Herding Behavior and Psychological Factors: Insights from the Pakistan Stock Exchange

Abstract

Purpose: This study aims to explore the psychological factors influencing herding behavior among investors in the Pakistan Stock Exchange (PSX). Design/Methods/Approach: Data has been collected through questionnaire from 400 respondents, the study identifies information, national culture, market sentiments, experience, and overconfidence as independent variables affecting herding behavior as dependent variable. Findings: The study found that information, national culture, market sentiments, and experience positively influence herding behavior, while overconfidence has a significant and negative relationship with herding behavior. The model explains 55% of the variation in the behavior and has a Q² value of 0.270 which strengthen the findings. Originality/Value: This study contributes to knowledge in the field of behavioral finance, particularly in developing countries, and suggests future research can expand on psychological factors and investor types. Practical/Policy implication: The findings can assist investors in making more rational and optimal investment decisions and avoiding herding by conducting independent research, taking calculated risks, and expanding their knowledge of diverse cultures.