Strategies to Avoid Overreaction

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 12 in Following the Crowd: Psychological Drivers of Herding and Market Overreaction, 2025, pp 159-170 from Springer

Abstract: Abstract Emotional and cognitive biases that lead to irrational decision-making and market fluctuations are the main reasons for overreactions in financial markets. This chapter examines the effects of overreaction and suggests strategies for individual and institutional investors to mitigate its impact. Disciplinary investment practices are the vehicles through which investors can keep a clear head and make informed choices, even when the markets are in chaos. Additionally, financial training and programmes enhance investor resilience by equipping investors with tools to identify and mitigate biases. Ultimately, a long-term investment perspective mitigates short-term volatility, promoting a more stable and healthy investment stance. Together, these manoeuvres lead to more rational financial decision-making and, consequently, a less pronounced impact of overreaction in the market.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-95-0792-4_12

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DOI: 10.1007/978-981-95-0792-4_12

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