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HerdingBehaviour - Group1 - HANSIKA SAINI
HerdingBehaviour - Group1 - HANSIKA SAINI
HerdingBehaviour - Group1 - HANSIKA SAINI
DSE
Beh
SCF …. …. ….
Fin
2
v/s
16
fads
17
booms
18
crashes
19
WHAT IS HERDING BEHAVIOR?
20
TYPES OF HERDING BEHAVIOR
Information Increased
sharing liquidity
Trend
identification
22
HERDING IN STOCK MARKET
Information
Assymetry A
Social
B Influence
Confirmation
Bias C
Fear And
D Greed
Herding behavior can lead to efficient decision-making and can help to reduce volatility in the
market. However, in other cases, it can lead to market bubbles or crashes, as investors follow the
actions of others without considering the underlying fundamentals of the assets in question.
HERDING’S IMPACT ON INVESTMENT DECISION
Risk
Increase risk in investment
decisions
Return
Impact potential returns on
investment decisions, lead to
positive or negative returns
Timing
Investors may enter or exit the
market at the same time, which
can cause price movements to
become more extreme
Market Efficiency
Lead to asset prices becoming
overvalued or undervalued
IRRATIONAL EXUBERANCE
A situation where economic agents develop confidence in the economy and financial markets that is misplaced.
Consumers, bankers, and firms become overly confident and expect asset prices to keep rising and growth to remain
strong. Irrational exuberance is a factor behind the financial crisis.
Increased willingness
to take risk
Growth in
speculation
Self-reinforcing speculative
investments
BACKGROUND
Britain had a massive debt of $31 million pounds while at the same time, it had a meagre
50,000 pounds in reserves to service this obligation. The Government of England was
basically bankrupt as it had no way to pay the next interest instalments that would be due
on the loans.
This company would be granted exclusive rights to trade in products and slaves with Central and South America.
But, Spain ruled Central and South America, and Britain was at war with Spain. Nonetheless, the British managed to
persuade them to grant them the right to trade slaves in addition to the ability to load one ship of cargo every year at
each port in South America.
CASE: SOUTH SEA BUBBLE (1720)
• https://www.managementstudyguide.com/south-sea-bubble.htm
• Chatgpt
• https://www.investopedia.com/terms/d/dotcom-bubble.asp
• https://www.britannica.com/event/dot-com-bubble
• https://www.economicshelp.org/blog/404/economics/economics-of-irrational-exuberance/
• https://tradebrains.in/investing-herd-mentality/
• https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2827453/#:~:text=Herding%20can%20be%20defined%20as,of%20th
eir%20own%2C%20private%20information.
THANK YOU