Investor Behavior Under Uncertainty: Sentiment and Herding Across Market Phases

Abstract

Behavioral finance argues that investing behavior is influenced by emotions, biases, and cognitive ability (Almansour & Arabyat, 2017). The impact of behavioral shifts in investing has gained prominence in recent years. The COVID-19 pandemic sent waves of uncertainty to all spheres of life, even to the economic one. This study intends to examine the presence of herding behavior and investor sentiments in the Indian Stock Market, focusing on the benchmark index of Nifty 50. The impact was analyzed by focusing on three different phases, namely the pre-COVID phase, the crisis, and the post, COVID i.e. the recovery phase. Quantitative techniques were employed to measure the presence of investor sentiment and to detect herding patterns in the stock market. The results reveal significant behavioral shifts across the three phases, offering insights into sentimental investment decisions under crisis conditions. These findings hold relevance for market participants, policymakers, and researchers interested in behavioral finance.