Herding Behavior in Capital Markets: A Literature Review

Abstract

Herding behavior is one of the most prominent forms of behavioral bias in the face of high uncertainty affecting investors' investment decisions. After the 1990s, herding behavior became more widely recognized in the capital market. The goal of this study is to explain herding behavior using a literature review approach, in order to obtain a comprehensive description and classification of existing research on herding behavior that occurs in various capital markets around the world. This study employs a number of credible international journals to explain the evolution of herding behavior research in various capital markets around the world. The findings of the literature review show a variety of empirical evidence from various studies on herding behavior, both for specific stocks using micro data or ownership data and for the entire market using aggregate market activity data through stock price movements. Most of the outputs of literature review point that herd behavior is more frequently detected in emerging and frontier capital markets. Finally this literature review study will provide an opportunity related the prospects for research on herding behavior in the future.