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Cultural Influences on 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 how cultural dimensions, such as collectivism, individualism, and uncertainty avoidance, shape investment decisions and financial behaviour in ways that challenge the assumption of universal market rationality. The discussion analyses how these cultural variables influence investor psychology, risk perception, and strategic choices within both Eastern and Western financial systems. Evidence indicates that variations in cultural values affect levels of risk tolerance, the structure of decision-making processes, and the orientation of regulatory frameworks. Cultural norms embed persistent patterns of market behaviour that differ significantly across regions and contribute to structural inefficiencies and behavioural anomalies. The analysis highlights how cultural influences amplify tendencies toward market overreaction, ultimately affecting volatility and stability in diverse economic environments.

Suggested Citation

  • Kok Loang Ooi & Norazlin Binti Ab Aziz & Wee Yeap Lau, 2025. "Cultural Influences on Overreaction," Springer Books, in: Following the Crowd: Psychological Drivers of Herding and Market Overreaction, chapter 0, pages 171-188, Springer.
    • Handle: RePEc:spr:sprchp:978-981-95-0792-4_13
    DOI: 10.1007/978-981-95-0792-4_13
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