Authors: Revannasiddeswara, Dr. Saravanan K,, Dr. Allahbaksh S.
Abstract: This article examines the effects of herding behavior on financial markets alternatives and highlights cognitive biases such as asset heuristic, fixation, confirmation bias, and overconfidence that drive such behavior. Analyzing responses from 200 IT sector employees, the study elucidates on demographic and investment patterns associated with responsiveness to herd behavior. Key findings emphasize that while a substantial percentage of participants had a finance background, financial literacy was not associated with a reduction in cognitive biases such as over-optimism or loss aversion. The research explains significant correlations between specific investment behaviors and psychological traits: investors exhibit greater over-optimism and conservatism compared to those investing in traditional bank deposits. These views demonstrate that herd behavior not only influences market dynamics by compounding trends and fluctuations but also manifests prominently across different investor profiles and investment instruments. Survey results show that 53.2% of participants were male, 59.1% had a finance education, and 32.4% invested in stocks. The survey also revealed that 14.5% of participants did not follow market developments, while 26.8% followed them monthly. Samples t-test showed that investors with financial education were more confident (p<0.05). This study contributes to behavioral finance by detailing how herd psychology influences individual and collective investment decisions. Higher levels of financial education are often associated with a reduced tendency to fall prey to psychological biases. However, our findings indicate that individuals with advanced knowledge in finance may, at times, display greater overconfidence and a tendency to follow the crowd. This apparent contradiction underscores the intricate relationship between expertise, self-assurance, and herd behavior. It suggests that even well-educated individuals can engage in irrational group actions due to the influence of collective thinking.
DOI: https://doi.org/10.5281/zenodo.20112749
