Which statement best describes the relationship between the stock market and herd behavior?

Question

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Nash Bray

1 December, 19:10

Which statement best describes the relationship between the stock market and herd behavior?

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Answers (2)

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Cherish · Answer 1

Herd behavior contributes to stock market surges and crashes because it compels stockbrokers to act on emotion rather than reason.

Jovanny Black · Answer 2

Herd behavior is responsible for preventing brokers from acting rationally. This influences the purchase of shares emotionally which influences the rise or fall of the stock market.

Explanation:

Herd behavior is a term used to describe a moment when a group of people want to make a decision together, without that decision having been planned in a rational way with all possible consequences assessed and expected, that is, it is a decision made by a large number of people emotionally, which can cause bad consequences.

This behavior is very influential in the stock market, because it causes several brokers to buy shares together without any planning, even if it means losing a lot of money. The result of this is unpredictable and may increase or decrease the stock market.