Effects of the economic news on herd behavior

Due to herd behavior contradicts the arguments put forward by the Efficient Market Hypothesis (EMH), it has been extensively researched in the finance literature in the past and continues today. Herd behavior, on the contrary, means that investors rely more on the decisions of a person/institution/group investors rather than their own information and follow their investment decisions or decide according to the increases and decreases of the market. At the same time, although investors' behaviors are similar in certain periods (highly correlated), it should not be considered as herd behavior (Bikchandani and Sharma). Therefore, the existence of real herd behavior may indicate that EMH is moving away and investors are moving away from behaving rationally. If the actors that are followed in the market and cause herd behavior have more information, it can be said that herd behavior is rational. The dominance of herd behavior in the capital market may hinder market efficiency and lead to the inability to use market prices as a basic statistic to be used in decision making. This study aims to use herding towards the market to examine herd behavior. There are three methods that are used extensively for this purpose. The first two of these methods can be listed as cross sectional standard deviation (CSSD) and cross sectional absolute deviation (CSAD) methods. In these two methods, deviations are calculated as divergence from the market return. In the third method, CSSD calculation is made by using systematic risk instead of return, and the herd behavior variable is estimated as a latent variable (Hwang & Salmon).