Assistant Professor Kamal K. Jawad Al-Shammari
Assistant lecturer Jihad Faisal Jihad()
University of Karbala / College of Administration and Economics / Department of Banking and Financial Sciences
Numerous academic studies have confirmed that investors often tend to abandon their personal opinions and rely on trading procedures followed by their peers, especially in light of uncertainty in financial markets, and this is usually called (herding or herd behavior) (Aharon, 2020: 1). Shiller believes that people have tended to this behavior since the first clan and mass migrations, and they imitate the behavior of others even if they do not have a strong reason to do so, as confirmed by psychologists such as (Freud) in 1922 (Shiller, 2003: 85). Imitation of the actions of other investors occurs by observing their actions (decisions) on specific investments, and they repeat those decisions and then this move continues in line with the activity of the financial markets completely. This means that investors tend to rely on consensus and pattern of prior trades rather than interpreting and analyzing news, as well as predicting underlying asset pricing frameworks. This behavior that is formed in this way has a clear effect, as it leads to a major shift in the direction of the financial markets (Adem, 2020: 1). This article was divided into three main parts, the first part dealt with a general introduction to the behavior of investors in the financial markets, the second part dealt with a group of different studies about the behavior of investors in different countries around the world, the last part included a group of cases that investors are likely to be exposed to, such as cases Deception or fraud for following the wrong behavior.
PREVIOUS STUDIES FOR A GROUP OF INTERNATIONAL FINANCIAL MARKETS:
Many academic studies were conducted on examining the behavior of investors in the various financial markets in the world to find clear evidence about this behavior. A study (Hwang &Salmon, 2004:585) found that financial markets in developed countries such as the United States of America and the United Kingdom are less following this behavior compared with emerging economies such South Korea and Turkey.
Also, a recent study (Galariotis, et al., 2015 :590) found that this behavior exists in the US market only when the government advertise macroeconomic information in the USA. A study (Henker et al., 2006 :196) found that there is no evidence of herd behavior in Australia. As for the developing world, a study (Chang et al., 2000 :1651) conducted on some Asian countries showed that the herding behavior of investors exists in Taiwan and South Korea for two reasons, the first is due to economic conditions, and the second is the lack of sufficient information about companies in those countries. Therefore, investors follow this behavior in making their decisions. A study (Lao & Singh, 2011:496) showed that herd behavior also exists in the Indian and Chinese stock markets. And the study (Tan et al., 2008:61) proved that grazing is present in the “Chinese financial markets” in the event of an increase in financial market activity in China. Lao and Singh found that this behavior exists among investors during low trading volume in the financial markets in China, while the herd behavior is present during the occurrence of increases in trading volume in the Indian financial market.
Therefore, we conclude from previous studies that it cannot be proven that the behavior of investors is the same between all countries, in other words there are some differences in developed countries such as the United States of America and many other countries such as South Korea, China, India and other countries of the world.
A GROUP OF CASES IN WHICH INVESTOR PERSONS ARE LIKELY TO BE EXPOSED TO CASES OF DECEPTION OR FRAUD IN THE FINANCIAL MARKETS AS A RESULT OF FOLLOWING WRONG BEHAVIOR: (Baker, 2019: 81-83)
1- Investors are curious and naive: Those who tend to trust easily are at great risk because they believe everything that people say to them, and believe that everything will be in their favor, except that after executing the transaction in the financial markets, they find that it is not what they think, and therefore they lose their investment due to market fraudsters Financial.
2- Investors are sometimes irrational: Investors sometimes make quick and irrational decisions, and they are impulsive or driven by emotion, so they become prey to market fraudsters. Fraudsters often push investors to make a quick decision in executing the deal according to their saying of some phrases, such as “Do not miss the opportunity, it happens once” or “No Be stupid, these offers come only once in a lifetime”.
3- Investors are attracted to monetary gain: The lure of quick get-rich schemes ignites the innate desire to be better off financially, and investors may sometimes achieve a high return with little risk in exchange for their own skills, but not on a regular basis. Fraudsters whose role in this paragraph is to lure investors with incredibly high-yielding investments, so the investor falls into the trap.
4- Investors feel uncertainty about financial decisions: Investors often turn to others who claim to be experts and who are highly certain about investment decisions but are not honest.
5- Investors are overly optimistic: Those with high optimism are more likely to be deceived than others. Optimists always exaggerate the likelihood of good things happening and underestimate the likelihood of bad events.
6- Investors want to feel special: People have a psychological need to feel special, but fraudsters exploit this need by convincing investors that they are part of their privileged members, and they are given access to a private investment opportunity.
7- Investors may be thinking that they are skilled and highly knowledgeable of the financial market: These investors believe that they know more than they already know or that they are too smart to fall into a fraud or deception, and this is called “the illusion of knowledge”.
8- Investors tend to trust people with supreme authority and certifications: Often people put their trust in authority, whether it is a respectable institution or not an individual holding a position, and thus fraudulent artists send fraudulent emails that appear to be trusted institutions such as banks and brokerage firms with false credentials, and pretend that they have a high level of knowledge and competence.