Unraveling Herd Behavior: Its Impact on Investment Management and Perceptions of Market Efficiency

Herd behavior in financial markets refers to the tendency of a group of investors to follow market consensus and ignore personal beliefs and information. This behavior is among the behavioral biases affecting financial markets and investors' decisions. The current research aims to investigate whether the herding behavior of investors affects the perception of market efficiency, investment decisions, and investment performance of traders in the Tehran Stock Exchange. The current research is based on a comparative approach, placed in the category of applied research, and its method is descriptive. To collect data, 253 questionnaires were collected from the investors of the Tehran Stock Exchange in 2023. Research hypotheses were tested using structural equation modeling (SEM). The research results indicated that the herding behavior of investors has a significant negative effect on investment management activities (including investment decisions and investment performance) and the perception of market efficiency of real investors in the Tehran Stock Exchange. Based on the results of this research, it is necessary for investors to avoid herding behavior when making decisions, and by performing a proper analysis of investment opportunities based on their financial analysis ability and experience levels, they should make better investment decisions and move towards optimal investment opportunities.