What Is the Role of the “Herding Effect” in Accelerating Market Crashes?

The herding effect is a behavioral bias where investors mimic the actions of a large group, often out of fear of missing out (FOMO) or fear of loss. During a crash, this manifests as panic selling, where individual investors sell simply because everyone else is selling.

This collective, non-fundamental selling swamps the market with supply. It ignores fundamental value, turning a rational correction into an irrational, accelerated collapse.