An empirical study on herd mentality in Indian investors

Behavioral finance is one field of study, which tries to explain the financial anomalies in markets, which are formed because of irrational behavior and personal biases of investors. It is because of this irrational behavior, people have their personal biases which leads to different behavior and a collection of similar biases create financial anomalies. Herd mentality or imitation phenomenon is one such bias where investor tends to follow other market participants and this phenomenon has not much been studied in Indian context. The objective of the current research is to study ‘Herd mentality’ and its interaction with other behavioral traits under the influence of demographic variables. The research uses a sample of 186 Indian investors and their 22 behavioral traits and analyzes them. The research generates a better understanding of herd mentality and related traits and it is expected that the findings would be useful for market participants for business development and product development. Three behavioral traits (preference for short-term gains; double mind mentality; Ignoring counter information) were found to be closely associated with herd mentality. The analysis also uses demographic variables as a moderator of behavioral traits. Techniques like regressions and moderating effects have been used in analysis.