Eriki Peter

The empirical evidence in the developed equity markets such as the United States, the United Kingdom, Germany, Japan and emerging markets had pronounced that there are institutional and individual investors’ cognitive psychology and mental biases in favor of the Growth Stocks, that is, the Growth Stocks are always preferred to the Value Stocks by the investors. The investors most times prefer the Growth Stocks to the Value Stocks irrespective of the stock fundamentals behavior in the equity market. The paper investigated whether Cognitive Psychology and Mental biases affect Portfolio Selection strategies using the Growth or the Value Stocks investment styles in the Nigerian Stock Market. In the study, the summary of the primary data was described and Multinomial Logistic Regression (MLR) models were adopted to make inferential decisions. The paper collected primary data through questionnaire administered to individual and institutional investors on the floor of Nigeria Stock Exchange (NSE). The findings from the analyses conducted confirmed a strong existence of Cognitive Psychology and mental biases in favor of the Growth Stocks in the Nigerian Equity Market. Investors had more belief in Growth Stocks than the Value Stocks notwithstanding the behavior of the market fundamentals. The study recommended that investors should seriously consider occurrences and performance fundamentals in Portfolio Selection in the Nigerian Equity Market.

At a time, the Nigeria Stock Exchange (NSE) is generally undergoing bearish trends; the paper investigated the performance of eighty-eight (88) sampled stocks, which were screened with the modern Price Earnings Growth (PEG) ratio into the Growth and the Value Portfolios. This is to ascertain whether the Value Portfolio outperformed the Growth Portfolio in terms of returns. From the researches in the developed and emerging stock markets, the momentum supports that the Value Portfolio outscored the Growth Portfolio in terms of returns. The paper explored pooled data from the Factbooks of the Nigerian Stock Market and the Annual Reports across different industries from 1990 to 2016. Descriptive methods and Arellano and Generalized Methods of Moment (GMM) xtabond2 were adopted to address the outliers, reverse causality and other related consequences of panel data. Similar to the findings from the developed and emerging stock markets, the study recognized that the Value Portfolio over-performed the Growth Portfolio in terms of returns in the NSE. Therefore, it is recommended that rational investors should show more preferences to invest in low-priced Value Stocks to earn higher returns than the high-priced Growth Stocks, which generated lower returns in the NSE.