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Types of Herding Behaviour

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

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.

Suggested Citation

  • Kok Loang Ooi & Norazlin Binti Ab Aziz & Wee Yeap Lau, 2025. "Types of Herding Behaviour," Springer Books, in: Following the Crowd: Psychological Drivers of Herding and Market Overreaction, chapter 0, pages 69-82, Springer.
    • Handle: RePEc:spr:sprchp:978-981-95-0792-4_5
    DOI: 10.1007/978-981-95-0792-4_5
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