When multiple investors take similar trading actions in response to advice that has been given on a popular investment media production, this may lead to:

Question

Quizplus · Accepted Answer

Herding behavior refers to the tendency for individuals to follow the actions of a larger group, without necessarily considering whether those actions align with their own investment goals or research. The scenario described in the question is a classic example of herding behavior, as investors are all taking the same trading actions based on advice they received from a popular investment media production. This can increase market volatility, as well as create a situation where investors may end up taking on more risk than they would have otherwise.

When Multiple Investors Take Similar Trading Actions in Response to Advice