- Provided that the herd constitutes a majority, investors have a tendency to follow it without reflecting over their decisions. It can have devastating consequences, says the researcher Maria Andersson in a new thesis at the University of Gothenburg.
- It is therefore important to understand which psychological mechanisms induce people to behave in the same way as everyone else, says Maria Andersson, who has studied why herding occurs in her doctoral thesis in psychology.The stock market contains various kinds of information that can provide guidance as to the future yield of shares. An important question is which information and analyses investors use when they make investment decisions.
- A common strategy is to observe what others do and follow the herd, says Maria Andersson.
Influenced by a herd
The thesis presents four experimental studies that illustrate herding in the stock market. Some 450 people took part in the investigations. The primary aim was to establish whether investors are influenced by a herd when they make investment decisions, and if that is the case whether it matters if the herd constitutes a majority or a minority. The size of the herd and the reliability of its judgements varied in the different studies.
In brief, the results show that there is a strong tendency to put trust in the majority being right and to disregard minorities. This result applies irrespective of whether the majority has performed well or not. Minorities on the other hand have no influence even if their point of view is correct.Is there any way to avoid being drawn along with the herd?
- This can be achieved by raising the participants' awareness of how reliable the information is, says Maria Andersson.
Better and clearer information would probably also increase the chance of investors disregarding the herd. Being aware that the information available concerning the stock exchange is not always reliable and critically examining what the herd is doing is consequently a good starting point for successful share dealing.Title of the thesis: Social influence in stock markets.
Corporate coworking as a driver of innovation
22.11.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO
Mathematical confirmation: Rewiring financial networks reduces systemic risk
22.06.2017 | International Institute for Applied Systems Analysis (IIASA)
MPQ scientists achieve long storage times for photonic quantum bits which break the lower bound for direct teleportation in a global quantum network.
Concerning the development of quantum memories for the realization of global quantum networks, scientists of the Quantum Dynamics Division led by Professor...
Researchers have developed a water cloaking concept based on electromagnetic forces that could eliminate an object's wake, greatly reducing its drag while...
Tiny pores at a cell's entryway act as miniature bouncers, letting in some electrically charged atoms--ions--but blocking others. Operating as exquisitely sensitive filters, these "ion channels" play a critical role in biological functions such as muscle contraction and the firing of brain cells.
To rapidly transport the right ions through the cell membrane, the tiny channels rely on a complex interplay between the ions and surrounding molecules,...
The miniaturization of the current technology of storage media is hindered by fundamental limits of quantum mechanics. A new approach consists in using so-called spin-crossover molecules as the smallest possible storage unit. Similar to normal hard drives, these special molecules can save information via their magnetic state. A research team from Kiel University has now managed to successfully place a new class of spin-crossover molecules onto a surface and to improve the molecule’s storage capacity. The storage density of conventional hard drives could therefore theoretically be increased by more than one hundred fold. The study has been published in the scientific journal Nano Letters.
Over the past few years, the building blocks of storage media have gotten ever smaller. But further miniaturization of the current technology is hindered by...
With innovative experiments, researchers at the Helmholtz-Zentrums Geesthacht and the Technical University Hamburg unravel why tiny metallic structures are extremely strong
Light-weight and simultaneously strong – porous metallic nanomaterials promise interesting applications as, for instance, for future aeroplanes with enhanced...
11.12.2017 | Event News
08.12.2017 | Event News
07.12.2017 | Event News
13.12.2017 | Health and Medicine
13.12.2017 | Physics and Astronomy
13.12.2017 | Life Sciences