Effect of Attitude Towards Risk on Individual Portfolio Choice at the Nairobi Securities Exchange, Kenya

Abstract

Attitude towards riskplays a major role of determining a portfolio choice of an investment portfolio composed of a single or multiple assets that an investor chooses within a certain period of time. Although there exist numerous controversial arguments of the factors that determine the level of individual portfolio choice, focus on multidimensional perceptions of investors characteristics have been given little attention. The objective of this study was to determine the effect of investor’s attitude towards risk on individual portfolio choice at the Nairobi securities exchange and  to investigate the moderating effect of investor’s age on the correlation between attitude towards riskand individual portfolio choice on common stocks at the Nairobi securities exchange. The study is anchored on risk aversion theory. A correlational research design was used for collecting data for the variables under study over a period of five years from January, 2013 to December, 2017. The population consisted of individual investors estimated at 2.4 million as at 31^st December 2017 based on Central Depository and Settlement Corporation Limited (CDSC). A target population of 997,605 active retail investors who also form the accessible population at Nairobi securities exchange(NSE) were used to draw a sample size of 385 active individual retail investors. Both stratified and convenience sampling was used to select the required number of respondents. A structured questionnaire was used to collect the data whereby drop and pick approach was used by the researcher and research assistants. Pilot testing of the instruments was performed to assess its reliability. Further, multiple regression techniques were used to analyze the data obtained that was presented using frequency tables, means, standard deviations and correlation tables. The study findings revealed that attitude towards risk, have a positive and significant effect on the common stocks. As such a unit increase in a predictor variable leads to an increase in investment in common stocks. Further, the results of the study indicated that age moderate the relationship between attitude towards risk and the individual portfolio choice in respect to common stocks. The study will benefit management of investment banks and brokerage firms in policy formulation to assist individual investors in their portfolio choices and also to the academicians to advance the conceptual arguments of the moderating effect of age on the relationship between attitude towards risk and individual portfolio choice.

Keywords: Attitude towards risk, Individual portfolio choice, Risk aversion,Investor’s age.

DOI: 10.7176/RJFA/13-20-01

Publication date:October 31^st 2022