The Effect of Heuristics on Stock Buying Decisions of Individual Investors: Evidence from the Nigerian stock exchange

Ibrahim Audu, Muktar Baba, Abubakar Alhaji Saleh


Empirical evidence from developed countries have established that heuristics biases do have significant effect on individuals’ investment decisions in stock market, but there is very limited number of studies conducted in less developed countries especially in Sub- Saharan Africa and Nigeria in particular. In view of this, this paper attempts to bridge the gap by examining the effect of heuristics on individuals’ investors stock buying decisions based on the Nigerian stock market context using a survey strategy. A sample of 400 questionnaires were administered to individual investors, the data collected were analysed with multiple-linear regression using SPSS Software. The findings revealed that heuristics biases have significant effect on individual investors stock buying decisions with R² = .563, F(5, 211) = 79.31, p < .001. The study further revealed that gambler’s fallacy, availability bias and overconfidence had the highest effect, indicating that investors exhibiting these heuristics may tend to used locally available information, based their selling decisions on purchase price, and may overestimate their ability to process information while making stock buying decisions. The study, proposed that investors need to be aware of these biases and its implication on their subsequent investment performance. The security market operators need to create more awareness about these biases, so as to enable individual investors make an informed decision about the stock they buy.

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