Herding Behavior and Portfolio Management: A Behavioral‎A Finance Perspective on Individual Investors

  • Authors

    • Di Cui School of Economics, Finance and Banking Universiti Utara Malaysia,06010 UUM Sintok Kedah Darul Aman, Malaysia
    • Abu Sufian Abu Bakar School of Economics, Finance and Banking Universiti Utara Malaysia,06010 UUM Sintok Kedah Darul Aman, Malaysia
    • Normizan bin Bakar School of Economics, Finance and Banking Universiti Utara Malaysia,06010 UUM Sintok Kedah Darul Aman, Malaysia
    https://doi.org/10.14419/2k6wex42

    Received date: October 5, 2025

    Accepted date: October 22, 2025

    Published date: November 9, 2025

  • Behavioral Finance; Herding Behavior; Individual Investors; Psychological Biases; Portfolio Management

  • Abstract

    This paper analyzes the impact of herding phenomena in terms of behavioral finance, i.e., individual investors, on the management of a portfolio. The herding behavior is characterized as a state of individuals being most likely to copy the behavior of other individuals, and this can be ‎highly ineffective in the market, leading to poor investments. The theories of finance are grounded in the assumption that rational investors ‎make decisions within the framework of general information availability; however, the behavioral theory of finance assumes that numerous ‎psychological biases, such as a sense of overconfidence, the fear of missing out (FOMO), and loss aversion, exert an immense influence on ‎the investment decision. The following paper will be dedicated to the comprehension of such biases and their application to the diversification-‎tion, risk tolerance, and asset allocation of a portfolio. This research employs a quantitative approach where they employ simple random ‎sampling and a structured survey to collect data about individual investors. The surveys are about demographics, investment strategies, herd-herding behavior, and the role that the Environmental, Social, and Governance (ESG) factors play in investment decisions. The results are that ‎individual investors are likely to be influenced by market trends, behaviour of peers, and social forces, hence leading to herding behaviour, ‎which has a negative impact on portfolio performance. Moreover, there is also the infiltration of ESG in decision-making, whereby investors ‎consider ethical interest and monetary benefits. This study indicates that awareness of psychological bias and devising solutions on how to ‎overcome herding in managing the portfolio is very important‎.

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  • How to Cite

    Cui, D., Abu Bakar, A. S. ., & bin Bakar, N. (2025). Herding Behavior and Portfolio Management: A Behavioral‎A Finance Perspective on Individual Investors. International Journal of Accounting and Economics Studies, 12(7), 353-362. https://doi.org/10.14419/2k6wex42