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Herding Behaviour

Is a term that applies to a trend often seen in investing, in which all investors tend to mimic each others actions and this causes asset prices to significanty decline or rise. These investors may not always be acting rationally.

Below is a graphic which shows the ramifications of asset prices falling due to herding effects. If asset prices fall this causes investors to lose a large value of their investments. Which ultimately can cause a financial crisis or a recession, as confidence from the financial sector drains away.

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