Types of Herding Behaviour

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 5 in Following the Crowd: Psychological Drivers of Herding and Market Overreaction, 2025, pp 69-82 from Springer

Abstract: Abstract The phenomenon of collective behaviour in financial markets is revealed through different channels that shape how investors make choices and how the market operates. This chapter examines the primary forms of herding, particularly information-based herding, where investors tend to follow the crowd due to insufficient independent analysis, resulting in inefficiencies in price discovery. Reputational herding, primarily observed among institutional investors, occurs when market players follow their peers to avoid potential blame, often prioritising short-term alignment over long-term performance. The rise of digital-age herding has significantly altered market dynamics, as investment trends fuelled by social media intensify price fluctuations through the swift spread of speculative stories. This chapter explores case studies of corporate and financial market herding, shedding light on the key drivers and consequences of collective investment behaviours. This finding enhances our understanding of how herding influences financial stability and market efficiency.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-95-0792-4_5

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DOI: 10.1007/978-981-95-0792-4_5

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