Herding Behavior in Stock Market: An Empirical Analysis in ISE

Abstract

It is important to detect the effect of herding behavior in markets in order to assess the validity of rational asset pricing models and diversification opportunities. In this study, the existence of herding behavior effect has been researched at Istanbul Stocks Exchange (ISE) by utilizing two different models developed by Christie and Huang (1995) and Chang, Cheng, and Khorana (2000). Research data consists of daily logarithmic stock returns for the time period of January 1997 – July 2012. Study has been diversified by dividing the time period into two sub-periods, 1997-2004 and 2005- 2012. Findings are in the direction that herding behavior effect has been felt intensively at the first sub-period in rising market conditions. The effect has fallen at the second sub-period. Hence, it can be said that diversification opportunities has risen as of the second sub-period.