Of Psychological Factors On Investment Decision Making In Stock Exchange Market. Asian Journal of Management Sciences & Education Vol, 5, 3.
Hoffmann, A. O., & Post, T. (2014). Self-attribution bias in consumer financial decision-making: How investment returns affect individuals’ belief in skill. Journal of Behavioral and Experimental Economics, 52, 23-28.
Kafayat, A. (2014). Interrelationship of biases: effect investment decisions ultimately. Theoretical and Applied Economics, 21(6 (595)), 85-110.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47, 263-291.
Kidd III, C. E. (2012). The Social Implications of Sub-Saharan Financial Markets: Case Analysis From the Nairobi and Johannesburg Stock Exchanges (Doctoral dissertation, Howard University).
Kisaka, E. K. (2015). The Effect Of Behavioral Finance Factors On Stock Investment decisions In Kenya (Doctoral Dissertation, South Eastern Kenya University).
Kumar, S., & Goyal, N. (2015). Behavioural biases in investment decision making–a systematic literature review. Qualitative Research in financial markets, 7(1), 88-108.
Kungu, B. W. (2016). The effect of cognitive biases on individual investment decisions at the Nairobi Securities Exchange (Doctoral dissertation, University of Nairobi).
Lodhi, S. (2014). Factors influencing individual investor behaviour: An empirical study of city Karachi. Journal of Business and Management, 16(2), 68-76.
Malmendier, U., & Tate, G. (2015). Behavioral CEOs: The role of managerial overconfidence. The Journal of Economic Perspectives, 29(4), 37-60.
Marchand, M. (2012) Behavioral biases in financial decision making.
Mauwa, J. (2016) Determinants Of Financial Performance Of Firms Listed On The Rwanda Stock Exchange.
Miller, D. T., & Ross, M. (1975). Self-serving biases in the attribution of causality: Fact or fiction? Psychological Bulletin, 82(2), 213–225. http://doi.org/10.1037/h0076486
Mwangi, J. M. (2016). Effect of Financial Structure on Financial Performance of Firms Listed at East Africa Securities Exchanges.
Nyamute, W., Lishenga, J., & Oloko, M. (2015). The Relationship between Investor Behavior and Portfolio Performance at the Nairobi Securities Exchange. International Journal of Multidisciplinary Research and Development, 2(5), 548-551.
Parmley, M. C. (2006). The effects of the confirmation bias on diagnostic decision making (Doctoral dissertation, Drexel University).
Prosad, J. M. (2014). Impact of Investors’ Behavioral Biases on the Indian Equity Market and Implications on Stock Selection Decisions: An Empirical Analysis (Doctoral dissertation, Jaypee Institute of Information Technology).
Raafat, R. M., Chater, N., & Frith, C. (2009). Herding in humans. Trends in cognitive sciences, 13(10), 420-428.
Ritter, J. R. (2003). Investment banking and securities issuance. Handbook of the Economics of Finance, 1, 255-306.
RSE. (2015). Rwanda Stock Exchange Annual Report 2015.
Sanghvi, A., & Gandhi, A. (2014). Loss Aversion & Mental Accounting–A Behavioral Finance Perspective. PARIPEX-Indian Journal of Research, 3(5), 150-152.
Schneider, K., Bzdok, D., Schilbach, L., Vogeley, K., Laird, A. R., Langner, R., & Eickhoff, S. B. (2012). Parsing the neural correlates of moral cognition: ALE meta-analysis on morality, theory of mind, and empathy. Brain Structure and Function, 217(4), 783-796.
Seppälä, A. (2009). Behavioral biases of investment advisors-The effect of overconfidence and hindsight bias.
Shepperd, J., Malone, W., & Sweeny, K. (2008). Exploring causes of the self-serving bias. Social and Personality Psychology Compass, 2(2), 895-908.
Shikuku, R. M. (2012). The effects of behavioural factors on investment decision making by unit trust companies in Kenya (Doctoral dissertation).
Subrahmanyam, A. (2008). Behavioural finance: A review and synthesis. European Financial Management, 14(1), 12-29.
Sukanya, R., & Thimmarayappa, R. (2015). Impact of Behavioural biases in Portfolio investment decision making process. International Journal of Commerce, Business and Management (IJCBM), 4(4), 1278-1289.
Tan, L., Chiang, T. C., Mason, J. R., & Nelling, E. (2008). Herding behavior in Chinese stock markets: An examination of A and B shares. Pacific-Basin Finance Journal, 16(1), 61-77.
Tversky, A., & Kahneman, D. (1974). Judgment under Uncertainty : Heuristics and Biases. JSTOR, 185(4157), 1124–1131.
Veeraraghavan, K., & Anbalagan, M. (2011). Heuristic Behavior of the Investors. International. Journal of Enterprise Innovation Management Studies, 2(2), 142-149.
Wasiu, O. I., & Temitope, M. W. (2013) Financial Market Integration and Economic Growth: An Experience from Nigeria.
Waweru, N. M., Munyoki, E., & Uliana, E. (2008). The effects of behavioural factors in investment decision-making: A survey of institutional investors operating at the Nairobi Stock Exchange. International Journal of Business and Emerging Markets, 1(1), 24-41.
Browse journals by subject