Testing herd behavior in ISE

It is widely accepted that although some individual factors may effect irrational decisions (heuristics, cognitive biases), social group in which decision maker lives also has a significant role. If an individual changes his/her decisions and follows the majority due to ideas of social group he/she belongs to, there occurs herd behavior.Aim of this study is to examine that whether the investors show herd behavior in ISE (Istanbul Stock Exchange). To test the existence of herd behavior, adjusted daily closing prices of 257 shares traded in ISE between 03.01.1997 and 10.17. 2008 were used. Methodology based on cross-sectional deviation of stock returns theory developed by Christie and Huang (1995) and Chang, Cheng and Khorana (2000) was employed. Analysis results suggest that herd behavior does not seem to exist in ISE.Keywords: Behavioral Finance, Herd Behavior