Digital Herding and Technology’s Role

Kok Loang Ooi, Norazlin Binti Ab Aziz and Wee Yeap Lau
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Kok Loang Ooi: Universiti Malaysia
Norazlin Binti Ab Aziz: Universiti Malaysia
Wee Yeap Lau: Universiti Malaysia

Chapter Chapter 6 in Following the Crowd: Psychological Drivers of Herding and Market Overreaction, 2025, pp 83-94 from Springer

Abstract: Abstract The growing presence of technology in financial markets has notably intensified herding behaviour, changing the landscape of how investment decisions are made. Digital platforms such as social media, trading apps, and algorithmic investment systems enable the swift spread of information, resulting in coordinated trading behaviours among investors. This chapter explores how technology drives collective behaviour in the digital realm, highlighting the influence of emotion-based trading, rapid exchange of information, and the impact of automated investment approaches. Social media channels, such as Twitter, Reddit, and TikTok, generate a powerful wave of enthusiasm by disseminating investment stories, frequently leading to speculative spikes that are disconnected from underlying valuations. Moreover, automated trading systems and digital financial advisors designed to react to market movements could intensify fluctuations by amplifying prevailing trends instead of mitigating them. This research delves into past instances of automated trading mishaps, such as flash crashes, to highlight the inherent systemic risks associated with digital herding. Understanding the effects of technology-fuelled group behaviour is crucial for those in regulatory, investment, and policy-making roles who aim to reduce market disruptions and improve financial stability in today’s digital trading landscape.

Date: 2025
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DOI: 10.1007/978-981-95-0792-4_6

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