IMPACT OF EMOTIONAL BIASES ON INVESTMENT PERFORMANCE OF RETAIL INVESTORS

Abstract

Traditional theories such as the Markowitz portfolio theory and the CAPM are based on investors' risk-return calculations. Nevertheless, an investor's level of risk acceptance is determined by their traits and risk approach (Maditinos et.al., 2007). Similarly, the most traditional theory assumes investors as rational economic man., implying that investors consider new information while making an investment decision. However, in recent decades, behavioral finance theory has exposed investors' irrationality and demonstrated human frailty in competitive marketplaces (Waruingi, 2011).