THE POWER OF INFLUENCE: EXAMINING THE EXTERNAL FACTORS SHAPING HERDING BEHAVIOR AMONG RETAIL INVESTORS IN THE INDIAN DERIVATIVE MARKET

Authors:

LG Honey Singh, Dr Amar Kumar Choudhary

Keywords:

Herd Behavior, Derivative Market, Social Influence, Behavioral Biases, Exploratory Factor Analysis

Abstract:

Behavioral biases greatly impact how investors make decisions in the market, with herding behavior being a common bias where investors imitate the actions of others. While most previous studies have focused on herding behavior in the Spot market, this investigation delves into the factors influencing herd mentality among investors in the Indian Derivative market. A customized questionnaire based on existing research was developed and distributed to active derivative investors in India using a Google Form. Through the analysis of 197 responses using Cross-Sectional analysis and Exploratory Factor Analysis, this study pinpointed several key factors that drive herding behavior: Public Information, Peer Influence, Social Group, Fear of Missing Out, Knowledge and Trust, Experiences, Under-Confidence, Professional & Broker Influence, and Social Media Influence. This research breaks new ground in understanding the factors that shape herding behavior among retail investors in the Indian Derivative Market, enhancing our comprehension of these biases. By shedding light on these determinants, the study aims to assist investors in recognizing and minimizing the effects of biases on their decision-making processes, thereby guiding them toward making more rational investment decisions.

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