|dc.description.abstract||Investors in the financial markets are expected to act rationally in their investment decisions as postulated by the efficient market hypothesis. This expectation of rational investor behaviour, however, does not always hold true. The individual investors have often been found to be irrational in their investment decisions. Researchers have tried to explain this investors’ irrational behaviour by pointing to behavioural factors such as herding, prospects, and heuristics. To build on what is known from the literature, this study aimed to research on the behavioural and market factors influencing investment performance with an additional indicator of prospect, namely, escalating the commitment.
Using a positivist research paradigm, a cross-sectional survey was conducted among individual investors of Nairobi Securities Exchange. Multiple regression analysis was used to analyze the data to determine the influence of the behavioural and market
factors on investment performance. The behavioural and market factors explained for 77.4% of the variance in investment performance (R2 of 77.4). The study found that herding had a negative influence on investment performance (β = -.602, p < .05). In addition, market factors also had a negative relationship with the investment performance (β = -.195, p < .05). On the other hand, prospect factors influence the investment performance positively (β = .424, p < .05). The heuristic factors had a positive relationship with the investment performance (β = .536, p < .05). The investment decisions as a control variable had no significant influence on the model.
These results contribute to literature on the influence of behaviourial factors on the investment performance in two important ways: (a) the understanding of the behavioural factors displayed by the individual investors and (b) the identification of the significant influence of the behavioural and market factors on the investment performance. This study stands to benefit future researchers while designing their studies. The implications for practice is that the Nairobi Securities Exchange and Capital Market Authority will be informed to initiate appropriate training programs that will enable the individual investors to mitigate the negative investment performance that they may exhibit.||en_US