The Moderating Role of Fund Size on the Relationship between Overconfidence and Portfolio Financial Performance of Mutual Funds in Kenya

A decline in financial performance has recently been observed for a number of mutual funds in Kenya. Overall, differences in important metrics show inconsistent economic performance among Kenya's mutual funds year over year. It was critical to determine whether overconfidence bias would be to blame for the portfolio performance trend while evaluating this. The goal of this study was to ascertain the impact of overconfidence bias on mutual funds' performance in Kenya and to scrutinize the moderating effect of fund size on the relationship between overconfidence and mutual funds’ portfolio performance in Kenya. The study employed a causal research design. Study panel data were gathered. Secondary information was gathered from previously released financial statements of mutual funds during a period of eleven years, from 2011 to 2021. With the use of the data gathering tool, secondary data was gathered. Stata software version 15 was used to conduct the data analysis. A test for stationarity called the unit root test was conducted. Regression using panel data was utilized.  Regression analysis with fixed and random effects was utilized. The following tests were run to determine the validity and reliability of the data: the Levin-Lin-Chu test, the Augmented Dickey-Fuller test, the Im-Pesaran and Shin tests, the Philips-Peron test, and the Hadri 2000 test. The Jarque-Bera test was used to gauge normality. In the panel analysis, the random effects model and the fixed effects model were separated using the Hausman test. The variables were distributed properly, as shown by the skewedness and kurtosis tests. There was no approaching multicollinearity among the variables, according to the pairwise correlation study. The findings showed that Overconfidence had a positive substantial influence on the financial performance of mutual funds in Kenya with a regression coefficient of 2.7295960. The study additionally found that fund size influences the financial performance of mutual funds in Kenya by negatively moderating the relationship between overconfidence and mutual funds’ financial performance in Kenya with a coefficient of -3.023683. Based on the results of the multiple regression analysis, it should be underlined when making financial investment decisions that overconfidence, with a regression coefficient of 2.7295960, had a favorable but significant impact on the financial performance of Kenyan mutual funds. The study, therefore, recommends that overconfidence should be emphasized during financial investment decision-making processes.