Greed and Fear Theory

Greed and Fear Theory describes how investor behavior is driven by two powerful emotions. Greed prompts investors to chase high returns, often leading to excessive risk-taking and market bubbles. Fear, on the other hand, causes investors to panic and sell assets during downturns, intensifying declines. These emotions create cycles of overconfidence and regret, fueling market volatility. Recognizing this interplay helps investors understand that emotional reactions, rather than fundamentals alone, significantly influence market movements, encouraging more disciplined decision-making and risk management.