Herd behavior in stock markets: The case of Turkey

Herd Behavior is explained as the individual?s acting in parallel with the decision of the group in which s/he is included despite having dissimilar personal attitudes. Although Herd Behavior is basically a topic in social psychology and behavioral sciences, it occupies an important place in the Behavioral Finance Approach as well, which is still maintaining its development. This stems from the fact that investors? act of herd behavior contradicts with Efficient Markets Hypothesis, keeping validity in the Science of Finance for years, and its assumption of ?rational investors?. This study aims to analyze the herd behavior in various industries of Istanbul Stock Exchange (ISE) through various return frequencies with the help of three methodologies having important places in the literature of herd behavior in capital markets. In this context, to the 15 different industries in ISE-BIST the methodologies of Christie and Huang (1995) and Chang, Cheng and Khorana (2000) were implemented using daily and weekly data, and Hwang and Salmon (2004) was implemented using daily, weekly and monthly data. While the suggestions of Yao, Ma and He (2013) were utilized in the research made in respect with the method of Chang, Cheng and Khorana (2000), in the research made by the method of Hwang and Salmon (2004) the Caparelli, D?Arcangelis and Cassuto?s (2004) inferences were beneficiated. The research was conducted through the adjusted return data of the stocks traded in the 4/1/2000-28/9/2012 period for the first two methods, 4/1/2000-30/11/2011 period for the last one. In conclusion no herding evidence was found regarding the method of Christie and Huang (1995) that assumes a linear relation between cross-sectional standard deviations of the stock and market returns; however, in accordance with the method of Chang, Cheng and Khorana (2000) that argues this relation may not be linear, and that of Hwang and Salmon (2004) searches herding based on the cross-sectional deviations of the beta coefficients, items of evidence supporting the herd behavior were obtained.