Herding Behavior in Financial Market: Critical Literature Review

Abstract

This study proposes detailed theoretical background and a comprehensive literature review on herding behavior in various financial markets. In recent times, there has been much interest in imparting ideas from social sciences in the economic and finance research. Behavioral finance is the application of psychology to financial behaviour and herd behaviour is one of its most interesting concepts. Herding in financial markets can be defined as mutual imitation leading to a convergence of action. In the behavioral finance literature, herding is often used to describe the correlation in trades resulting from interactions between investors. The paper find the contradictory results in different financial markets and suggest for the development of a methods that can be used across all the markets so that a greater uniformity could be obtained.