The Impact of the Herd Effect on Individual Investment Decisions

Wanqi Zhu ()
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Wanqi Zhu: Sino-French Institute, Renmin University of China

A chapter in Proceedings of the International Workshop on Navigating the Digital Business Frontier for Sustainable Financial Innovation (ICDEBA 2024), 2025, pp 547-553 from Springer

Abstract: Abstract The herding effect is widespread in the financial market, which not only has an important impact on individual investment decisions, but also often causes financial market volatility. Therefore, the purpose of this paper is to explore what specific effects of the herd effect on individuals and the market, and hope that it can help to avoid the disadvantages of the herd effect and better utilize the herd effect. Based on the current existing articles on the study of the herd effect, this study combs and summarizes the impact of the herd effect on individuals and the market, respectively. By reviewing the literature, this paper ultimately finds that the impact of the herd effect on individual investment decisions is both favorable and unfavorable, while the impact on the market is usually negative. The results of this research can be a favorable tool for investors to identify and rationally utilize the herd effect, which is of great practical significance for the healthy development of the market.

Keywords: Herd effect; Behavioral finance; Investment decisions (search for similar items in EconPapers)
Date: 2025
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DOI: 10.2991/978-94-6463-652-9_57

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