Herd Behavior is involves people using the actions of others as a guide to sensible behavior, instead of independently seeking out high-quality information about the likely outcomes of these actions.
Here, people not take their independent decision, they see, observe others decisions and driven by those decisions. They are not going to evaluate other’s decision before using it as benchmark, just follow other’s decision blindly.
This kind of mentality originally seen in animals as they follow groups and roaming under the group. Same as humans follow their group and follow decisions of group.
Stock market bubbles, 2008 global crisis, and so on are the examples of herd mentality.
One real Example of Indian Stock Market-
ASTRAZENECA PHARMA INDIA LTD.
|52 week high/low (Rs.)||1285.00/595.00|
|No. of shares (Cr)||25|
|Latest Book Value(Rs)||40.73|
|TTM PE (x)||0.00|
|TTM EPS (Rs.)||-6.61|
|Latest Dividend (Rs.)||3.50|
03 Mar 2014- AstraZeneca Pharma India Ltd has informed BSE that the Board of Directors (Board) of AstraZeneca Pharma India Limited (Company) have, on March 01, 2014, received by email a scanned copy of the letter from AstraZeneca Pharmaceuticals AB (AZP AB) Sweden, promoter of the Company, proposing to make a voluntary delisting offer (the Delisting Proposal) to the public shareholders of the Company in accordance with the Securities and Exchange Board of India.
After above announcement price shoots up like anything, as people believe that delist price can be Rs. 1400+ and that we can experiencing in price.
18 Mar 2014- AstraZeneca Pharma India Ltd has informed BSE that, pursuant to and in accordance with Regulation 8(1)(a) of the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009, the delisting proposal received from AstraZeneca Pharmaceuticals AB, Sweden, the promoter of the Company, vide their letter dated March 01, 2014, was considered and approved by the Board of the Company at its meeting held on March 15, 2014.
This shows behavior of people that reflecting into the price of the stock and drive price to upward direction. As announcement of delisting happened volume in particular stock also shoots up.