A TEST OF THE BEHAVIOURAL FINANCE MODEL IN NIGERIA CAPITAL MARKET
Osarugue Lilian Ighekpe
Volume 5 Issue 2
Abstract
This study sought to test the behavioural finance model by examining the extent to which five psychological biases (overconfidence, loss aversion, herding behaviour, mental accounting, and anchoring bias) influence investment decision-making in the Nigerian capital market. The objective is to empirically validate the relevance of behavioural constructs in explaining deviations from rational investor behaviour. Data were collected through a structured questionnaire administered to a stratified sample of 361 respondents, comprising individual investors, stockbrokers, and portfolio managers. The research employed a quantitative methodology, with data analysed using descriptive statistics, correlation analysis, and a Generalized Linear Model (GLM), following diagnostic tests that confirmed the presence of serial correlation. The findings reveal that overconfidence and loss aversion have significant and positive effects on investment decisions, while herding, mental accounting, and anchoring biases do not exhibit statistically significant influence. These results suggest a partial validation of the behavioural finance model in Nigeria’s capital market, with key implications for investor psychology and regulatory practice. The study recommends behavioural-focused investor education, enhanced advisory training, and the incorporation of psychological insights into financial policy design to improve investment outcomes and foster market stability. Keywords: Behavioural Finance, Investment Decision-Making, Overconfidence, Loss Aversion, herding Behaviour
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