Investor Behaviour, Investor Demographic Characteristics, Investment Style and Individual Investor Portfolio Pe rformance at the Nairobi Securities Exchange

Abstract

This study sought to determine the relationships among investor behaviour, inves tor demographic characteristics, investment style and individual investor portfolio performance at the Nairobi Securities Exchange in Kenya . The study aimed at addressing the research gaps identified in the literature which included: conflicting empirical findings on the effect of investor behavior on portfolio performance; limited studies on the joint effect of investor behavior, investor demographic characteristics and investment style on investor portfolio performance; lack of inclusion of intervening an d moderating effects on the relationship between investor behavior and portfolio performance ; differences in contextual setups and finally, the use of traditional financial measures that assume that portfolio performance is on ly affected by the market ris k. To address the above gaps, six hypotheses were formulated and tested. The study tested the direct relationship between investor beha viour and portfolio performance; the moderating and intervening effect of demographic characteristics and investment style respectively on the relationship between investor behaviour an d portfolio performance as well as the joint effect of investor behaviour, demographic characteristics and investment style on individual investor portfolio performance. The pop ulation consisted of individual investors estimated at 2.4 million based on the CDSC investor data base as on December 31, 2014. A mix of random and convenience sampling methods were used and data was collected from 348 respondents out of the target sample size of 385. The data was analyzed using descriptive statistics, correlation analysis and inferential statistics. Hierarchical multiple regression analysis was used to test the hypotheses . The findings show that investor behaviour influences individual po rtfolio performance and the investment style adopted by the investor . Further, the results indicate that demographic characteristics moderate the relationship between investor behavior and portfolio performance while investment style has no mediating role in the relationship between investor behaviour and portfolio performance. Jointly, investor behavior, demographic characteristics, and investment style explain 8% of the variations in individual investor xv portfolio performance and the relationship is statis tically significant . This study concludes that investors do not often review their biases and the effect they have on performance hence they keep on suffering from the consequences of the similar mistakes. It also concludes that even the financially litera te investors suffer from behavioral effects and that other demographic characteristics also impact portfolio performance. The study recommends that the Capital Markets Authority, the Nairobi Securities Exchange and other capital market players clearly appr eciate the role played by investor behavior, investment style and demographic characteristics in influencing share price movements and use the information as a basis of investor education for purposes of minimizing the amount of noise trading and price dis tortion in the Kenyan capital market. The study contributes to existing knowledge by introducing the moderating and intervening variables in the relationship between investor behaviour and individual portfolio performance at the NSE. It also serves as a re ference point for investors to understand how their behaviour affects their portfolio performance and thus learn to avoid those behaviors that negative ly impact the value of their investment and also incorporate fundamental information in their buying and selling decisions