EFFECT OF MARKET FACTORS-BASED BEHAVIOUR BIASES ON THE PERFORMANCE OF REAL ESTATE INVESTMENTS
Abstract
This study aimed to examine the effect of market factor-based behavioral biases on the performance of real estate investments in Kenya. Specifically, the research focused on understanding how behavioral biases such as reliance on past information, short-term return preferences, and use of earnings for long-term savings or short-term projects impact real estate investment decisions. Additionally, the study tested the relevance of the Efficient Market Hypothesis (EMH) within the Kenyan real estate market. The study adopted a positivist research paradigm and a descriptive research design, targeting 123,471 real estate investors represented by 284 registered real estate agents in Nairobi, Kenya. A multi-stage sampling process resulted in a sample size of 384 respondents, with 353 completed questionnaires representing an 83% response rate. Data was collected using Likert-type questionnaires and analyzed using descriptive and inferential statistics, including bivariate regression analysis to determine the relationship between market factor-driven biases and real estate investment performance. The results revealed a significant relationship between market factors-based behavioral biases and the performance of real estate investments in Kenya, with market biases explaining 27.8% of the variation in investment performance (R²=0.278, p<0.05). Key factors influencing market biases included reliance on past information, short-term return preferences, and the use of earnings for both long-term savings and short-term projects. The findings support the existence of market anomalies and inefficiencies, indicating that real estate investors in Kenya often make irrational decisions influenced by behavioral biases rather than purely rational analysis. This study contributes to behavioral finance by highlighting the significant role of market factor-driven biases in shaping investment decisions, challenging the assumptions of the Efficient Market Hypothesis (EMH) in the context of real estate investments. It emphasizes the need to incorporate behavioral considerations into traditional finance theories.
Keywords: Market Factors-Based Behavioral Biases, Real Estate Investment
CITATION: Kuria, A. M. (2024) Effect of market factors-based behaviour biases on the performance of real estate investments. The Strategic Journal of Business & Change Management, 11 (4), 1266 – 1278. http://dx.doi.org/10.61426/sjbcm.v11i4.3155
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DOI: http://dx.doi.org/10.61426/sjbcm.v11i4.3155
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