Herding behaviour analysis in Borsa Istanbul: The case of banking sector

Traditional finance theories are based on the idea that people are rational. On the other hand, it ignores the psychological factors that affect the financial preferences of investors. Behavioral finance discipline, which assumes the opposite of this situation, states that the processes of investors' decisions have different psychological tendencies. Behavioral finance theory reveals that where the traditional finance view is insufficient to explain the price bubbles in financial markets and the subsequent collapses and crises, people move away from being rational and disrupt the balance of the markets by revealing herd behavior. He argues that depending on this situation, price volatility and high vulnerabilities occur. In this study, the cross-sectional standard deviation of returns (CSSD) method developed by Christie and Huang (1995), which allows us to analyze the cross-sectional behavior of stock returns traded on the same index, and the cross-section absolute standard deviation method developed by Chang, Cheng and Khorona (2000). The herd behavior in the Borsa Istanbul Banking Sector was examined using CSAD models. When the results of our study, which covers 3 different periods, including the pre-Covid period, the Covid period and the whole period, were examined, it was determined that there was no herd behavior in the entire period and in the pre-Covid period, while the presence of herd behavior was detected in the Covid period.