The Rationality Conundrum: Exploring Herd Mentality among Individual Investors in the Indian Stock Market

Authors

  •   Suresh G. Associate Professor of Finance (Corresponding Author), Symbiosis Institute of Business Management – Bengaluru, Symbiosis International (Deemed University) (SIU), Electronic City Phase 1, Hosur Road, Bengaluru - 560 100, Karnataka
  •   Ooi Kok Loang Deputy Dean, Department of Finance, Faculty of Business and Economics Universiti Malaya, Building Universiti, Malaya - 50603, Lembah Pantai Kuala Lumpur

DOI:

https://doi.org/10.17010/ijf/2024/v18i6/173967

Keywords:

herd mentality

, rationality, irrationality, individual investors, stock market, stimulus.

JEL Classification Codes

, D83, G02, G11, G14, G41

Paper Submission Date

, August 25, 2023, Paper sent back for Revision, March 15, 2024, Paper Acceptance Date, April 20, Paper Published Online, June 15, 2024

Abstract

Purpose : The present study aimed to explore the factors contributing to and interaction of
rationality and irrationality in the herding behavior of investors in the Indian stock markets.

Methodology : A structured questionnaire was developed to explore the driving factors of rational and irrational herding based on the literature to explore the interplay between rational and irrational herding. The required data for the study was collected from 384 respondent investors selected through snowball sampling. Further, the study adopted a casual research design to examine the hypotheses framed through the literature.

Findings : The study found that many rational and irrational factors are causing Indian retail investors’ herding behavior. Self-attribution, noise trading, and social influence are the causes of rational herding; whereas, spurious herding and the illusion of control are drivers of irrational herding behavior.

Research Implications : Policymakers and stock market regulators, among other stakeholders, should take note of the study’s conclusions. Additionally, this research aids in the formulation of a plan to reduce investors’ herding behavior.

 

Originality : The majority of the research on herding behavior in stock markets focused on the variables that lead to herding; there are not many studies on how rational and irrational elements interact to cause herding behavior. This study contributes to the body of knowledge on herding behavior in the stock market.

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Published

2024-06-18

How to Cite

G., S., & Loang, O. K. (2024). The Rationality Conundrum: Exploring Herd Mentality among Individual Investors in the Indian Stock Market. Indian Journal of Finance, 18(6), 26–45. https://doi.org/10.17010/ijf/2024/v18i6/173967

Issue

Volume 18, Issue 6, June 2024

Section

Articles
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Scopus
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Europe PMC

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