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Emotions and Overreaction

In: Following the Crowd: Psychological Drivers of Herding and Market Overreaction

Author

Listed:
  • Kok Loang Ooi

    (Universiti Malaysia)

  • Norazlin Binti Ab Aziz

    (Universiti Malaysia)

  • Wee Yeap Lau

    (Universiti Malaysia)

Abstract

This chapter examines the significant role emotions play in financial markets, including how they can override logic in decision-making, leading to excessive reactions. It scrutinises the psychology of saying ‘no’ to frantically selling stocks, fear-driven trading, and emotional contagion, thereby discussing the impact of investors on market volatility. In addition, the chapter addresses problems caused by global crises, which often trigger unwarranted financial reactions, typically exacerbating the situation. The analysis hinges on a concrete example, the COVID-19 market panic, which presents an empirical viewpoint on how uncertainty and fear react to extreme market fluctuations, demonstrating the broader economic outcomes of behaviour modulated by emotions in trading.

Suggested Citation

  • Kok Loang Ooi & Norazlin Binti Ab Aziz & Wee Yeap Lau, 2025. "Emotions and Overreaction," Springer Books, in: Following the Crowd: Psychological Drivers of Herding and Market Overreaction, chapter 0, pages 133-145, Springer.
    • Handle: RePEc:spr:sprchp:978-981-95-0792-4_10
    DOI: 10.1007/978-981-95-0792-4_10
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