Investor's Herding Behavior and Investment Performance: An Empirical Evidence From Delhi

Abstract

"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."

Charles Mackay (1841)

Behavioral finance is an evolving field which studies how psychological factors influences decision making under conditions of uncertainty. It attempts to study how emotions and cognitive errors influence individual investors' behavior. This research papers aims to find out the influence of an identified behavioral finance concept, namely, Herding Effect, on the decision making process of individual investors in Indian stock market. The herding effect has been examined on by taking individual investors of Delhi. Primary data for analysis was gathered by distributing structured questionnaire among individual investors. The study also tries to find out the relation between the behavioral factor and investment performance. Of the 124 responses received, it was found that herding effect is visible among Indian investors to some extent. Also, investors in general were satisfied with the performance of their investment decisions owing to low levels of technical knowledge, though the rate of return on such investments was in most cases lower than that of market return. Further it was found that investors believe decisions of herd are always true howsoever irrational they may be.