The Influence of Ostrich effect on Portfolio Returns among Individual Investors at Nairobi Securities Exchange

Abstract

The purpose of this research was to analyze the effect of the ostrich effect on portfolio returns for Kenyan retail investors trading on the Nairobi Securities Exchange. The research used a descriptive correlational survey approach. The intended audience comprised of all the 1,680,901 individual local investors at the NSE as at the end of the year 2022 (CMA, 2022). To choose the sample for the investigation, basic random sampling was used. Individual local investors at the NSE as of December 31, 2022, are the unit of analysis. A sample size of 400 respondents was considered. The research findings depicted that respondents exhibited ostrich effect to a moderate extent. This was evidenced through investors avoiding bad news, inattention to new information, biased interpretation of information and forgetting and ignoring information presented. The study concluded that ostrich effect significantly affect portfolio returns. However, a small percentage of variations in portfolio returns was caused by ostrich effect as evidenced by the coefficient of determination. The study recommends that individual investors to refrain from succumbing to the ostrich effect and, in order to form informed judgments, to prioritize fundamental analysis of companies. The research also suggests that individual investors should avoid the biases created by the ostrich effect and instead look for knowledge on how to improve their investments by holding effective portfolios. Individual investors should avoid falling into the trap of underestimating their capacity to do investing research and make improvements to the assets in their portfolios.

Keywords:       Ostrich effect, Portfolio returns, Efficient market hypothesis, Investor bias