Empirical Analysis of Behavioural Finance Factors Influencing Individual Investment Decisions on the Nigerian Exchange Group

Behavioural finance challenges the rational investor assumption of classical finance theory, and empirical analysis of behavioural biases among individual investors on the Nigerian Exchange Group fills a significant gap in the domestic capital market literature. This study empirically analysed the influence of behavioural finance factors on individual investment decisions among 400 retail investors on the Nigerian Exchange Group in Lagos, Abuja, and Port Harcourt. Behavioural factors assessed included overconfidence, herding behaviour, anchoring bias, loss aversion, availability bias, and representativeness. Investment decision quality was assessed by portfolio return volatility, portfolio diversification adequacy, and holding period behaviour. Structural equation modelling was employed. Results showed that herding behaviour was the most prevalent and investment-quality-damaging bias, with a significant negative effect on portfolio diversification (standardised coefficient = -0.49, p < 0.001). Overconfidence was significantly associated with excessive trading frequency (coefficient = 0.46, p < 0.001), increasing transaction costs and reducing returns. Loss aversion produced suboptimal holding period decisions (holding losers too long: coefficient = 0.38, p < 0.001). Anchoring to 52-week highs was significantly associated with poor timing of buy and sell decisions. Investor education level was a significant negative moderator of most biases, with graduate investors showing lower herding behaviour. The study provides the first SEM-based behavioural finance evidence for NGX retail investors and recommends investor education programmes targeting herding and overconfidence biases through the Investors Protection Fund and SEC Nigeria. Keywords: behavioural finance, investment decisions, Nigerian Exchange Group, herding behaviour, investor biases