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Although past research suggests that reference groups induce follow-up and imitation behavior, the mechanisms of how and when reference groups become effective drivers of herd behavior remain unclear. Using a sample of individual investors in the Chinese stock market, this study proposes and empirically tests a theoretical framework for understanding the effect of reference group type on herd behavior and the boundary conditions that limit or enhance its effectiveness. The results, based on 306 valid questionnaires, show that herd behavior resulting from peers, friends, and experts exhibits a growth trend. This trend is gradual in individual investors with low self-esteem or high trait anxiety in buying or selling behavior, or when the reference group’s prediction is consistent with the subject’s prediction. Furthermore, trait anxiety acts as a mediator in the multilevel moderating effect of self-esteem on the relationship between reference group type and herd behavior. However, multilevel mediated moderation is not significant when the subject’s prediction is inconsistent with that of the reference group. In addition, the results indicate that evaluations of others reduce or even obscure the respective and joint effects of self-esteem and trait anxiety.

REFERENCE GROUP PERSPECTIVE ON INDIVIDUAL INVESTORS’ HERD BEHAVIOR: THE EFFECTS OF SELF-ESTEEM AND TRAIT ANXIETY