Herding Behaviour and Stock Market Performance at the Nairobi Securities Exchange, Kenya

Abstract

Herding behaviour has increasingly attracted attention within behavioral finance due to its influence on investment decision-making and stock market outcomes. Unlike traditional finance theories that assume investors make rational decisions based on available information, behavioural finance suggests that investors frequently imitate the actions of other market participants, particularly under conditions of uncertainty. Such collective investment behaviour may distort price discovery, increase market volatility, and reduce market efficiency. This study examined the influence of herding behaviour on stock market performance at the Nairobi Securities Exchange, Kenya. The study was anchored on Behavioral Finance Theory and adopted a positivist research philosophy, quantitative research approach, and descriptive and correlational research designs. The target population comprised 68,500 retail investors trading through licensed investment banks and brokerage firms, from which a sample of 398 respondents was selected using simple random sampling. Primary data were collected using structured questionnaires that were subjected to validity and reliability testing before the main survey. Quantitative data were analysed using descriptive statistics, Pearson Product Moment Correlation, and simple linear regression analysis. The study achieved a response rate of 361. The findings established that herding behaviour exhibited a positive and statistically significant relationship with stock market performance. Regression analysis further demonstrated that herding behaviour significantly predicted stock market performance, leading to the rejection of the null hypothesis. The study concluded that herding behaviour significantly influences trading activity, price movements, market liquidity, and overall stock market performance at the Nairobi Securities Exchange. The study recommends strengthening investor education programs, improving market information dissemination, and enhancing financial literacy initiatives to encourage independent investment decision-making and improve market efficiency.