Effect of behavioral factors on investment decisions of individual mutual fund investors in Kenya: a survey of individual mutual fund investors in Nairobi county.

Abstract

Behavioral finance has developed greatly in line with the increasing number of market anomalies which could not be explained by traditional theories. Additionally, there being no consensus among financial researchers concerning the validity of behavioral finance means that the behavioral concept is still open to future research. This study aimed to mirror the effects of behavioral factors on investment decisions in Mutual fund by individual investors in Kenya. The study was guided by four theories; prospect theory, heuristic theory, expected utility theory and Herding theory. The study focused on specific objectives of Overconfidence, Herding, Representativeness and Availability bias as the major behavioral factors known to influence investment decision making. Demographic factors were also included which had the role of controlling variables. The study employed descriptive research that employed a case study targeting a population of all clients of the 19 registered funds in Nairobi County. A convenient sample of 57 respondents was determined using snow ball sampling procedure. Primary data was collected through the use of a 4-Likert scale questionnaire. A regression model was used to establish the type relationship between the variables and SPSS software was used for analysis.The study findings revealed a significant positive relationship between Availability bias factors and investment decisions in mutual funds. The study however revealed insignificant but positive relationships between Overconfidence, Herding and Representative Bias as the main factors of study. The study also found that demographic factors which had a controlling role have an insignifant negativerelationship with investment decisions. The study concluded that investment decisions in mutual funds by individual investors in Kenya are influenced by behavioral factors but the influence is not significant. The study recommends that the study be extended to other counties in Kenya using a larger sample size to determine reliability of the results.