Effect of Behavioral Finance on the Participation of Investors in the Stock Exchange Market, in Rwanda

The purpose of this study was to investigate the Effect of behavioral finance on the participation of investors in the stock exchange market in Rwanda. A survey was conducted on 376 respondents obtained through stratified random sampling technique from 18, 764 individuals and group investors in the Rwanda Stock Exchange market. Data was gathered by means of structured self-administered questionnaires and analyzed using regression analysis and descriptive statistics. The results of analysis show that the coefficient R is.780 implying that a strong, positive and linear relationship exists between behavioral finance and stock market participation, further the coefficient for R squared -.608 suggests that approximately 61 of the variations in the stock market participation can be explained by behavioral finance. Moreover, the P-value obtained (0.000) lower than 0.05 level of confidence confirming that the relationship between behavioral finance and stock market participation is statistically significant. In terms of constructs overconfidence was rated highly with mean score of 4.11, followed by Loss aversion 4.02, constructing portfolio 3.85, while Biases was rated the least important with mean of score of 3.74. In view of the results the study concludes that behavioral finance in terms of the fore stated constructs plays a key role in influencing investors and other key players in the stock exchange market, Rwanda. Thus, the study recommends for development of innovative financial approaches that would encourage more investors in to the stock market exchange.