Factors Influencing Individual Investor Behaviour: an Empirical Study of the Ethiopian Equity Market
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Date
2025-01-15
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A.A.U
Abstract
This study investigates the impact of behavioral finance on investment decisions, focusing on how psychological factors, such as cognitive biases and emotions, influence individual equity investors in Ethiopia. It addresses a gap in the literature by exploring these biases within the context of an emerging market. A survey of 384 respondents was conducted using a structured questionnaire with 25 items across five categories: self-image/company-image alignment, accounting information, neutral information, advocate recommendations, and personal financial needs. Additionally, five items measured the dependent variable of individual equity investment decisions. Analysis using SPSS version 26 revealed that accounting information and self-image/company-image alignment had the most significant influence on investment decisions, while neutral information had the least impact. The key factors influencing investment choices included the company’s industry status, dividends, financial statement conditions, share marketability, past performance, and ethical standing. These results show that Ethiopian investors prioritize financial performance indicators, market liquidity, and corporate ethics in their investment decisions. Classical wealth-maximization criteria, such as profitability and return on investment, were also significant, reflecting the behavior of experienced investors. Conversely, factors like expected losses in international markets, the unattractiveness of non-share investments, and recommendations from interested parties had minimal influence. Interestingly, despite the cultural importance of religion and family in Ethiopia, company religious affiliation and the opinions of family and friends had only a moderate impact on investment decisions. These findings suggest that while personal affiliations play a minor role, financial performance, ethics, and expert advice are the dominant drivers of investment behavior. The moderate influence of identity-related factors such as ethnicity, religion, and politics indicates a shift away from these considerations in contemporary investment behavior.
Keywords: Behavioral Finance, Investment Decision, Individual Investor, Investor Behavior.