FINANCIAL LITERACY: ITS EFFECTS ON SECURITIES

MARKET PARTICIPATION IN KENYA.

A Case Study of Nairobi Securities Exchange

Kamau Ian Moses Kamanja

K16S/CTY/14859/2010

0722289986

A research project submitted to the school of Economics- department of Applied

Economics KENYATTA UNIVERSITY, in Partial Fulfilment of the Award of

Degree in Economics and Finance Kenyatta University

Presented to: Dr. Njaramba

July 2013

ContentsDeclaration...............................................................................................................................................................3

DEDICATION.........................................................................................................................................................4

ABSTRACT................................................................................................................................................................6

ACRONYMS/ABBREVIATIONS...................................................................................................................................7

CHAPTER ONE..........................................................................................................................................................8

INTRODUCTION....................................................................................................................................................8

Background of the Study..................................................................................................................................8

Problem Statement........................................................................................................................................10

Research Questions........................................................................................................................................11

Research Objective.........................................................................................................................................11

Significance of the Study...............................................................................................................................11

Scope and Limitations of the Study................................................................................................................12

Conceptual framework...................................................................................................................................12

Description of the model................................................................................................................................12

CHAPTER TWO.......................................................................................................................................................14

LITERATURE REVIEW..........................................................................................................................................14

Introduction...................................................................................................................................................14

CHAPTER THREE.....................................................................................................................................................17

RESEARCH METHODOLY.....................................................................................................................................17

INTRODUCTION..............................................................................................................................................17

Sampling Design and Sample Size..................................................................................................................18

Table 3.1: showing the sample size selection.................................................................................................18

Data Sources..................................................................................................................................................18

Data Collection Instruments...........................................................................................................................19

Measurement of Variables..............................................................................................................................19

Validity and Reliability Test............................................................................................................................19

Reliability and Validity Index..........................................................................................................................20

Data Analysis..................................................................................................................................................20

Anticipated Limitations..................................................................................................................................20

CHAPTER FOUR......................................................................................................................................................21

2

RESULTS AND FINDINGS OF THE STUDY.............................................................................................................21

Introduction...................................................................................................................................................21

Sample Characteristics...................................................................................................................................21

Table 4.1: showing age group of Respondents...............................................................................................22

Table 4.2: showing gender of respondents....................................................................................................22

Table 4.3: showing Highest Level of Education attained by respondents.......................................................23

Table 4.4: showing the stocks being traded by Respondents.........................................................................23

Table 4.5: Showing the Brokerage firm respondents traded with..................................................................24

Table 4.6: showing the frequency of respondents’ trading on the NSE.........................................................25

Factor Analysis Results.......................................................................................................................................25

Financial Literacy................................................................................................................................................26

4.4 Relationship between the variables.............................................................................................................27

The Financial Literacy, Investor Behaviour affects Participation by investors in the Securities Market.........28

Regression Model for the components of Financial Literacy and Investor Behaviour with Securities Market Participation as the dependent Variable........................................................................................................28

Regression Model...............................................................................................................................................29

CHAPTER FIVE........................................................................................................................................................31

DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS...................................................................................31

Introduction...................................................................................................................................................31

Discussion of findings.....................................................................................................................................31

Conclusions....................................................................................................................................................32

Recommendations.........................................................................................................................................32

Areas for further research..............................................................................................................................33

REFERENCES...........................................................................................................................................................34

Appendix 1: Questionnaire....................................................................................................................................36

Appendix 2: Coding................................................................................................................................................42

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DeclarationI declare that this project is my own original work and has not been submitted for examination or any

other institution of Higher Learning or for any reason whatsoever.

Signature Date

4

DEDICATIONTo my loving mum, Uncle Daniel Kariuki and my best friend Joshua Muli

5

ACKNOWLEDGEMENTS

I wish to thank my mum who has always supported me in my goals and equally encouraged me in my

studies.

Thanks to my friends who have always stood by me and encouraged me throughout my studies.

Thanks to the rest of my family who amidst their complaints of me spending so much time on this

research, still encouraged me.

I wish to acknowledge the support of my supervisor, Dr. Njaramba who tirelessly encouraged and

guided me in the completion of this research and was always available to tune me in the right direction.

I wish to recognise the support and encouragement I received from my friends- Faith Mwangi, Kelvin

Kihara and Catherine Gitonga

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ABSTRACT

Individuals are increasingly being encouraged to be in charge of their financial security before, and after

retirement. Moreover, the supply of complex financial products has increased considerably over the

years. However, it emerges that people still have little or no information, financial knowledge and skills

to navigate this new financial environment.

The purpose of the study is to examine the level to which financial literacy influences investor

behaviour and its effects on securities market participation in Kenya on the Nairobi Securities Exchange

(NSE). The study has been initiated because although the Nairobi Securities Exchange (NSE) opened in

1954, only sixty companies (compared to other securities market like the New York Securities

Exchange which has more than 60 public listed companies) are currently listed with relatively a growing

number of investors (both retail and corporate) whose trading patterns are uncertain and not clear yet the

securities market has a potential to grow even bigger than it currently is.

A cross sectional quantitative research design has been used. Using a proportional random sampling

approach, a sample of 86 investors was selected from NSE. The research instrument was a self-

administered questionnaire which sought responses on financial literacy, investor behaviour and

securities market investor participation on the NSE. Forty five (45) fully filled questionnaires were

returned, giving a response rate of 45%.

Financial literacy has been found to significantly predict 50.3 percent of the variance in securities

market participation on the NSE and influence on investor behaviour was found to significantly predict

9.1 percent of the variance in securities market participation.

The results on the relationship indicates that the level of financial literacy among investors is positively

related while influence on investor behaviour, is negatively related to securities market participation.

In light of the findings, various recommendations are suggested on how best investors can make use of

available information to make objective investment decisions on the NSE. This will help in encouraging

potential investors in investing on the securities market.

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ACRONYMS/ABBREVIATIONS

NSE Nairobi Securities Exchange

OECD Organization for Economic Co-operative and Development

DFID Department for International Development

FSD Foundation for Sustainable Development

FSD Financial Sector Deepening in Kenya

CBK Central Bank of Kenya

CMA Capital Market Authority

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CHAPTER ONE

INTRODUCTION

Background of the Study

Financial literacy remains an interesting issue in both developed and developing economies, and has

elicited much interest in the recent past with the rapid change in the financials landscape. OECD (2005),

defines financial literacy as the combination of consumers’/investors’ understanding of financial

products and concepts and their ability and confidence to appreciate financial risks and opportunities, to

make informed choices (and this is based on the influence that it has when choosing between

alternatives), to know where to go for help, and to take other effective actions to improve their financial

well-being (Miller et al., 2009). Financial literacy helps in empowering and educating consumers so that

they are knowledgeable about finance in a way that is relevant to their lives and enables them to use this

knowledge to evaluate products and make informed decisions. It is widely expected that greater

financial knowledge would help overcome recent difficulties in advanced financial/ credit markets.

Financial literacy prepares consumers for tough financial times, through strategies that mitigate risk

such as accumulating savings, diversifying assets, purchasing insurance etc.

It facilitates the decision making processes such as proper debt management which improve the credit

worthiness of potential borrowers to support livelihoods, economic growth, sound financial systems, and

poverty reduction. It also provides greater control of one’s financial future, more effective use of

financial products and services, and reduced vulnerability to enthusiastic retailers or fraudulent schemes.

Facing an educated lot, financial regulators are forced to improve the efficiency and quality of financial

services. This is because financially literate consumers create competitive pressures on financial

institutions to offer more appropriately priced and transparent services, by comparing options, asking

the right questions, and negotiating more effectively. Consumers on their part are able to evaluate and

compare financial products, such as bank accounts, saving products, credit and loan options, payment

instruments, and investment options in the securities exchange, insurance coverage, so as to make

optimal decisions.

Financial literacy is also defined as: the ability to make informed judgments and to take effective

decisions regarding the use and management of money (Worthington, 2005, p.2). Remund (2010) on the

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other hand defines it as a measure of understanding key financial concepts. The authors suggest that

financially literate population is able to make informed decisions and take appropriate actions on matters

affecting their financial wealth and well-being. Financial literacy requirements change over the life time

of an individual in response to the changing financial needs and is therefore important in the private

securities market’s field due to the unique nature of the financial products supplied which are complex,

long-term and have wide social coverage (OECD, 2008). Evidence from both developing and developed

countries indicates that many individuals do not know where to get trustworthy and impartial advice

about securities exchange operations and financial issues for instance, in the United States of America,

where households have a wide array of financial products, low levels of financial literacy prevents

consumers from making good decisions on financial products (Lusardi and Mitchell, 2006; OECD,

2008; James, 2009; Lusardi et al, 2010).

According to Kefela (2010), financial knowledge is directly correlated with self-beneficial financial

behaviour and so financial education should take a wholesome perspective to include the fundamentals

of finance since without understanding the basic finance principles, education in the securities market

operations would be ineffective. In the words of Kefela (2010, p.205), “participants who are less

financially literate are more likely to have problems with debt, are less likely to save, are more likely to

engage in high cost mortgages and are less likely to plan for retirement” and by extension are less likely

to make better choices for their pension schemes and any other financial investment products.

Financial literacy levels in developing countries are quite low. For instance, DFID (2008) shows

evidence that only half of the adult population knew how to use basic financial products. The same

study found that in seven African countries only 29% of adults had a bank account and that

approximately 50% used no financial products whatsoever, not even informal financial products. In

Kenya, FSD (2009) reported that 59.5% of the population was excluded from the use of formal financial

services. According to FSD (2009), exclusion decreases as the level of education increases from 55.9%

for those with no education to 8% for those with tertiary education.

As the African financial markets expand, there is great need for training and research activities to be

highly customized and should include a realistic approach to policy options and practical

implementation problems (Calvert, Campbell and Sodini, 2005; Mandell, 2006a; Mandell, 2006b; FSD,

2008b).

Kenya’s Vision 2030 (strategic plan to achieve key economic milestones by 2030) documents saving

and financial investments provision as an important pillar to achieving economic growth and faster

development of the financial markets. In the long term therefore, the population should be empowered

to make financial decisions which will in turn contribute to reduction in old age poverty as the

population will be empowered to make rational financial decisions for their interests in both the short

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term and the long term (Kafele, 2010). Furthermore, the expansion of financial services in Kenya creates

not only great opportunities, but also more potential for the general population to take wrong financial

decisions hence the need to enhance financial literacy initiatives.

Literature and data on Africa’s financial markets and financial literacy programs is limited, with very

little evidence of any studies evaluating the financial literacy programs in Africa. Moreover FSD

(2008b) challenges policy makers to address financial literacy needs of the general population in Kenya.

The research will seeks to address the knowledge gap by establishing the financial literacy levels

amongst citizens in Kenya determine the finance and securities market literacy training needs, the

challenges to participation in the securities market and determine the strategies (in relation to investor

behaviour among the ones already participating in the securities market) to improve financial literacy

amongst citizens in Kenya.

Problem Statement

Almost every household or individual in Kenya carries out key financial transactions and decisions as

part of their economic activities and for better livelihood in the future. The question posed however, is

whether the decisions and choices made are guided by financial literacy or other factors. Of interest to

this research is to establish the households’ rate of participation in the securities market/exchange,

factors considered in making key investment decisions and whether the households or individuals are

well-equipped to make financial decisions and, Do they possess adequate financial literacy and

knowledge?

Literature on the linkage between household/individual (in this case an investor) behaviour and the

potential effect of financial education efforts on that behaviour remains scanty. Campbell (2006) argues

that decisions to increase human capital (and by extension financial capability or well-being) by

undertaking higher levels of education, for example, are subject to varying rates of return due to a

number of factors, including one’s expected lifespan upon completion of a degree program. In order to

understand the link between household financial decisions and financial literacy, there is need to

understand households’ effective budgeting techniques, as well as the connection between financial

literacy and their participation in the securities market.

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Research Questions

The research questions are;

a) What are the factors influencing securities market participation at the NSE?

b) What is the relationship between financial literacy and securities market participation?

c) Do investor perceived level of financial literacy affect investor behaviour?

d) To what extent does financial literacy affect investor behaviour on the NSE?

Research Objective

General Objective

The study seeks to establish the level of financial literacy in Kenya, its influences on investor behaviour

and the rate of participation in the securities market in Kenya.

Specific Objectives

i. To determine the factors influencing securities market participation on the NSE

ii. To examine the relationship between financial literacy and securities market participation

iii. To determine the level to which financial literacy affects investor behaviour on the NSE

iv. To establish the extent to which financial literacy affects investor behaviour on the NSE

Significance of the Study

Financial literacy is a socially and scientific study that needs to be majorly focused upon. It is through

financial literacy that people make correct and relevant decision for their key financial transactions and

secure financial investments. Financial literacy is also a key macroeconomic problem. Few studies have

been done before to establish the relationship and effects of financial literacy on securities market

participation. This study intends to tackle exactly that and act a material reference among scholar. This

research will be important in providing the government and other financial institutions, to help grow the

gross Domestic Product of Kenya at large. The research will also provide insights to policy makers on

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existence of links in the economy; factors that complement each other. It will also work to empower the

Kenya citizens in making key financial decision for their daily economic activities.

Scope and Limitations of the Study

This study focuses on the financial sector of the economy and more specifically the securities exchange

market. It targets the general population of Kenya. It is limited to Nairobi County and its environs,

running for duration of 4 to 6 months.

Conceptual framework

Adopted from Luigi&Tullio (2005), Weber&Milliman (1997) and Alexander (2004)

Description of the modelIn order to make proper investment decisions, investors require information and should be

knowledgeable about the various stocks being traded (stock market activities). Financial literacy

(Awareness) can be through social learning, financial information and from private sources. The level of

awareness by the investor will affect the individual risk attitudes of the investors and stock price

predictions hence affecting trading behaviour of stocks in the market.

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Investor Awareness

Financial awareness Social learning

Securities Market Participation

Affect Cognition

Investor behaviour

Psychological Sociological Emotional

According to Guiso and Japelli (2005), awareness of investors can be through learning from issuers and

distributors of information, and others often learn about investment opportunities from peers who have

been informed by financial intermediaries (Social learning). On the other hand, awareness can be

through financial awareness which is majorly determined by the investor’s resources (income, financial

wealth), age and education status. And the information an individual holds determines their risk

perception.

Finucane et al. (2000), asserts that if subjects were given information that risk is high, they were

expected to infer low benefit; if they were given information that risk is low, they were expected to infer

high benefit. And this makes perceived risk negatively correlated to self-esteem, rigidity and risk taking

hence affecting investor behaviour.

According to Huang (2003), human behaviour is not only cognitive, but also emotional which

influences investor behaviour when trading. And the need to incorporate psychology attempts to explain

how perception of investors and their reaction to uncertainties affect the investment decision there by

influencing price movements of stocks.

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CHAPTER TWO

LITERATURE REVIEW

Introduction

The section presents a critical review of research work carried out by various scholars in the field of

financial literacy, investor behaviour and securities market participation.

Financial literacy is yet to receive enough attention although there has been growing attention in the

recent past. Levels of financial literacy across the world remain very low, although there is not much

literature to support this assertion. However, OECD country level survey data confirms this view, with

consumers consistently performing poorly on tests of financial literacy. Bernheim and Garrett (2003)

and Vitt, et al. (2000) established that 75 percent of consumer financial literacy programs started in the

late 1990s or 2000. Campbell (2006) argues that with financial education poor financial decisions are

likely to be reconciled with economic theory given that households have been found to make sub

optimal decisions which deviate from what economic theory suggests.

Campbell conceives that persons with higher education levels (high school, college, graduate school) are

likely to be more active in capital markets due to reduced information asymmetry.

Also, there exist very few studies that provide information on both financial literacy and variables

related to financial decision-making (for example saving, portfolio choice, and retirement planning). To

remedy this lack of data, Lusardi and Mitchell (2006) devised a module on financial literacy for the

2004 US Health and Retirement Study (HRS). Their questions aimed to test basic financial knowledge

related to the working of interest compounding, the effects of inflation, and risk diversification. They

found that financial illiteracy is widespread and particularly acute among specific groups of the

population, such as women, the elderly, and those with low education. These results are surprising not

only because the literacy questions were rather simple and basic, but also because their sample was

composed of respondents who are 50 or older. Most respondents in that age group have checking

accounts, credit cards, and have taken out one or two mortgages. However, similar results are found in

the work by Hilgert and Hogarth (2002), which examines financial literacy in a sample covering all age

groups, and on surveys by the National Council on Economic Education (NCEE), that cover financial

literacy among high school students and the adult population. Findings of widespread illiteracy are also

15

reported in studies on smaller samples or specific groups of the population (Agnew and Szykman

(2005), Bernheim (1995, 1998), Mandell (2004), and Moore (2003)).

Whereas these studies focused on data from the US, surveys from other countries (particularly the

developing countries) show very similar results. A study by the OECD (2005) and work by Lusardi and

Mitchell (2007b) review the evidence on financial literacy across countries and show that financial

illiteracy is a common feature in many other developed countries, including European countries,

Australia, and Japan. These findings are echoed in the work of Christelis, Jappelli and Padula (2007),

which uses data very similar to the US HRS, and finds that most respondents in Europe score low on

numeracy scales.

Financial illiteracy has implications for household behaviour. Bernheim (1995, 1998) was the first to

point out not only that most households cannot perform very simple calculations and lack basic financial

knowledge, but also that the saving behaviour of many households is dominated by crude rules of

thumb. In more recent works, Bernheim, Garrett and Maki (2001) and Bernheim and Garrett (2003)

show that those who were exposed to financial education in high school or in the workplace save more.

Similarly, Lusardi and Mitchell (2006, 2007a) showed that those who display low literacy are less likely

to plan for retirement and, as a result, accumulate much less wealth (see also Hilgert, Hogarth and

Beverly (2003)). This finding is confirmed in the work by Stango and Zinman (2007), which shows that

those who are not able to correctly calculate interest rates out of a stream of payments end up borrowing

more and accumulating lower amounts of wealth. Agarwal, Driscoll, Gabaix and Laibson (2007) further

show that financial mistakes are prevalent among the young and elderly, who are those displaying the

lowest amount of financial knowledgeDriscoll, Gabaix and Laibson (2007) further show that financial

mistakes are prevalent among the young and elderly, who are those displaying the lowest amount of

financial knowledge.

The measures of financial literacy used in existing studies are often crude. For example, Lusardi and

Mitchell (2006, 2007a) rely on only three questions to measure financial literacy, and Stango and

Zinman (2007) rely on one question. Moreover, the surveys that provide more extensive information

about financial literacy often have little or no data on wealth, saving, or other important economic

outcomes (see, for example, the NCEE survey).

The study is to overcome the problems with some of the previous studies by providing comprehensive

measures of financial literacy as well as providing an evaluation of the quality of the literacy data. In

addition, I will link (through the research) financial literacy with an important economic outcome:

participation in the securities market. While extensive research on this topic exists, it is still a “puzzle”

16

why so many households do not hold securities (Campbell (2006)). Some have argued that the long-

term nature of securities investments, income risk, passive, and departures from expected utility

maximization may explain why so few households invest in financial products (Haliassos and Bertaut

(1995)), but it has proven hard to account for all these factors in available micro data sets.

Others have argued that young people cannot borrow and thus do not have wealth to invest in securities

(Constantinides, Donaldson and Mehra (2002)). These life-cycle considerations and the wedge between

borrowing and lending rates provides some explanation for lack of securities ownership (Davis, Kubler

and Willen (2006)), but even these reasons cannot fully explain why such a large proportion of families

do not invest in securities and other securities. More recent papers have incorporated other reasons, such

as trust and culture (Guiso, Sapienza and Zingales (2005)), and the influence of neighbours and peers

(the society) (Hong, Kubik and Stein (2004), and Brown, Ivkovich, Smith, and Weisbenner (2007)). Yet

other authors have started to consider limited numeracy and cognitive ability (Christelis, Jappelli and

Padula (2007)), lack of asset awareness (Guiso and Jappelli (2005)), and lack of financial sophistication

(Kimball and Shumway (2006)). My work is to improve substantially upon these studies by considering

more refined indicators of financial literacy and financial sophistication that I will explicitly designed

for a survey of Nairobi households. Moreover, to better understand the relationship between financial

literacy and equities market participation; the research also designed questions to measure economic

knowledge of these same households, before entering the securities market.

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CHAPTER THREE

RESEARCH METHODOLY

INTRODUCTION

The section looked at the research design, the population of study, sample size, sources of data, data

collection methods, measurement of variables, the validity and reliability test, data analysis and

anticipated limitations of the study.

Research Design

The study used a cross sectional quantitative research design. It involved descriptive and analytical

research designs to establish whether changes in the independent variable affect the dependent variable.

The design was used because data about variables can be obtained once in a given time period. A

correlation approach using quantitative data was used to establish the relationship between financial

literacy, investor behaviour and stock market participation. And a regression model was adopted to

establish how the independent variable predicts the dependent variable.

Study Population

The study comprised both staff of brokerage firms on the NSE and individual investors trading with the

brokerage firms. The population distribution according to the licensed brokerage firms (8) though there

are (22) in total on the NSE are: Dyer& Blair (K) Ltd (15 investors), African Alliance (K) Ltd (20

Investors), CFC Financial Services Ltd (10 investors), Kestrel Capital Ltd (10 investors), ABC Capital

Ltd (14 investors), Equity Stock Brokers (K) Ltd (15 investors), and Standard investment bank (13

investors), Kingdom Securities (18 investors). The total population was 110 investors and technical

staff.

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Sampling Design and Sample Size The sample size of 86 was determined using Krejcie and Morgan (1970) table scale. To select the

sample, staff of brokerage firms and individual trading accounts with the brokerage firms was chosen

proportionately from each of the 8 brokerage firms.

Table 3.1: showing the sample size selection

Firm Population Sample

Kingdom Securities 18 10

Dyer & Blair Ltd 15 8

African Alliance 20 12

Kestrel Capital 10 18

CFC Financial Services 10 18

ABC Capital Ltd 14 7

Equity Stock Broker 15 8

Standard Investment Bank 13 7

Total 110 86

Data Sources

Primary Data

Data was got from holding interviews with the brokers and individual investors in the brokerage firms

and through issue of semi-structured questionnaires to the brokerage firms and investors on the NSE.

Secondary Data

Journals, NSE Annual Reports, newspapers and reports from the brokerage firms were used.

Data regarding the trading of equities of companies from the licensed brokerage firms on the

NSE was used alongside documentation from previous studies.

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Data Collection Instruments

Questionnaire

Primary data was collected using a questionnaire which was made up of closed ended questions that

were initially developed and pilot tested to ensure validity and reliability of the measurement scales.

The questionnaire which is presented in Appendix 1 was directed to investors. A total of 100

questionnaires were sent out to the respondents and 45 responses were received from the investors.

Data was collected from the brokers who trade stocks on behalf of investors (middle men) as well as the

individual investors trading with the brokerage firms.

Measurement of VariablesAll item scales for the variables were derived from previous studies where they had been tested for validity and

reliability.

Financial was measured using a scale adapted from Ekambaram et al (2003). A 5 point Likert scale ranging from

strongly disagrees to strongly agree was used.

The perceived risk attitudes of the investors was measured using a point bi-serial correlation adapted from Weber

and Milliman (1997) between investor’s risk judgment about the company and his choice and a psychometric

approach based on likert statements that produced a onedimensional risk attitude scale.

Investor behaviour was measured using State Street’s approach which measures confidence directly and

quantitatively by assessing the changes in investor holdings of risky assets, herding, over and under reaction and

loss aversion of investors. This was based on likert statements ranging from strongly disagree to strongly agree.

Validity and Reliability TestA pre-test of the research instruments to establish the validity was done. To determine the internal

consistency or reliability of financial literacy and securities market participation, Cronbach Alpha Co-

efficient was used as an index of reliability (Cronbach, 1951). A questionnaire was then given to the

individuals to give their opinion regarding its relevancy using a 5- point Likert scale as shown below.

20

Reliability and Validity Index

Anchor Cronbach Alpha value Content Validity Index

Financial Literacy 5 Point .813 .800

Investor Behaviour 5 Point .630 .800

Stock Market Participation 5 Point .765 .643

Reliability and validity values which are indicated by the Cronbach Alpha and Content Validity Index

respectively were observed to be above 0.6 for all variables. This indicates the scale was both reliable

and valid.

Data Analysis

The data was processed through tabulated frequency distributions using the SPSS programme. A

correlation statistical technique was then used to test and establish the strength of the relationship

between the variables. A regression model was used to examine the percentage of variance of the

dependent variable explained by the independent variables for prediction purposes.

Anticipated Limitations

The study concerns a sensitive area regarding investors and brokerage firms’ trading which

causes suspicions hence some vital information may be concealed due to lack of trust.

The methodology was be limited due to the fact that measurement of variables using scales may

be subject to modifications since the scales were tailored to developed economies where the

securities markets are more developed than our NSE.

There is a possibility of getting varying/ poor responses depending on the respondent’s level of

conceptualization.

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CHAPTER FOUR

RESULTS AND FINDINGS OF THE STUDY

IntroductionThis chapter contains the presentation of results and interpretation of the findings in relation to

objectives of the study which were;

To determine the factors influencing securities market participation on the NSE

To examine the relationship between financial literacy and securities market participation

To determine the level to which financial literacy affects investor behaviour on the NSE

To establish the extent to which financial literacy affects investor behaviour on the NSE

Sample Characteristics

This showed the characteristics of the respondents with regard to the response rate, age group, gender,

education level, and monthly income, period of trading on the NSE, the securities being traded, the

trading brokerage firm and the frequency of trading on the NSE. The results showed the following;

Response RateForty five (45) fully filled questionnaires out of the 100 questionnaires distributed were received from

brokers of the brokerage firms and individual investors. This represented a 45% response rate.

Age Group of RespondentsRespondents were categorized by age group and the results in the table indicated the following on age

group of the respondents.

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Table 4.1: showing age group of Respondents

Frequency Valid Percentage Cumulative Percentage

18 - 27 yrs 11 24.4 24.4

Valid 28 - 36 yrs 26 57.8 82.2

37 - 46 yrs 8 17.8 100.0

Total 45 100.0

The results in the table 4.1 indicated that the majority (57.8%) are in the 28 – 36 year age bracket while

only 17.8% are in the 37 – 46 year age bracket. Only 24.4% were in the 18 – 27 year age bracket. The

findings on the age of respondents indicated that age being a determinant of awareness showed that

investors with age of 28 years and above were seen to be more aware of securities market activities.

Gender of the RespondentsThe findings on categorization of respondents in terms of gender were as follows as indicated in the

table below.

Table 4.2: showing gender of respondentsFrequency Valid Percentage Cumulative Percentage

Male 29 64.4 64.4

Valid Female 16 35.6 100.0

Total 45 100.0

From table 4.2 above, the sample was dominated by males (64.4%) while on the other hand; the females

comprised 35.6% of the sample. this implies that trading was dominated by the male who were seen to

be more confident when trading on the NSE than their female counterparts.

Highest Level of EducationThe results on the highest level of education attained by the respondents indicated the following as

shown in the table below.

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Table 4.3: showing Highest Level of Education attained by respondentsFrequency Valid Percent Cumulative Percent

Primary 1 2.2 2.2

Secondary 3 6.7 8 9

Certificate & Diploma 9 20.0 28.9

Degree & Above 32 71.1 100.0

Total 45 100.0

The results in table 4.3 showed that respondents with a degree & above dominated the sample

(71.1%) while Certificate & Diploma; Secondary and Primary holders represented 20.0%, 6.7% and

2.2% of the sample respectively. This implies that with a higher education level, investors are seen to be

more likely aware of the stock market activities; its costs and benefits hence attracting more individuals

to trade.

The stocks traded in by RespondentsFindings on the stocks traded on the NSE by the respondents indicated the following;

Table 4.4: showing the stocks being traded by RespondentsValid Percent Cumulative Percent

Barclays Bank share 3.45 3.45

British American Tobacco share 6.90 10.34

Centum investment co. ltd share 3.45 13.79

NIC Bank share 11.49 25.29

EABL share 3.45 28.74

Equity Bank share 8.05 36.78

Jubilee holdings share 2.30 39.08

KCB share 6.90 45.98

Kenya Airways share 2.30 48.28

Nation Media Group share 2.30 50.57

Kenya Re-Insurance Corporation share 4.60 55.17

Trans-Century Ltd share 12.64 67.82

CFC Stanbic Bank share 22.99 90.80

Mumias Sugar Share 9.20 100.00

Total 100.0

24

The results in table 4.4 above indicated that the sample was dominated by the CFC Stanbic Bank

Share (22.99%) followed by Trans-century Share (12.64%), NIC Share (11.49%) while on average, the

trading of Mumias Sugar Share stood at 9.2%, Equity Bank Share at 8.05%, KCB

Share at 6.9%, and BAT (K) Share at 6.9%. The shares that were least traded were NIC Share

(4.6%), Barclays Bank Share (3.45%), EABL Share (3.45%), Centum Investment Co. Share

(3.45%), Jubilee Holdings Share (2.30%), Kenya Airways Share (2.30%) and Nation media share

(2.30%).

This implies that majority of the sample invested more in local company shares (local bias) compared to

the foreign company shares.

The Brokerage firm trading withFindings in the table indicated which brokerage firm respondents traded with

Table 4.5: Showing the Brokerage firm respondents traded withValid Cumulative

Percent Percent

Dyer & Blair 32.69 32.69

African Alliance 26.92 59.62

Kestrel Capital 1.92 61.54

ABC Capital 13.46 75.00

CFC Financial Services 5.77 80.77

Equity Stock Brokers 15.38 96.15

Kingdom Securities Ltd 3.85 100.00

Total 100.00

The results in the table above indicated that the majority (32.69%) traded with Dyer & Blair, followed

by African Alliance (26.92%), while 15.38% traded with Equity Stock Brokers,

13.46% with ABC Capital, 5.77% dealt with CFC Financial Services, 3.85% traded with Kingdom

Securities and only 1.92% traded with Kestrel Capital.

25

How often do you trade on the NSE?The results in the table indicated the frequency of respondents’ trading on the NSE

Table 4.6: showing the frequency of respondents’ trading on the NSEFrequency Valid Percent Cumulative Percent

Weekly 3 6.7 6.7

Monthly 4 8.9 15.6

Quarterly 11 24.4 40.0

Semi- Annually 6 13.3 53.3

Annually 21 46.7 100.0

Total 45 100.0

The results in the table 4.6 indicated that the majority (46.7%) traded on the NSE yearly while 24.4%

traded quarterly, 13.3% traded twice a year. Only 8.9% traded monthly and 6.7% traded on a weekly

basis. This implies that the securities market is dominated by passive investors who often trade annually

with hardly any active investors.

Factor Analysis ResultsThis section presented factor analysis on financial literacy and securities market participation. Factor

analysis helped the researcher to understand the composition of both variables and the relevancy of the

factors in each variable.

26

Financial LiteracyFactor Analysis Results helped the researcher to understand the composition of financial literacy.

Factor Analysis: Securities market participation Affective Cognitive

I usually have a fear to invest in stocks that have a sure gain .849

I am cautious about stocks which show sudden changes in price or trading activity .860

I usually have worry investing in stocks that have had a past negative performance

in trading .858

I am always attracted to investing in stocks .579

I feel that the idea of participating in a buy/sell on the stock market is appealing .830

I am usually at ease with the stock trading system on the NSE .779

I am often not afraid to invest in stocks that have shown a past positive performance

in trading .549

My investment in stocks is largely based on investment knowledge, experiences

and education .536

I usually consider the credibility of brokerage firms that provide the financial

services .897

I can easily ascertain the expertise of the brokers offering service .651

It is always easy to determine the credibility of the stock market .600

I can easily tell the reputation of brokerage firms staffing service .718

I am hopeful when undertaking investment in stocks that have exhibited a sure loss .789

Eigen Value 3.4565 1.397

Variance % 49.377 19.952

Cumulative % 49.377 69.329

AffectiveThis component constituted 49.377% of the securities market variable. Most important elements under

this component included an individual’s fear to invest in stocks that showed a sure gain (.849), one’s

27

worry of investing in stocks that exhibited past negative performance in trading (.858), the comfort of

trading in stocks that have shown a past positive performance (.549), how cautious one is with stocks

that showed sudden changes in price (.860), and the willingness to invest in stocks on the NSE (.579);

how appealing it is for one to participate in stock trading (.830), and the ease one has with the stock

trading system on the NSE (.779)

CognitiveThis component accounted for 19.952% of the securities market participation variable. Most emphasis

lay on how an investor’s investment knowledge, experience and education affect investment (.536), the

credibility of brokerage firms that provide financial services (.897), the reputation of brokerage firms

staffing service (.718), the expertise of brokers offering service (.651), the credibility of the stock

market (.600), and the hope of investing in stocks that have exhibited a sure loss (.789).

Findings showed that affect is the major determinant of securities market participation among investors

compared to cognition.

4.4 Relationship between the variablesThe section presented findings on the correlation between Investor Awareness, securities market

participation, and Investor Behaviour.

The results in the table below indicated the results for the correlations between Financial Literacy,

Investor Behaviour, and Securities Market Participation.

Social Financial Financial Investor SecuritiesLearning Awareness Literacy Behaviour Market

Participation Social learning 1.000Financial Awareness .587** 1.000Investor Awareness .619** .559** 1.000Investor Behaviour .419** .572** .555** 1.000 -.389**Securities Market Participation -.466** -.302* .594** 1.000** Correlation is significant at the 0.01 level (2-tailed).** Correlation is significant at the 0.05 level (2-tailed).

28

Financial Literacy and Stock Market Participation at the NSEThe results in the table indicated that the Financial Literacy and Stock Market Participation are

positively related (r = .594**, p >.01). Results in this case indicate that as Investors gain knowledge and

Information about the stock market activities, their perceived risk will gradually decrease and they will

be more likely to invest in that particular stock (getting more involved in the securities market).

The Securities Market Participation and Investor Behaviour on the NSEThe Investor Behaviour and Securities Market Participation are negatively related (r = -.389**, p<.01).

This implies that if investors exhibit worry, fear and are cautious (high risk perceived) when making an

investment decision on the stock market, it will lead to a negative mood resulting into pessimistic

behaviour; for example, one may be less confident when trading in a particular company stock. On the

other hand, an optimistic investor exhibits low risk perception therefore, likely to invest more (over

confident).

The Financial Literacy, Investor Behaviour affects Participation by investors in the Securities MarketThe section presented the findings on regression analysis. A regression model was used to show the

level to which financial literacy and investor behaviour can predict the rate of participation on Securities

Market

Regression Model for the components of Financial Literacy and Investor Behaviour with Securities Market Participation as the dependent VariableResults for determining the overall effect of the components of financial literacy and investor behaviour

on securities market participation can be seen in the table below

29

Unstandardized Standardized

Coefficients Coefficients t Sig.

Model B Std. Error Beta

(Constant) 1.759 .823 2.138 .039

Social learning .079 .143 .101 .555 .582

Financial Awareness .519 .157 .535 3.304 .002

Affective .156 .248 .105 .629 .533

Cognitive .201 .226 .144 .888 .380

Dependent Variable: Stock Market Participation

R Square .349

Adjusted R Square .283

F Statistic 5.238

Sig. .002

Results indicated that social learning, financial awareness, affective and the cognitive component can

explain 28.3% of the variance in the stock market participation (Adjusted R Square =

.283). Financial Awareness was the only variable that had a level of significance less than .05 and the

rest of the components all had their levels of significance above .05. Overall, the regression model was

significant at the 95% confidence interval level.

Regression ModelThe regression model in the table below indicated the level to which investor awareness and investor

behaviour can predict stock market participation.

Unstandardized Standardized Dependent Variable:Model Coefficients Coefficients t Sig. Investor Behaviour

B Std. Error Beta R Square .314(Constant) 2.144 .524 4.095 .000 Adjusted R Square .281Financial Literacy .451 .145 .502 3.120 .003 F Change 9.396Stock Market

Participation .087 .154 .091 .566 .575 Sig. .000

The regression model above revealed an acceptable fit of adjusted R Square (.281). Adjusted R

Square (.281) indicates that financial literacy, investor behaviour can predict the level of stock market

participation by (Adjusted R Square = .281). Financial literacy (Beta = .502) is a better determinant of

stock market participation than the investor behaviour (Beta =.091). The implication is that the level of

30

awareness, that is, the knowledge and information one has on a particular company stock/ about the

stock market, greatly affects the investor behaviour than the rate of securities market participation. The

more knowledgeable one is the more likely one is to invest.

31

CHAPTER FIVE

DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS

IntroductionThis chapter presents discussion of findings observed and inferred from the data provided in chapter

four. The discussion presents information about the variables, their comparison, and the results in

relation to the research objectives.

Discussion of findingsThe section presents a discussion of findings, conclusions and recommendations of the study in line with

the research objectives.

The relationship between financial literacy and investor behaviour on the

NSEFindings showed that Investor Awareness and investor behaviour were negatively correlated. Findings

were in support with Weber and Milliman (1997) and Sjoberg (2001) argument where it was argued

that, the more financial information one has, the lower the perception of risk of investing in such a stock

and the higher the likelihood for investing more in a particular stock (summarized as the investor

behaviour).

The relationship between investor behaviour and securities market participation on the

NSEThe results of the findings indicated that there was a positive correlation between investor behaviour and

securities market participation on the NSE; the higher the risk perception, the lower the likelihood of

investing in a particular stock and the lower the risk perception, the higher the likelihood of trading

more.

As argued by Eisenberg, Baron, and Seligman (1998), where investors with extreme emotions (anxiety

and depression) are seen to have high risk perceptions and tend to be risk averse there by reducing their

possibility to invest in a given stock while when investors are over confident with their

abilities/information about a particular stock, they attach a low risk perception hence trading more in

such a stock. Though contrary to Schaninger (1976)’s assertion to where perceived risk negatively

correlated to self-esteem, rigidity and risk taking but positively correlated to anxiety.

32

The extent to which Financial Literacy, investor behaviour affects the rate of securities market participation on the NSEFindings showed that both investor awareness and investor behaviour had an impact on the rate of

securities market participation: Despite, awareness being a better determinant of stock market

participation than the investor behaviour, financial awareness was also a significant determinant of stock

market participation.

The findings were in line with Littere (1965): Ricciardi (2008) where interpretations of information by

investors about the stock market is seen to differ and can be influenced by factors such as their

knowledge, and their feelings/ attitudes among others. However, to some investors the information may

be disregarded if it is inconsistent with the perceived "story." What one person perceives can differ from

what another person perceives, even though the information is the same (Litterer 1965; Ricciardi 2008).

And this makes investor awareness a more realistic determinant of securities market participation

compared to subjective evaluations of perceived risk attitudes/investor behaviour.

Conclusions

On the stock market, investors tend to have a local bias where investments in local stocks are more

preferred than foreign stocks hence a low perceived risk for such stocks and higher likelihood for

investing in those stocks.

Research has shown that investors are more likely to invest in stocks where performance is over long

periods due to a lower risk perception than when presented with a succession of short period returns.

And when making decisions, people tend to be influenced by what can be readily remembered; much-

highly publicized events such as stock market crashes.

Investor behaviour on the stock market is seen to be driven by irrational influences. Investor behaviour

on the stock market is often seen to be a factor of cognition, emotion and social influences. And the

incorporation of psychology attempts to explain how perception of investors and their reaction to

uncertainties affect the investment decision.

RecommendationsThere should be improvement in the awareness of securities market activities in Kenya. Individuals

should be made financially aware and taught about the stock market activities and its role. This calls for

holding more awareness programs which should evenly be distributed to all counties rather than

centralized.

In order to make trading on the securities market unbiased, investors should be enlightened on the

various listed companies and the products they are trading. This calls for better financial awareness

through having more credible financial intermediaries hence reducing on the predictive skills of

investors leading to a more rational market.

33

There is need for financial intermediaries like brokers to incorporate both technical and fundamental

analysis when analysing stock performance, that is, both past and future market movements should be

incorporated in stock prices. And this will help them provide a more realistic judgment when a buy/sell

of a particular stock should be made.

There is need to build trust on the securities market. Firms trading on the stock market should be urged

by the Capital Market Authority (CMA) to put in place good corporate governance principles and be

accountable to the public. This will help listed firms to improve their performance as well as attract

more investors on the NSE.

Areas for further researchThe research concentrated on financial literacy, investor behaviour as factors determining

Securities market participation on the NSE. However, the study recognizes that there are other areas

which need to be explored in explaining the securities market participation on the NSE. The following

areas are recommended for further research

Investor Trust and stocks trend over time on the NSE

Investor perception of information disclosed in financial reports and investor behaviour

The role of affect in investor decision making

34

REFERENCESBrian M. Lucey and Michael Dowling (2005), The Role of Feelings in Investor Decision making,

Journal of Economic Surveys, Vol. 19, No.2 Blackwell Publishing Ltd

Glasman, L.R and Albarracin, D (2006), Forming Attitudes that predict future behaviour: a meta-

analysis of the attitude behaviour relation, Psychological Bulletin, Vol.132, No.5,

pp. 778-822

Brennan, M.J. (1995), The Individual Investor, The Journal of Financial Research, Vol.XVIII,

No.1 pp 59-74

Kahneman, D. and Riepe M.W (1998), Aspects of Investor Psychology, Journal of Portfolio

Management, Vol.24 No.4, pp 52-66

Brigitte Funfgeld and Mei Wang (2008), Attitudes and Behaviour in everyday Finance: evidence from

Switzerland, International Journal of Business Management, Vol.27, No.2, pp 108-124

Richard Deaves (2006), How Are Investment Decisions Made? Commissioned by the Task Force to

Modernise Securities Legislation in Canada, Evolving Investor Protection

Dreman, D., Johnson, S., MacGregor D.G and Slovic P. (2001), A Report on the March 2001

Investor Sentiment Survey, Journal of Psychology and Financial Markets, Vol.2, No.3:126-134

Ronald C. Lease, Wilbur G. Lewellen, Gary G. Schlarbaum (1974), The Individual Investor:

Attributes and Attitudes, The Journal of Finance, Vol.29, No.2, Blackwell Publishing

Luigi Guiso and Tullio Japelli (2005), Awareness and Stock Market Participation, Review of

Finance, pp 537-567

Zhen Liu (2009), Fair Disclosure and Investor Asymmetric Awareness in Stock Markets, Stony

Brook University, New York USA No.1969

Gary Charness and Uri Gneezy (2003), Portfolio Choice and Risk Attitudes: An Experiment

Stephen Diacon (2002), Risk Averse or Loss Averse: The Behaviour of UK Personal Investors,

Centre for Risk& Insurance Studies, the University of Nottingham

Henriettee Prast (2004), Investor Psychology: A Behavioral Explanation of Six Finance Puzzles,

Research Series Supervision No.64

Elke U. Weber and Richard A. Milliman (1997), Perceived Risk Attitudes: Relating Risk

Perception to Risky Choice, Management Science, Vol.43, No.2, pp 123-144

Ning Zhu (2002), The Local Bias of Individual Investors, Yale ICF Working Paper No.2-30

Maarten Van Rooij, Annamaria Lusardi and Rob Alessie (2007), Financial Literacy and Stock

Market Participation, Michigan Retirement Research Center Working Paper WP 2007-162

35

Dohmen, Thomas, Armin Falk, David Huffman, Uwe Sunde, Jurgen Schupp, Gert G. Wagner.

(2009), Individual Risk Attitudes: Measurement, determinants and behavioural consequences, Journal of

the European Economic Association forthcoming

Johnson, Joseph G., Andreas Wilke, Elke U. Weber (2004), Beyond a trait view of risk taking: A

domain-specific scale measuring risk perceptions, expected benefits, and perceive-risk attitudes in

German-speaking populations, Polish Psychological Bulletin, Vol.35, No.5, pp153-163

Warneryd, Karl-Erik (1996), Risk Attitudes and Risky Behaviour, Journal of Economic

Psychology, Vol.17, No.6, pp 749-770

Weber, U. Elke, Ann-Rene Blais, Nancy E. Betz (2002), A domain-Specific Risk Attitude Scale:

Measuring risk perceptions and risk behaviors, Journal of Behavioral Decision Making, Vol.15, No.4,

pp263-290

Malcolm Baker and Jeffrey Wurgler (2007), Investor Sentiment in the Stock Market

Hirshleifer D, and G.Y. Luo, (2001), On the Survival of Overconfident traders in a Competitive

Security Market, Journal of Financial Markets 4, 73-84

Rhea Tingyu Zhou and Rose Nenglai (2007), Herding and Positive Feed Back Trading on

Property Stocks, Journal of Property Investment&Finance, Vol.26, No.2, pp 110-131

Oleg Badunenko, Nataliya Barasinska, Dorothea Schafer (2009), Risk Attitudes and Investment

Decisions across European Countries-Are Women more Conservative Investors than Men?

Barber, B.M.AND Odean, T. (2001), Boys will be boys: gender, overconfidence, and common stock

investment, Quarterly Journal of Economics, Vol.116, pp.261-292

NSE Annual Reports 2005, 2006, 2007,2008,2009,2010, and 2011

NSE Quarterly Bulletins 2005, 2006, 2007,2008,2009,2010, 2011 Vols.5-11, Issue No. 1-4

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success; Word Alive Publishers

36

Appendix 1: QuestionnaireKENYATTA UNIVERSITY SCHOOL OF ECONOMICS

DEPARTMENT OF APPLIED ECONOMICS

Dear respondent,

This instrument is designed to facilitate collection of data on Financial Literacy, Securities Market

Investor Behaviour and Securities Market Participation: A Case of Nairobi Securities

Exchange (NSE)

I am undertaking a study on Financial Literacy, Securities Market Investor Behaviour and

Securities Market Participation: A Case of Nairobi Securities Exchange (NSE) and I have chosen

you as a respondent. The knowledge and experience you have in this area is vital in providing the

necessary information to make this study a success. This study is carried out purely for academic

purposes and the information given will be treated with confidentiality and for only the purposes of this

study. This is therefore to request for your time in answering this questionnaire. Thank you very much.

PART A: General InformationPlease tick where appropriate

A1. Age of respondent

18-27 years 28-36 years 37-46 years above 46 years

A2. Sex of Respondent

Male Female

A3. Highest Level of Education Attained

Primary Secondary Certificate& Diploma Degree &above

A4. How much do you earn monthly?

Less than 50,000

51,000-100,000

101,000-1,000,000

1,000,000&above

37

A5. For how long have you traded on the NSE?

1-3 years 4-6 years 7-9 years 10 years &above

A6. Which stocks are you trading in?

a. Barclays Bank share

b. British American Tobacco share

c. Centum investment co. ltd share

d. NIC Bank share

e. EABL share

f. Equity Bank share

g. Jubilee holdings share

h. KCB share

i. Kenya Airways share

j. Nation Media Group share

k. Kenya Re-Insurance Corporation share

l. Trans-Century Ltd share

m. CFC Stanbic Bank share

n. Mumias Sugar Share

A7. The Brokerage firm trading with

a. Dyer & Blair

b. African Alliance

c. Kestrel Capital

d. ABC Capital

e. CFC Financial Services

f. Equity Stock Brokers

g. Kingdom Securities Ltd

h. Standard Investment Bank

A8. How often do you trade on the NSE?

a. Weekly

b. Monthly

c. Quarterly

d. Semi annually

e. Yearly

38

PART C: Financial Literacy

C Financial Literacy Strongly

Disagree

(1)

Disagree

(2)

Not sure (3)

Agree (4)

StronglyAgree (5)

FL1 I am somewhat knowledgeable of

securities market activities on the NSE

FL2 I usually follow the securities market

through Financial news on TV at least

twice a week

FL3 I usually follow the securities market

through financial news papers every

week

FL4 I clearly understand the role of

brokerage firms in listing on the NSE

FL5 I easily access the latest reports,

prospectus and financial statements of

any company on the NSE annually

FL6 I always have trust when trading on

the NSE

FL7 I usually attend seminars, conferences

& workshops hosted by the NSE at

least 3 times a year

FL8 I usually visit the NSE website (at

least every 3 months)

FL9 The NSE often holds educational programmes to sensitize the public on a quarterly basis

FL10 My peers influence my participation

on the stock market

FL11 Companies listed on the NSE publish financial statements more frequently (every 3 months)

FL12 When seeking financial advice, I deal

with licensed brokers, intermediaries

39

or financial services companies

FL13 The NSE gives reports on corporate

developments of various companies

listed on a timely basis

FL14 I have trouble paying attention to the

information on the stock market

PART D: Securities Market Investor Behaviour

D Investor Behaviour Strongly

Disagree

(1)

Disagree

(2)

Not sure (3)

Agree (4)

StronglyAgree (5)

CP1 I always use predictive skills to time

and outperform the market

CP2 I usually base on the purchase price

of stocks as a reference point in

trading

CP3 My trading on the NSE is usually

determined by past experiences in

the market

CP4 I usually consider public information

(news) when trading stocks

CP5 I always look at and analyse

company news prospects before

making a decision to buy or sell

CP6 I am more comfortable investing in

shares of local companies than

foreign companies

CP7 I always separate stocks while

trading on the stock market

depending on their performance

CP8 I usually buy shares based on future

expectations rather than past

performance

40

CP9 I often prefer to invest on a short

term horizon on the stock market

CP10 I always prefer holding on to looser

stocks and selling winners

SE1 I often blindly imitate decisions of

others when making investment

decisions

SE2 My decision to buy /sell greatly relieson personal feelings

SE3 I often consider the information that

majority of investors focus on as a

basis of trading on the stock market

SE4 I usually tend to sell looser stocks

and hold on the winners when

trading

SE5 My decision to buy/sell stocks is

largely based on emotions

PART E: Rate of Participation at the Securities Market

E Rate of Participation Strongly

Disagree

(1)

Disagree

(2)

Not sure (3)

Agree (4)

StronglyAgree (5)

PR1 I usually have a fear to invest in

stocks that have a sure gain

PR2 I am hopeful when undertaking

investment in stocks that have

exhibited a sure loss

PR3 I am cautious about stocks which

show sudden changes in price or

trading activity

PR4 I usually have worry investing in

stocks that have had a past negative

performance in trading

41

PR5 My investment in stocks is largely

based on investment knowledge,

experiences and education

PR6 I am always attracted to investing in

stocks

PR7 I usually consider the credibility of

brokerage firms that provide the

financial services

PR8 I can easily ascertain the expertise of

the brokers offering service

PR9 It is always easy to determine the

credibility of the stock market

PR10 I can easily tell the reputation of

brokerage firms staffing service

PR11 I feel that the idea of participating in

a buy/sell on the stock market is

appealing

PR12 I am usually at ease with the stock

trading system on the NSE

PR13 I am often not afraid to invest in

stocks that have shown a past

positive performance in trading

PR14 I feel regret of a drop in the price of

a stock I have purchased

THANK YOU VERY MUCH

42

Appendix 2: Coding

Serial Number ID Sex Age Column1 Column2 Column3 Education level Column4 Column5 Column6 Column7 Monthly Income Column8 Column9 Column1018-27 28-36 37-46 above 46yrs Primary SecondaryCertificate & DiplomaDegree & Above <-50000 51000-100000101000-10000001000000->

1 1 M 0 1 1 1 0 0 1 1 1 1 0 02 2 M 0 1 1 0 0 0 1 1 1 1 0 03 3 M 1 1 0 1 0 0 1 1 0 1 1 04 4 M 0 1 1 1 1 1 0 0 1 1 0 05 5 F 0 1 1 0 1 0 0 0 1 0 1 06 6 F 1 0 1 1 0 1 1 0 0 0 1 17 7 M 1 1 1 1 0 0 0 1 1 1 1 08 8 F 1 1 0 1 0 0 0 1 1 0 1 09 9 M 1 0 1 1 1 0 0 1 0 1 0 110 10 F 1 0 0 1 0 0 1 1 0 1 1 011 11 M 1 1 1 1 1 0 1 1 1 1 0 112 12 M 1 0 0 0 1 1 1 1 0 0 0 113 13 F 0 1 1 0 1 1 1 0 0 0 0 114 14 F 1 1 1 0 1 0 0 1 0 0 1 115 15 F 1 1 1 1 1 1 0 0 1 1 1 016 16 F 0 0 0 1 0 1 0 1 0 1 1 017 17 F 1 1 1 1 1 1 1 0 1 1 0 018 18 M 1 1 1 1 1 0 1 0 0 1 0 119 19 F 0 0 1 1 0 0 0 1 1 0 1 020 20 M 1 1 0 1 1 0 1 0 1 1 1 121 21 F 1 1 0 0 1 1 1 1 0 0 0 022 22 M 1 1 1 1 0 1 0 1 1 0 0 023 23 M 1 1 1 1 1 1 1 1 1 0 1 124 24 F 1 0 1 1 0 0 0 0 0 1 1 025 25 F 1 1 1 1 0 1 0 0 0 0 1 126 26 M 1 0 1 1 1 0 0 1 1 1 0 127 27 F 1 1 1 1 1 1 1 1 1 1 1 128 28 M 1 1 1 1 0 1 1 0 0 1 0 029 29 F 0 1 1 1 1 1 1 1 1 1 0 130 30 M 1 1 1 0 0 1 0 0 1 0 1 031 31 F 1 1 1 1 1 0 0 0 0 0 1 032 32 M 1 0 0 1 1 1 1 1 0 0 0 133 33 F 0 0 0 0 1 1 1 1 1 1 1 034 34 F 1 1 1 1 1 1 1 0 1 0 0 035 35 F 0 1 1 0 1 0 1 1 0 1 0 036 36 F 0 0 0 0 0 0 1 0 0 0 1 037 37 M 1 1 1 1 0 1 0 1 0 0 1 138 38 F 1 0 0 0 1 1 1 1 0 0 1 039 39 M 1 0 0 1 1 0 1 1 1 0 0 140 40 F 1 1 1 1 1 0 0 0 0 0 0 041 41 M 1 1 1 1 0 1 0 0 1 1 0 042 42 F 1 1 1 1 0 0 0 1 1 0 0 0

TABULATION OF RESULTS

KEYF- Female

M- Male

43