From Herding to Overconfidence: An Analysis of Retail Investor Behavior in Korea's KOSPI Bull Market

Abstract

From 2025 to 2026, the Korean stock market saw an unprecedented bull run that was driven by retail investors. This paper discusses the phenomenon with a focus on the behavioral finance literature, especially the cognitive biases of herding and overconfidence. The study builds on previous literature, such as the empirical study of overconfident trading and theoretical frameworks like Prospect Theory, to qualitatively analyze the episode in the Korean market based on recent studies on the behavior of retail investors in emerging markets. The research pinpoints three typical patterns of behavior: social narratives about the unfair distribution of wealth and housing unaffordability influenced large-scale herding; early market successes fed into overconfidence; and government policy signals strengthened irrational risk-taking. The results indicate that the KOSPI bull market is a textbook example of the convergence of behavioral biases at the societal level, a phenomenon that has not been examined comprehensively in the literature. The paper is part of a stream of research on behavioral finance in Asian markets and provides implications for retail investor protection policies.