Investor Psychological Biases and Volatility of Share Price in Nairobi Securities Exchange, Kenya

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dc.contributor.authorKarugano,Ruthlily Wanjiru
dc.date.accessioned2025-11-11T07:29:14Z
dc.date.available2025-11-11T07:29:14Z
dc.date.issued2025-02
dc.descriptionThesis
dc.description.abstractThe importance of financial markets in an economy cannot be understated. The markets contribute to economic growth through resource allocation and liquidity creation for businesses. The merits are perfectly achieved if the markets are efficient and information about the market reaches the market participants in a timely and accurate manner. Kenya’s securities market has experienced high share price volatility in the recent past, leading to unfavorable outcome to investors. While the investors in the financial market expect to reap optimal returns, this has not been the case due to their decisions, which are inconsistent, irrational and misjudged. Investor’s psychological biasness is the contributing factor to the irrational decisions by investors in financial market. This study therefore aimed at investigating the effect of psychological biases on the volatility of the share price among the listed companies on the Nairobi Securities Exchange. The study aim at controlling share price unpredictability among the listed stocks. The study employed efficient market hypothesis, prospect and irrational theories, and behavioral finance theory in examining the psychological biases and share price unpredictability nexus. A causal research design was employed on 59 corporations registered in the NSE between 2014 and 2023. Panel GARCH model was adopted by the current study as the estimation model to appropriately capture the share price volatility. Based on the hypothesis that investor psychological biases (overconfidence, loss aversion, and mental accounting) influence share price volatility, this study revealed the following; First, that there exists a negative and significant relationship between overconfidence and volatility of share price. Secondly, the study revealed that loss aversion had a negative significant effect on the share price volatility across the manufacturing and processing, commercial Services, and pooled (sum of the two categories). Third, that mental accounting has a positive and significant effect on the share price volatility across the manufacturing and processing, commercial services, and pooled NSE-listed companies. The study findings provide policymakers with the needed information on the role psychological biases on managing share price volatility. The findings also enhance investors’ knowledge on psychological biases, help them to respond appropriately to avoid such biases while making investment decisions. Lastly from an empirical perspective, the outcome of this study contribute to literature and existing knowledge by revealing the relationship between investor psychological biases and the share price volatility.
dc.identifier.urihttp://repository.embuni.ac.ke/handle/123456789/4494
dc.language.isoen_US
dc.publisherUoEm
dc.titleInvestor Psychological Biases and Volatility of Share Price in Nairobi Securities Exchange, Kenya
dc.typeThesis
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Masters Theses: Department of Business