Herding Behaviour in Stock Markets: A Financial Economics Perspective

This study examines herding behaviour in stock markets from a financial economics perspective by integrating informational, psychological, and social determinants within a unified empirical framework. Using primary data collected from 249 individual investors in Ahmedabad, India, the study investigates the impact of information asymmetry, investor sentiment, risk perception, social influence, and reputational concerns on herding behaviour, and further analyzes the effect of herding behaviour on market volatility and market efficiency. Multiple regression analysis was employed to test the proposed relationships. The results indicate that information asymmetry, risk perception, social influence, and reputational concerns have significant positive effects on herding behaviour, while investor sentiment does not exhibit a statistically significant independent influence. Among the predictors, risk perception and reputational concerns emerge as the strongest determinants of herding behaviour. Further analysis reveals that herding behaviour significantly increases market volatility and also exerts a strong influence on market efficiency. These findings highlight the central role of behavioural and informational factors in shaping collective investment decisions and market outcomes. The study contributes to the behavioural finance and financial economics literature by offering an integrated individual-level framework to explain herding behaviour and its consequences in an emerging market context. The results provide important implications for investors, policymakers, and regulators in designing strategies to mitigate excessive herding and promote stable and efficient financial markets.