Determinants of Behavioral Factors Influencing Individual Investors’ Decisions Making in Addis Ababa at Ethiopian Private Commercial Banks.

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Date

2015-11

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Addis Ababa University

Abstract

Traditional finance theories such as Capital Asset Pricing Model, Efficient Market Hypothesis and Modern portfolio theories presumes that markets are efficient, people make rational decisions to maximize profits. But recent studies on individual investors’ behavior have shown that people do not act in a rational manner, rather several factors influence their investment decisions in the stock market. This paper aims at identifying the factors influencing the individuals investors' behavior in Ethiopian private commercial banks. A sample of 252 investors has been selected as sample size by simple random sampling technique. Self completion questionnaire is employed to collect the data. To test the model and reliability of the data the author has used Cronbach's alpha test, factor loadings, KMO, total variance explained and Eigen value. In this study, exploratory factor analysis is used to find out the determinants of individual investment behavior. The present study has identified five major factors that can influences individual investor’s investment decision in Ethiopian private commercial banks. They are Heuristic: representativeness-overconfidence and availability bias, Prospect: loss aversion and regret aversion, Market factors: past trends of stocks, market information, price changes of stocks and customers' preferences ,and Herd factors: buying and selling decision of others, amount of stocks bought by others and speed of herding . All the behavioral variables have a moderate impact on investment decision of individual investors in EPCB. The Pearson's correlation coefficient analysis was used to examine the significant relationship of behavioral factors and investment decision, the result revealed that most of behavioral variables have positive and significant relationship to investment decision

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Keywords

Decisions making, Private commercial banks., Ethiopian

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