ANALYZING HERDING BEHAVIOR: A STUDY OF INVESTOR TRENDS IN INDIAN STOCK MARKETS
DOI:
https://doi.org/10.55955/430001Keywords:
Herding Behavior, Emotion, Risk Aversion, Fear of Missing Out, Heuristics and Investment DecisionAbstract
Herding behavior, observed when individuals imitate one another, whether in synchronized actions or adherence to peer standards, reflects the influence of social dynamics. This empirical study, employing a convenient sampling method, measured herding among 489 Indian stock market investors. It sought to identify and understand factors influencing herding behavior within this demographic. The study's outcomes hold significance for both market practitioners and investors equipped with analytical tools. By discerning the underlying causes of investor herding through data collected from 489 individuals, the research makes a valuable contribution to the field of behavioral finance. This understanding of how investors perceive and engage in herding behavior serves as a strategic tool for mitigating potential risks within stock markets. The findings underscore that among Indian investors, herding is shaped by various factors, including Emotion, Risk Aversion, Fear of Missing Out (FOMO), and reliance on Heuristics. Notably, risk aversion and the application of heuristics are positively correlated with herding tendencies. This insight into the intricate interplay of psychological and behavioral factors enhances comprehension and aids in developing strategies to navigate potential market risks.
References
Adair, A. S., Berry, J. N., & McGreal, W. S. (1994). “Investment decision making:a behavioural perspective”.
Banerjee, A. V. (1992). A simple model of herd behaviour. The Quarterly Journal of Economics,, 107(3), 797-817.
Barbarino. (2021). "Behavioural Finance: Understanding the Social, Cognitive, and Economic Debates.". Oxford University Press.
Barber, B. M., & Odean, T. (2000). Trading is hazardous to your wealth: The common stock investment performance of individual investors. The Journal of Finance, 773-806. https://doi.org/https://doi.org/10.1111/0022-1082.00226
Bikhchandani, S., Hirshleifer, D., & Welch, I. (1992). A theory of fads, fashion, custom, and cultural change in informational cascades. Journal of Political Economy, 100(5), 992-1026.
Caglayan, M., Talavera, O., & Zhang, W. (2021). Herding behaviour in P2P lending markets. Journal of Empirical Finance,, 27-41.
Chang, E. C., Cheng, J. W., & Khorana, A. (2000). An examination of herd behaviour in equity markets: An international perspective. Journal of Banking and Finance,, 24(10), 1651-1679. https://doi.org/https://doi.org/10.1016/S0378-4266(00)00053-4
Chen, A., He, J., Liang, M., & Su, G. (2020). Crowd response considering herd effect and exit familiarity under emergent occasions: A case study of an evacuation drill experiment. Physical A: Statistical Mechanics and its Applications, 556.
Chen, S., & Lin, Z. (2016). Herding behaviour in financial markets: A literature review. International Review of Economics and Finance, 44,, 175-184.
Chiang, T. C., & Zheng, D. (2010). An empirical analysis of herd behaviour in global stock markets. Journal of Banking and Finance, 34(8), 1911-1921.
Cipriani, M., & Guarino, A. (2005). Herd behaviour and contagion in financial markets. Birkbeck Financial Markets Discussion Paper, 1/5.
Devenow, A., & Welch, I. (1996). Rational herding in financial economics. European Economic Review, 40(3), 603-615.
Dutta, S. (2013). “Role of private equity investment in technology start-ups”.
Galariotis, E. C., Krokida, S. I., & Spyrou, S. I. (2016). Bond market investor herding: Evidence from the European financial crisis. International Review of Financial Analysis, 48, 367-375.
Goyal, P., Gupta, P., & Yadav, V. (2021). “Antecedents to heuristics: decoding the role of herding and prospect theory for Indian millennial investors”. Review of Behavioural Finance.
Hirshleifer, D., & Teoh, S. H. (2003). Herding and cascading in capital markets: A review and synthesis. European Financial Management,, 9(1), 25-66.
Hwang, S., & Salmon, M. (2004). Market stress and herding. Journal of Empirical Finance, 11(4), 585-616.
Lee, C. M., Shleifer, A., & Thaler, R. H. (1991). Investor sentiment and the closed-end fund puzzle. The Journal of Finance, 46(1), 75-109.
Menkhoff, L., Schmidt, U., & Brozynski, T. (2006). “The impact of experience on risk taking, overconfidence, and herding of fund managers: Complementary survey evidence”. European economic review, 50(7), 1753-1766.
Nath, H. B., & Brooks, R. D. (2020). “Investor-herding and risk-profiles: A State-Space model-based assessment”. Pacific-Basin Finance Journal, 62.
Scharfstein, D. S., & Stein, J. C. (1990). Herd behaviour and investment. The American Economic Review, 80(3), 465-479.
Sunder, S., Kim, K. H., & Yorkston, E. A. (2019). What drives herding behaviour in online ratings? The role of rater experience, product portfolio and diverging opinions.
Velasco, F., & Verma, S. P. (1998). Importance of skewness and kurtosis statistical tests foroutlier detection and elimination in evaluation ofgeochemical reference materials. Mathematical Geology, 109-128.
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Dr. Mohammadali Gulamhaidar Hajur, Dr. Shabbirali Sherali Thavara
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
