What characterizes herd behavior among investors?

Herd behavior among investors is characterized by individuals following the actions of a group. This phenomenon occurs when investors make decisions based on the behavior of others rather than their own analysis or research. For instance, if a significant number of investors start buying a particular stock, others may follow suit, driven by the fear of missing out or the belief that the group must have insight that justifies their actions. This collective behavior can lead to rapid price movements in securities and can contribute to market bubbles or crashes, as decisions are based more on social proof than on individual assessments of value or risk.

In this context, the other choices do not align with the concept of herd behavior. Independent decision-making would mean that investors act based on their own evaluations, while acting solely based on personal research indicates a rational and individualistic approach that is contrary to following the group. Similarly, while regulatory bodies may influence market dynamics, their role is distinct from the social and psychological factors that drive herd behavior among investors.