Group Behavior and Systemic Risk in Financial Markets: A Behavioral Finance Perspective on Crisis-Preceding and Post-Crisis Effects

Zhangyu Wang; Qiuxuan Chen; Mengwei Liu

doi:10.54254/3049-5768/2025.21735

Research Article

Open access

Published on 27 March 2025

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Wang,Z.;Chen,Q.;Liu,M. (2025). Group Behavior and Systemic Risk in Financial Markets: A Behavioral Finance Perspective on Crisis-Preceding and Post-Crisis Effects. Journal of Fintech and Business Analysis,2(1),55-59.

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Group Behavior and Systemic Risk in Financial Markets: A Behavioral Finance Perspective on Crisis-Preceding and Post-Crisis Effects

Zhangyu Wang ¹, Qiuxuan Chen ², Mengwei Liu *^,3,

¹ Queen Mary University of London, London, United Kingdom
² China CITIC Bank Corporation Limited Shenzhen Branch., Guangdong, China
³ 460 Media.pty.ltd, Essendon Fields, Australia

* Author to whom correspondence should be addressed.

https://doi.org/10.54254/3049-5768/2025.21735

Abstract

This study analyzes the effects of collective investor behavior on systemic risk in financial markets using principles from behavioral finance. The research investigates how investor sentiment and emotional reactions together with herding behavior affect market instability during different stages of financial crises. Data analysis from the 2007-2009 Global Financial Crisis (GFC) lets us investigate the effect of irrational investor behavior on market volatility and systemic risk. The study analyzes important financial indicators such as stock market returns and volatility indices along with credit default swap spreads which are compared with sentiment data gathered from social media networks. Investor herd actions combined with overreactions to news events create market instability because stock market behavior moves away from economic fundamentals according to our analysis. This research advances understanding of how collective actions of investors create irrational market patterns and worsen financial crises. The study suggests ways to manage systemic risk with regulatory policies that include behavioral insights within financial regulation structures.

Keywords

behavioral finance, herd behavior, systemic risk, investor sentiment, global financial crisis

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The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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About volume

Journal：Journal of Fintech and Business Analysis

Volume number: Vol.2

ISSN：3049-5768(Print) / 3049-5776(Online)

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