Effect of Investor Overconfidence Behavior on Stock Market Reactions in Kenya for the Year 2004 to 2016

(Pages: 65-70)

Irene Cherono*, Tabitha Nasieku and Tobias Olweny

School of Business: Department of Economics, Accounting and Finance, Jomo Kenyatta University of Agriculture andTechnology, Juja, Kenya.


The main behavioral bias important in order to understand the trading puzzle is overconfidence. Investor overconfidence behavior is the tendency to be more confident in our ability to act ethically than is objectively justi-fied by our abilities and moral character. Investor overconfidence behavior shows why investors trade the way they do and the judgements they make in their investment decision making leading excessive trading. The objective of the study was to determine the effect that investor overconfidence behavior on stock market reaction in Kenya. The tar-get population was 67 listed companies at the Nairobi Securities Exchange. A sample of 48 listed companies was used for analysis. Secondary data extracted from Nairobi Stock Exchange historical data of listed companies for the period 2004 to 2016 was used for analysis. The study adopted quantitative research design. Unit root results showed that the variables were stationary. Panel data regression was used to analyze data. Panel Dynamic Least Squares technique was used in this analysis. Results were statistically significant with a t-statistic value of -2.187990 and the p-value was found to be 0.0293. In conclusion, investor overconfidence variable has a significant effect on stock market reaction.


Overconfidence Behaviour, Stock Market Reaction, Behavioral Finance and Stock Market Efficiency