Appraisal of Change in Investors’ Behaviour During and After the Speculative Bubbles and Crashes of the Nigerian Capital Market

OKE, MARGARET ADEBIMPE
Department of Economics,
Ajayi Crowther University, Oyo State, Nigeria.
E-mail: oke_margaret@yahoo.co.uk
ABSTRACT
The high appraisal of the aggregate market in respect to high price earnings
ratio and high asset prices experienced in the equity and asset markets in the
end of 1990s and the imminent fall 2008 ascribed to the speculative bubble
crash and consistent with investors’ irrational behaviour, wrong human
judgement of the 2008 market decline due to bad credit lending. It is against
this background, that the study appraises how both active private and
institutional investors’ are influenced by these biases and what influences them
to change their investment portfolio during and after the speculative bubble and
crash of 1998 to 2009. The use of questionnaires was adopted and directed to
both institutional and private investors to get an understanding of what their
trading pattern was like; and looks at the behavioural bias that influenced their
method of stock picking in the past. The result obtained during the analysis
shows that market participants during the speculative bubble and decline of the
market are irrational in their decision and this change the composition of the
market. During the high valuation in equity price of companies, behavioural
factors influenced investors’ decision. This result shows that the fundamental
value of a company did not affect market overvaluation. The media also played
an important role in disseminating information to both investors. Media proved
to be most effective in determining the fundamental valuation of assets today
when personal intuition has a great impact on investment decision. The
overconfidence bias also influences the decision of investors’ greatly during the
speculative bubble this explains the self-attribution and hindsight bias in
investors. The fact that most investors’ consider the market overvalued shows
the manifestation of this bias. This supports the EMH theory that investors’
think that they can predict and outperform the market. Conclusively, the
common knowledge of the factors underlying the speculative bubble before its
imminent burst and the way psychological factors influences our decisionmaking
should stand as a guide against a reoccurrence of this phenomenon and
improve the efficiency of today’s reviving financial market.