A financial statistician at Kumasi Technical University, is advising Ghanaian investors to avoid making decisions based on the behaviour of other investors.
Dr Kofi Agyarko Ababio says the practice has a negative impact on demand and supply.
“If an expert is buying an asset, you’ll see other investors mimicking the same action by buying the same asset.
“This behaviour, commonly known as herding, affects market price stability and liquidity. He indicated that investors behaviour could cause asset prices to rise or decline sharply,” he said.
His recommendation comes at the back of research he conducted during the 2008 Financial Crises on herding behaviour in emerging markets.
According to Dr Ababio, during financial crises, investors are susceptible to herding behaviour.
Herding behaviour occurs when investors follow the market consensus.
He further opined that investors are assumed to be rational in their decision-making in financial markets.
“However, during bear and bull market days, when market portfolio returns are extremely low or high, most investors do not rely on their beliefs anymore but instead rely on the beliefs of other experts,” he explained.
Dr Ababio captured the period before, during and after the 2008 financial crises. He found no evidence of herding behaviour during bear, normal, and bull market days.
Dr Agyarko Ababio is advising, “whenever you are investing, we should endeavour to find out if the market is driven by investors herding behaviour.
He reiterated that if investors exhibit herding behaviour in financial markets, it has many consequential effects on the market fundamentals.
He spoke at the 2021 Colloquium organised by the Faculty of Applied Sciences and Technology, Kumasi Technical University.
The conference was under the theme, “Applied Sciences research: A means to unravel the challenges of the time.”
The Academic conference attracted speakers both in Ghana and around the globe.
The Vice-Chancellor of KsTU, Ing. Prof. Nana Osei-Wusu Achaw, was hopeful the deliberations would lead to solutions to the country’s problems.
He promised the University’s support for such activities.
“The university will always be your ally in the pursuit of this venture,” he promised.
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