REACTIVE INVESTING: THE PSYCHOLOGY OF MARKET RESPONSES AND ITS IMPACT ON LONG-TERM FINANCIAL STABILITY

APARNA P; K. Siva Murugan

doi:10.59415/mjacs.v3i2.255

Authors

APARNA P St. Claret College, Bangalore https://orcid.org/0009-0005-1385-8895
K. Siva Murugan The Institute of Chartered Accountants of India

DOI:

https://doi.org/10.59415/mjacs.v3i2.255

Keywords:

Reactive investing, behavioral finance, market psychology, investor sentiment, financial stability, herd behavior, market volatility, cognitive biases

Abstract

Reactive investing, driven by psychological biases and emotional responses, significantly influences financial markets, often leading to short-term volatility and long-term instability. This study examines the behavioral underpinnings of reactive investing, exploring how cognitive biases such as herd mentality, loss aversion, and overreaction to news shape market dynamics.The paper investigates the systemic risks of reactive investing, such as misallocated capital, eroded investor confidence, and heightened financial fragility. To mitigate these effects, the study discusses potential strategies, including investor education, regulatory safeguards, and long-term investment approaches that counteract impulsive decision-making. The study concludes with recommendations for future research, emphasizing the need for advanced sentiment analysis tools and cross-cultural studies to better understand market behavior. By bridging psychological theory with financial practice, this paper contributes to a deeper understanding of how reactive investing impacts economic stability and offers pathways toward more resilient markets.

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Author Biographies

APARNA P, St. Claret College, Bangalore

Research Scholar

Full Time Ph.D., Research Scholar (UGC–NET–JRF), Research Centre in Commerce, St. Claret College, Bangalore, Bangalore University.

K. Siva Murugan, The Institute of Chartered Accountants of India

The Institute of Chartered Accountants of India

Centre of Excellence, Hyderabad.

India

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