Evaluation of Market Efficiency and Trading Behavior of Investors: Evidence From Borsa Istanbul

Year 2018, , 153 - 165, 01.01.2018

Yusuf Varlı

https://doi.org/10.14784/marufacd.460679

Abstract

After the financial crisis of 2007-08, debates on structures and characteristics of financial markets have
become the subject of much concern in both industry and academia. One of the most debated issues related
to financial markets is whether they are efficient or not. With an intent to enter into discussions, this paper
evaluates the market efficiency by using individual and institutional trade data from a specific stock exchange,
namely Borsa Istanbul. To do so, we first form several measures of market efficiency through daily
investor data covering five years. By using these measures, we show that there is a negative relationship between
market efficiency and turnover. That is, the more efficient the market, the lower the turnover. This result
contributes to the debate of irrationality of investor behavior. The data also suggests that the efficiency
in Borsa Istanbul has been increasing after the crisis, showing that the effect of the crisis has been vanishing
as time passes.

Keywords

Market Efficiency, Investor Behavior, Stock Trading, Turnover, Stock Exchange, Borsa Istanbul

References

• BARBER, B. M., and ODEAN, T. 2000. “Trading is hazardous to your wealth: The common stock investment performance of individual investors”, Journal of Finance, 55, 773-806. BARBER, B. M., and ODEAN, T. 2001. “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment”, Quarterly Journal of Economics, 116, 261-292. BASU, S. 1977. “Investment performance of common stocks in relation to their price‐earnings ratios: A test of the efficient market hypothesis”, The Journal of Finance, 32(3), 663-682. BENOS, A. V. 1998. “Aggressiveness and survival of overconfident traders”, Journal of Financial Markets, 1, 353-383. CHUANG, W.I., and SUSMEL, R. 2011. “Who is the more overconfident trader? Individual vs. Institutional Investors”, Journal of Banking and Finance, 35, 1626-1644. COVAL, J. D., HIRSHLEIFER, D. A., and SHUMWAY T. 2005. “Can Individual Investors Beat the Market?”, Working paper, University of Michigan. DAMODARAN, A. 2002. “Investment Valuation: Tools and Techniques for Determining the Value of Any Asset”, Second edition, John Wiley & Sons. DAMODARAN, A. 2003. “Investment Philosophies: Successful Strategies and the Investors Who Made Them Work”, Wiley, Hoboken, NJ. FAMA, E. F. 1970. “Efficient capital markets: a review of theory and empirical work”, Journal of Finance, 25, 383-417. FAMA, E. F. 1991. “Efficient Capital Markets II”, Journal of Finance, 46, 1575-1671. GLASER, M. and WEBER, M. 2007. “Overconfidence and trading volume”, Geneva Risk and Insurance Review, 32, 1-36. JAHNKE, W. W. 1994. “Requiem for Efficient Market Theory”, The Journal of Investing, 3, 25-9. ODEAN, T. 1998. “Volume, Volatility, Price, and Profit When All Traders Are above Average”, Journal of Finance, 53, 1887-1934. ODEAN, T. 1999. “Do investors trade too much?”, American Economic Review, 1279-1298. POSHAKWALE, S. 1996. “Evidence on weak form efficiency and day of the week effect in the Indian stock market”, Finance India, 10(3), 605-616. STATMAN, M. 2011. “Efficient markets in crisis”, Journal of Investment Management, 9, 4-13.