TEST OF BEHAVIORAL FINANCE FACTORS IN THE NIGERIAN CAPITAL MARKET
TEST OF BEHAVIORAL FINANCE FACTORS IN THE NIGERIAN CAPITAL MARKET

Summary/Abstract: The study empirically tests the behavioral finance factors in the Nigerian Capital Market. It is argued that making investment decisions is not only influenced by rational factors but irrational factors like emotions and psychology of individual investor concern. To this end, the study employed four behavioral biases factors such as loss aversion, overconfidence, herding and risk perception to examine investors’ decisions at the Nigerian Stock Market using the t-statistics and the ANOVA analysis. A total of one hundred (100) questionnaire were administered to relevant respondents of which about 88 were successfully retrieved. The empirical results revealed that Herding is the only behavioral biases factors that influences individual investors’ decisions at the stock market with respect to age. The other factors failed the 5 significant tests. On the basis of the t-test analysis, herding behavior was again found to be statistically significant; suggesting that investors’ decision to invest in the Nigerian Stock Market or not to invest, as indicated by the p value at the 5% level of significance {t = 0.462; p = 0.016}, is majorly influenced by the actions of other market participants (herding behavior). However, when the four behavioral biases were statistically ranked, the results showed that risk perception was first, followed by loss aversion, then herding and overconfidence. The study recommends among others that, investors should be very careful about the potential risks and consequences of herding attitudes in the market place (i.e. the tendency of being influenced by the actions of other market participants) which can miss-direct their judgments on the right investment decision if not properly and objectively evaluated.

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