Testing the behavioral asset pricing model (BAPM) in Borsa Istanbul

Investor behavior in financial markets has an impact on asset prices. The aim of this study is to explain the asset returns that cannot be explained by classical asset pricing models, with a behavioral asset pricing model, taking into account investor behavior. In the study, the Behavioral Asset Pricing Model (BAPM) proposed by Ramiah and Davidson, which takes into account the risk of noise traders, was tested using the Dynamic Volume Index (DVI). In addition, the Investment Trust Discount (ITD) Index, which is often used as an indicator of investor sentiment in the literature, and the "TK" variable used by Tversky and Kahneman to represent the Prospect Theory Value in the studies of Barberis, Mukherjee and Wang were tested. While testing the models, the Fama-Macbeth two-step regression method was used. In the first step, to estimate the beta coefficients, time series regressions between the excess return rates of the stocks in the sample and the excess return rates of the BIST-All Index were estimated between 01.01.2009 and 31.05.2022. In the second step, a cross-section regression of estimated betas with expected returns was performed. While constructing the DVI, ITD and TK, 158 stocks with a trading volume higher than the average trading volume, 10 Securities Investment Trusts and 238 stocks were used respectively. As a result of the analysis, empirical findings have been reached that the BAPM and TK variable have a positive and significant effect on the expected returns of asset prices and can be used as reference indicators in measuring investor sentiment and explaining investor behavior. In addition, it was concluded that the ITD Index did not have a significant effect on the expected returns.