Factors Influencing Investment Decision in the Stock Market by University Students: A Case of the University Of Nairobi

Abstract

Investment decisions usually involve compromising on current consumption and deferring the usage of financial resources for greater gains in the future. The management of any organization and investors are tasked with making the investment decision. The current research study seeks to establish the factors influencing investment decision in the stock market by university students: a case of the University of Nairobi The specific objectives were to determine the influence of attitude towards risk by Kenyan graduates’ students on investment in the stock market, the influence of behavioral finance by the Kenyan graduates’ students on investment in the stock market and the influence of firm characteristics on investment by the Kenyan graduates’ students in the stock market. The researcher used a descriptive research design. The study’s target population was limited to the 822 students undertaking the Masters of Business Administration (MBA) at University of Nairobi within Nairobi County (University of Nairobi Registrar, 2018). The study targeted a sample size of 10% hence 82 graduate students deemed as representative as it conforms to provided threshold. The study used closed ended questions. Analysis was done quantitatively using descriptive and inferential statistics. For descriptive statistics it was presented in form of means and standard deviations. The study further employed inferential statistics in form of linear regression and correlation analysis. The collected data will be analysed using SPSS software version 22. It was noted that risk aversion is associated with comfort levels of graduate students towards investment, the high-risk investments are associated with high returns most of the graduate students focus on potential losses from the investments instead of the gains and that those who invest should look at the risk and expected returns of the whole portfolio rather than just focusing on what each investment asset brings. Further it was noted that political risk is the major factor limiting investment in NSE, the political sources of risk in the country have an effect on investing in the NSE and that adverse consequences arising from unexpected political events affect investment in the NSE. The study also revealed that lack of market knowledge limits investment decision-making in the NSE. The study revealed that capacity constraints in processing of information in NSE has an adverse effect on an individual investor. Heuristic factors provide insight as to the reason why prefer to sell, hold or buy securities without doing prior research since there is a possibility of asset values shifting from their original value. This leads to problems when it comes to market efficiency theory. The study established that herding individual in the security market will make a decision on what to invest in based on what others are doing in the market which leads to speculative bubbles in the market. The study established that the reputation of the firm has an effect on investment in the NSE the quality of information received has an effect on investment in NSE, past market trends have an effect on investment in the NSE and that investment decisions are influenced by popular opinion in the market, recent trends in returns and profitability and by the opinions of friends and colleagues. The study concluded that attitude towards risk, is a significant predictor investment in the stock market. The attitude people have towards risk is what determines how comfortable they are with the different investment methods and also if they are at peace with the outcomes they get from the investment decisions they make. Complexity of investment related decisions limits their investment in the NSE, capacity constraints in processing of information in NSE has an adverse effect on an individual investor, firm characteristics, is a significant predictor investment in the stock market. The study also concludes that past market trends, risk appetite, understanding past performance of changes in varied asset classes before planning investment finances and ability to tolerate risk differs from individual to individual. To encourage MBA students take initiatives towards NSE investment, firms listed in NSE should advice investors on stock market risk investment strategies to minimize the risk and maximize the gain. Investors have to analyse the influencers of their investment decisions and also use the financial knowledge they have to make wise investment decisions. To increase investor confidence on firms listed in NSE must constantly guard on their reputation, IR teams must use open communication and give sufficient reasons on why they preferred taking a certain investment decision rather than another one. They do not have to only do this through a press release. In case an organisation takes up a new corporate strategy they have a responsibility to ensure the shareholders are aware of this change and the results that come about due to this change in strategy.