Irene Cherono


Nairobi Securities Exchange has witnessed cases of stock market reactions as a result of extreme price volatility which point to the possibility of underlying inefficiencies that impacts on the shareholder value. Such market reactions are as a result of irrational investor behavior leading to market inefficiencies. A challenge to Efficient Market Hypothesis is that individuals often overreact and underreact to news causing stock markets to react according to investor behaviour in their investment decision making. Generally, the study determined the effect of investor behaviour, on stock market reaction of listed companies in Kenya. Specifically, the study determined the effect of investor herd behaviour on stock market reactions of listed companies in Kenya; determined the effect of investor loss aversion on stock market reactions of listed companies in Kenya; determined the effect of investor mental accounting on stock market reactions of listed companies in Kenya; and determined the effect of investor overconfidence on stock market reactions of listed companies in Kenya. The target population was 67 listed companies at the Nairobi Securities Exchange. A sample of 48 listed companies was used for analysis. Secondary data extracted from NSE historical data of listed companies for the period 2004 to 2016 was used for analysis. The study adopted quantitative research design. Panel data regression analysis model was used. The results indicate that investor herd behaviour does not have a significant effect on stock market reaction. However, investor loss aversion, investor mental accounting and investor overconfidence have significant effect on stock market reaction in Kenya.


JEL: E22; G11


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herd behavior; loss aversion; mental accounting; overconfidence; stock market efficiency

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