Role of Illusion of Control Bias in Herding Behaviour

Abstract

Herding is a behavior that follows the decision of the majority and is described as an imitation behavior resulting from individual factors and often leading to inefficient outcomes for the market as a whole. Information assymetry plays a major role in herding and so does other behavioural biases. Illusion of Control is one such bias which leads to excess trading and decreased returns. This research aims to analyse the relationship between the Illusion of Control Bias and Herding Mentality among mutual fund investors. To test the above relationship, data was collected from a sample of 309 Mutual Fund Investors. The data was analysed using Pearson's Correlation and regression analysis. The findings of the study indicate that there is a positive association between the two biases and Illusion of Control Bias is a significant predictor of the dependent variable Herding.