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Strategies to Avoid 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

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.

Suggested Citation

  • Kok Loang Ooi & Norazlin Binti Ab Aziz & Wee Yeap Lau, 2025. "Strategies to Avoid Overreaction," Springer Books, in: Following the Crowd: Psychological Drivers of Herding and Market Overreaction, chapter 0, pages 159-170, Springer.
    • Handle: RePEc:spr:sprchp:978-981-95-0792-4_12
    DOI: 10.1007/978-981-95-0792-4_12
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