Investor Behaviour and Risk-Adjusted Portfolio Performance at the Nairobi Securities Exchange: Financial Literacy as a Moderator and Investment Style as a Potential Mediator

This study examines the association of overconfidence, herding behaviour and the disposition effect with risk-adjusted portfolio performance among 348 individual investors at the Nairobi Securities Exchange. The author-designated research period is 2020–2024. Questionnaire responses were linked to investment records to calculate the Sharpe ratio. Multiple regression indicated a negative coefficient for overconfidence (B = −0.154) and positive coefficients for herding (B = 0.182) and the disposition effect (B = 0.163). Herding and overconfidence were positively associated with investment style, but mediation through the composite investment-style measure was not established. Financial literacy was the operational moderator, although reported interaction statistics require reconciliation. The findings distinguish behavioural influences on portfolio performance from investment-style mechanisms and emphasise the importance of verifying inconsistent archival model statistics before drawing definitive inferential conclusions. Keywords: behavioral finance; overconfidence; herding; disposition effect; investment style; financial literacy; Sharpe ratio.