Cognitive Processing Tendencies and Stock Market Performance in Nigeria

This study investigates the influence of two cognitive processing tendencies— overconfidence and narrow framing—on investment decision-making among retail investors in Plateau State, Nigeria. Although extensive behavioural finance research demonstrates that investors frequently deviate from rational choice theory due to framing effects, heuristics and biased information processing empirical evidence from African frontier markets remains limited and fragmented. Using a cross-sectional survey of 250 active investors and validated psychometric scales adapted from prior behavioural finance literature, the study measures overconfidence, narrow framing and investment decision quality. Reliability and validity diagnostics indicate strong construct adequacy (Cronbach’s α ≥ 0.93; AVE > 0.50). Ordinary Least Squares regression with robust standard errors was employed to estimate the predictive effect of cognitive biases on investment decisions. The findings reveal that both overconfidence (β = –0.469, p < 0.001) and narrow framing (β = –0.356, p < 0.001) exert significant negative effects on the quality of investment decision-making. These effects remain robust after controlling for demographic variables, none of which exhibited statistical significance. The results underscore that behavioural distortions—rather than socioeconomic attributes—are the principal drivers of suboptimal investment choices in this context. The study contributes to the growing behavioural finance literature in emerging markets by providing granular evidence on the individual effects of specific cognitive biases within a Nigerian setting. The findings highlight the need for targeted behavioural interventions, improved investor education, and policy reforms aimed at mitigating psychologically driven decision errors and strengthening retail participation in the Nigerian capital market.