Behavior and psychology of the capital market as one of the possible procyclicality causes of the financial market

Abstract

This article deals with stock market crowd behavior during increased fluctuations in the stock market. This behavior is at a time of increased risk, when there is increased interest from the financial community about the current economic situation. This article aims to convey a different view of the currently internationally debated issue, especially on the causes of cyclicality rise. There is a fundamental information asymmetry, accounting practices, excessive sentimentality, financial innovation or regulatory changes. The first part of the article deals with defining the relationship between risk and the individual, and assesses different types of risks that occur in the capital market. The second part focuses on psychology and information, when the stock market crowd, acting on the basis of some information, causes increased volatility and thereby enhances the current market situation. The article tries to find the basic relationship between the behavior of investors and that of financial intermediaries who can, on the basis of published information, intensify current financial market development.