“Following” The Herd (Bachelor’s Thesis)

The purpose of this thesis is to investigate the influence of social media and external investment decision-making factors (IDMFs), including herd behavior, investor sentiment, and salience, on novice retail investors in Sweden. To do this, a conceptual model was created, building on elements from the Four-Stage model and the Dunning-Kruger effect, with a specific focus on social media and external (IDMFs). The conceptual model was utilized to understand the learning process of novice retail investors and gain insight into how their financial decisions are influenced by social media and external IDMFs. The approach used to investigate this was a qualitative approach, and the data collection was carried out by conducting 10 semi-structured interviews. The respondents were recruited mainly through a combination of convenience and snowball sampling. All respondents recruited had started actively investing in connection to the COVID-19 pandemic. The findings indicate that novice investors heavily rely on social media and use it as a shortcut to quickly gain financial knowledge and investment advice. Moreover, this reliance, combined with the influence of external IDMFs, results in irrational financial decisions. The first conclusion is that the inability of novice investors to filter valuable information from social media contributes to irrational financial decisions. The second conclusion is that novice investors must prioritize the development of a solid investment framework and financial foundation to prevent the risk of blindly following others’ investments without understanding the associated risks.