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