Herding’s Hidden Risks and Rewards

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 8 in Following the Crowd: Psychological Drivers of Herding and Market Overreaction, 2025, pp 111-120 from Springer

Abstract: Abstract Herding behaviour in financial markets is a phenomenon that is both a source of instability and an opportunity for clever investors. In most cases, community investor decisions are the leading cause of speculative bubbles and sudden market crashes. However, contrarian investors are sufficiently skilled to identify this inefficiency and capitalise on it by recognising which assets are overvalued or undervalued. This chapter examines the herding dynamics observed in commodity and cryptocurrency markets, where speculation and crowd trading are the primary drivers of price movements. Bitcoin’s historical fluctuations are particularly notable, in addition to the herding risks associated with bulk buy strategies by investors, and contrasted with the potential wealth gains of those adeptly utilising this tool of speculation. The introduction of case studies in this chapter serves to illustrate the multifaceted relationship between collective behaviour and market efficiency, which has implications for both the risks and possibilities inherent in herding tactics.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-95-0792-4_8

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DOI: 10.1007/978-981-95-0792-4_8

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