Investor Irrational Behaviour and Abnormal Stock Returns: A Case of Nairobi Securities Exchange

Abstract

The main objective of the study was to determine the effect of investor behavior on stock returns in Kenya. Specifically, the study determined the effect of herd behavior on stock returns in Kenya; determined the effect of loss aversion on stock returns in Kenya; determined the effect of mental accounting on stock returns in Kenya; and determined the effect of overconfidence on stock returns in Kenya. Empirical studies on the effect of investor behaviour on stock returns are inconclusive especially when it comes to how investor behaviour biases have an effect on returns in Kenya. The target population was 67 listed companies at the Nairobi Securities Exchange. A sample of 48 listed companies was used in the analysis. Secondary data extracted from Nairobi Securities Exchange historical data of listed companies for the period 2004 to 2016 was used in the analysis. The study adopted quantitative research design. The results indicate that investor herd behaviour does not have a significant effect on stock returns. However, investor loss aversion, investor mental accounting and investor overconfidence have significant effect on stock returns in Kenya.