Foreign Investment and Evidence of Market-Wide Herding in the Turkish Capital Markets

Yıl 2021, Cilt: 1 Sayı: 2, 69 - 75, 31.01.2022

Seyid Mahmud Murat Tiniç

Öz

This study examines market-wide herding in Borsa Istanbul (BIST) during 2005-2014 using a state-space model employing cross-section standard deviations of systematic risk (Beta). It has been found that sentimental herding towards the market in BIST-100 is statistically significant. More importantly the results reveal that increase in Foreign Investment Flows into the Turkish Capital Market also cause increase in market-wide herding, which may not only lead to mispricing of stock prices but may also contribute to inefficiencies in the market. Herding trends over the sample period indicate that the financial crises, Lehman Brothers of 2008-09 and Euro Debt Crisis of 2011-2012 appeared to reduce sentimental herding in Borsa Istanbul. During the crisis period investors do seem to revert back to market fundamentals.

Anahtar Kelimeler

Beta herding, Market fundamentals, BIST-100, Cross-section volatility

Kaynakça

• Alemanni, B. & Ornelas, J. R., (2008). Herding Behaviour by Equity Foreign Investors on Emerging Markets. Available at SSRN 1114608.
• Banerjee, A. V. (1992). A simple model of herd behavior. The Quarterly Journal of Economics, 797-817.
• Celik, S. (2013). Herd behavior in world stock markets: Evidence from quantile regression analysis. Iktisat Isletme ve Finans, 28(329), 75-96.
• Chang, E. C., Cheng, J. W., & Khorana, A. (2000). An examination of herd behavior in equity markets: An international perspective. Journal of Banking & Finance, 24(10), 1651-1679.
• Christie, W. G., & Huang, R. D. (1995). Following the pied piper: Do individual returns herd around the market?. Financial Analysts Journal, 31-37.
• Demir, N. S., Mahmud, F. and Solakoglu, M. N. (2014, forthcoming) Sentiment and beta herding in Borsa Istanbul (BIST), in Risk Management Post Financial Crisis: A Period of Monetary Easing, Vol. 96, Batten, J. A. and Wagner, N. F. (Eds), Emerald.
• De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990). Positive feedback investment strategies and destabilizing rational speculation. the Journal of Finance, 45(2), 379-395.
• Dornbusch, R., & Park, Y. C. (1995). Financial integration in a second-best world: are we still sure about our classical prejudices. Financial Opening: Policy Lessons for Korea, Korea Institute of Finance, Seoul, Korea.
• Frey, S. Herbst, P. & Walter, A. (2007), Measuring Mutual Fund Herding: A Structural Approach, mimeo.
• Gompers, P. A., & Metrick, A. (1998). Institutional investors and equity prices (No. w6723). National bureau of economic research.
• Hwang, S. and Salmon, M., (2004). Market Stress and Herding, Journal of Empirical Finance, 11(4), 585-616.
• Kim, K. A., & Nofsinger, J. R. (2005). Institutional Herding, Business Groups, and Economic Regimes: Evidence from Japan*. The Journal of Business,78(1), 213-242.
• Lakonishok, J., Shleifer, A., & Vishny, R. W. (1992). The impact of institutional trading on stock prices. Journal of financial economics, 32(1), 23-43.
• Lakshman, M. V., Basu, S., & Vaidyanathan, R. (2013). Market-wide herding and the impact of institutional investors in the Indian capital market. Journal of Emerging Market Finance, 12(2), 197-237.
• Oehler, A., & Chao, G. G. C. (2000). Institutional herding in bond markets.Bamberg University Dept. of Finance Working Paper.
• Puckett, A., & Yan, X. (2007). The determinants and impact of short-term institutional herding. Working Paper.
• Scharfstein, D. S., & Stein, J. C. (1990). Herd behavior and investment. The American Economic Review, 465-479. Sevil, G., Özer, M., & Kulalı, G. (2012). Foreign Investors and Noise Trade in Istanbul Stock Exchange. International Journal of Business & Social Science, Special Issue, 3(4), 93-101.
• Sias, R. W., & Whidbee, D. A. (2010). Insider trades and demand by institutional and individual investors. Review of Financial Studies, 23(4), 1544-1595.
• Voronkova, S., & Bohl, M. T. (2005). Institutional traders’ behavior in an emerging stock market: Empirical evidence on polish pension fund investors. Journal of Business Finance & Accounting, 32(7‐8), 1537-1560. www.borsaistanbul.com www.tspb.org.tr