MBA Journals Peer-reviewed management research from Consortium e-Learning Network

NOLEGEIN Journal of Financial Planning And Management

A Study on Herd Behaviour in Stock Markets and ItsImpact on Market Performance

  1. Velugoti Varshitha
  2. Kevin George
  3. M. Amal Infanto Vensley

Abstract

Herd behaviour refers to the natural tendency to imitate the actions of a larger group rather than relying on one’s own judgment. This study aims to explore herd behaviour in stock markets and evaluate its influence on overall market performance from a behavioural finance perspective. Employing a qualitative approach, the research aims to understand herd behaviour, identify key influencing factors, and connect these behavioural patterns to investor decision-making in stock markets. It is based on a thorough review of existing literature, secondary data, and observed market actions. Factors such as information asymmetry, market uncertainty, emotional biases, and social and media influences contribute to the development of herd behaviour among investors. The results indicate that herd behaviour can significantly impact market performance by intensifying price movements, increasing volatility, and occasionally causing instability and short-term inefficiencies. Although collective buying or selling can generate strong market trends beneficial for momentum traders and short-term investors, excessive reliance on group behaviour may lead to irrational decisions and market inefficiencies. To reduce the negative impact of herd behaviour, the study emphasises investor awareness, informed decision-making, and effective regulation. Future research could explore how algorithm-driven information influences herd behaviour during extreme market conditions.

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