AN EMPIRICAL STUDY OF THE EFFECTS OF LOSS AVERSION BIASES ON STOCK MARKET RETURNS NIGERIA

Abstract

Abstract

This study aims to investigate the effects of loss aversion bias on stock market returns in Nigeria. Employing. A cross-sectional survey design was used, data were collected from individual investors in the Nigerian financial market. The study population comprises all 13,200,000 investors in Nigeria, from which a sample of study 480 was drawn and 20% of 480 which is equal to 96 was used for the pilot study. Furthermore, 10% of 96 which is 10 was also added to the total sample of pilot study. Thus 106 sets of questionnaires were administered to investors in the Nigerian financial market. Descriptive and inferential statistical methods, including simple regression analyses, were used to test the stated hypotheses. Findings indicate that loss aversion bias shows an R of 0.777, an R² of 0.606, and an Adjusted R² of 0.598. The unstandardized B is -0.181, with a t-value of 4.747 and a p-value of .025. This indicates a significant negative relationship between loss aversion and stock market returns. Therefore, the null hypothesis is rejected, and we accept that Loss Aversion Bias has a significant negative effect on stock market returns. The negative beta (β = -0.3207) suggests that fear of losses leads to early selling, avoidance of risk, and hesitation during recovery phases all of which reduce market liquidity and suppress returns. The study concludes that loss aversion bias has significantly negative effect on stock market returns in Nigeria. The study recommends that investors Investor training programs, particularly in risk management, diversification, and long-term planning, should be prioritized by brokerages. The NGX could integrate behavioral risk flags to identify excessive selling pressure due to market fear, offering intervention tools or awareness campaigns to maintain investor confidence during volatility.