Abstract: Behavioural biases have been identified to affect the investor’s investment especially with the emergence of behavioural finance as an alternative to analysis of investor choice. It was therefore useful for investors to understand common emotional behaviours, from which they justify their reactions for better returns. The main objective of this study was to establish the effect of over-optimism biases on investment in the Rwanda Stock Exchange. The prospect theory, heuristics theory and herding theory formed the foundation of this study. The underlying epistemology of this research was positivist; focusing on examining earlier established theories under the assumption that reality is objectively given and can be described by measurable properties independent of the observer and the instruments. The study used cross-sectional descriptive survey research design to ascertain and establish the effect of over-optimism biases on investment in the Rwanda stock exchange. The target population comprised of 13,543 individual, group investors at the Rwanda Stock Exchange. Random sampling was used where the targeted population was individual investors to finally yield a sample size of 374 respondents. A questionnaire was used to collect the primary data. A pilot test was undertaken by carrying out a small scale trial run of the research instrument. Data analysis involved the use of descriptive and inferential statistics. A Linear regression model was used to predict the probability of different possibility outcomes of dependent variables, helping to predict the probability of an investor to invest in RSE. The results confirmed that there was a significant positive linear relationship between over-optimism bias, and Investment in Rwanda stock market. The study also concluded that most investors suffered from some of the behavioural biases in investment in stock markets. The study further recommends that the individual investors to seek the advice of stock brokers/fund managers to advise them accordingly in terms of performance of a specific security in which an investor would wish to invest in.
Keywords: Rwanda Stock Exchange (RSE), stock brokers/fund managers.
Title: Effect of Over-Optimism Bias on Investments at the Rwanda Stock Exchange
Author: Jacob Niyoyita Mahina, Dr. Willy M. Muturi, Dr. Florence S. Memba
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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