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Herd Behavior in BIST: An Application on Individual Stock Investors

Year 2013, Volume: 2 Issue: 2, 28 - 42, 01.06.2013

Suleyman Ic Burak Kahyaoglu

Abstract

The aim of this study is to examine the presence of herd behavior in BIST during the term of 2009-2011. For the first time, data of real investors are employed in testing the presence of herd behavior. Secondary data obtained from the point of surveys carried out in previous works or profits of stocks are used. In line with the objectives of the study, the relations between transaction volume of 100 domestic individual stock investor making transactions during the term of 04.01.2009-31.12.2011 and BIST’s whole transaction volume are investigated. In the second part of the study, the relations between the transaction volume of individual investors and transaction volumes of domestic and foreign investors are investigated. Subsequently, the differences in terms of the level of indicating herd behavior according to socio-economic and demographic factors of the investors are investigated. As a result of Univariate and Multivariate Regression Analyses, findings pertaining to the presence of herd behavior in terms of individual investors in BİST are obtained. Furthermore, it has been seen that a set of socio-economic and demographic factors are influential upon the level of indicating herd behavior.

Keywords

Herd behaviour behavioural finance decision making under uncertainty.

References

  • Alevy, J.E., Haigh, M.S. & List, J.A. (2003). Information Cascades with Financial Market Professionals: An Experimental Study. Paper presented at the NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management. St. Louis, Missouri, April 21-22, 2003.
  • Altay, E. (2008). Herding in Shares Market: Analysis of Herding in line with Market in BİST, BDDK Banking and Financial Markets, 2(1).
  • Aronson, Eliot (1992), The Social Animal, W. H. Freeman and Company, New York
  • Ash, S. E. (1951), “Effects of Group Pressure Upon the Modification and Distortion of Judgments”, Experiencing Social Psychology: Reading and Projects. McGraw-Hill International Editions: 119-124.
  • Bajtelsmit, V. L. (1999). Evidence of Risk Aversion in the Health and Retirement Study. March 1, 1Banerjee, A. (1992). A Simple Model for Herd Behavior, Quarterly Journal of Economics,107: 797-8
  • Bikhchandani, S., D. Hirshleifer and I. Welch (1998), Learning From the Behavior Of Others: Conformity, Fads, And Informational Cascades, Journal Of Economic Perspectives (12-3), 1511
  • Bikhchandi, S. and Sharma, S. (2000). Herd Behavior in Financial Markets: A Review, working paper.
  • Bikhchandi, S. and Sharma, S. (2001). Herd Behavior in Financial Markets, working paper, http://www.imf.org/External/ Pubs/FT/staffp/2001/01/pdf/bikhchan. pdf, IMF Staff Papers, 47.
  • Borensztein, E. R. &Gelos, R. G. (2000).A Panic-Prone Pack?The Behavior of Emerging Market Mutual Funds.IMF Working Paper.
  • Brunnermeier, M.K. (2001). Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis and Herding, Oxford University Press Inc., New York.
  • Bulow, J., Geankoplos, J. ve Klemperer, P. (1985). Multimarket Oligopoly: Strategic Substitutes and Complements, Journal of Political Economy,93 (3):488-511.
  • Ceyhan, G. (2008). An Application on Effects of Living Styles on Financial Risk Tolerance (Unpublished Thesis of Master’s Degree).Hacettepe University / Institute of Social Sciences, Ankara.
  • Chang, E. C. , Cheng, J. W. ve Khorana, A. (2000), An Examination of Herd Behavior in Equity Markets: An International Perspective, Journal of Banking and Finance, 24:1651-1679.
  • Choe, H., Kho, B.C. and Stulz, R.M. (1999). Do Foreign Investors Destabilize Stock Markets? The Korean Experience in 1997, Journal of Financial Economics, 54:227-264.
  • Christie, W.G..and Huang, R.D. (1995). Following the Pied Piper: Do Individual Returns Herd Around the Market?, Financial Analysts Journal, July-August: 31-37.
  • Çoban, A.T. (2009). Testing Herding in BİST.Unpublished Thesis of Master’s Degree.Çukurova University, Institute of Social Sciences, Adana.
  • Dassiou, X. (1999). The Impact of Signal Dependence and Own Ability Awereness on Herding Behaviour: A Tale of Two Managers, Managerial and Decision Economics, 20:379-395.
  • Decamps, J. P. ve, Stefano Lovo (2002), “Risk Aversion and Herd Behaviour in Financial Markets”, http://ssrn. com.
  • Demirer, R., Gubo, D. &Kutan, A.M. (2007). An Analysis of Cross- Country Herd Behavior in Stock Markets: A Regional Perspective. Downloaded Date: 14.01.2013, www:web:https://netfiles. uiuc.edu/skarimi2/www/MEEA/Paper%20by%20Demirer%20&%20 Gubo%20&%20Kutan.pdf
  • Devenow, A. ve Welch, I. (1996). Rational Herding in Financial Markets, European Economic Review, 40:603-615.
  • Doğukanlı, H. and BahadırErgün (2011), Herding in BİST: A Research on Cross-Sectional Base, Journal of Management Faculty, Volume 12, Number 2, 227-242.
  • Doğukanlı, H., Önal, Y.B. (2000). Research on Factors Affecting Profile of Shares Profile and Decisions for Investments in Shares in Adana’’.Çukurova University, Journal of Social Sciences Institute. 6 (6), 185-209.
  • Doğukanlı, Haticeve Y.B. Önal (2000), ‘‘Research on Factors Affecting Profile of Shares Profile and Decisions for Investments in Shares in Adana’’, Çukurova University, Journal of Social Sciences Institute, Volume 6, Issue 6, p.185-209.
  • DÖM, Serpil (2003), Psychology of Investors, Değişim Publications, 1 st Edition, İstanbul.
  • Ede, Müjdat (2007), An Empirical Application on Behavioral Finance and Individual Investors, Unpublished Thesis of Master’s Degree, Marmara University, Institute of Banking and Insurance. Emektar, B. (2007). Motivations Determining the Behaviors of Individual Investors in Shares Market and An Application in BİST. (Unpublished Thesis of Master’s Degree).Kocaeli University / Institute of Social Sciences, Kocaeli.
  • Grable, J. E., Joo, S.H. (2000). A Cross-Disciplinary Examination of Financial Risk Tolerance. Consumer Interests Annual, 46, 1-7.
  • Grable, J. E., Joo, S.H. (2004). Environmental and BiopsychosocialFactors Associated with Financial Risk Tolerance. Financial Counseling and Planning, 15 (1), 73-82.
  • Grable, J. E., Lytton, R.H. (1998). Investor Risk Tolerance: Testing the Efficacy of Demographics as Differentiating and Classifying Factors. Financial Counseling and Planning, 9 (1), 61-73.
  • Grable, J. E., Lytton, R.H. (1998). Investor Risk Tolerance: Testing the Efficacy of Demographics as Differentiating and Classifying Factors. Financial Counseling and Planning, 9 (1), 61-73.
  • Grable, J. E., Lytton, R.H. (1999). Assessing Financial Risk Tolerance: Do Demographic, Socioeconomic and Attitudinal Factors Work?. Family Relations and Human Development /Family Economics and Resource Management Biennial, 1-9.
  • Graham, J.R. (1999). Herding among Investment Newsletters: Theory and Evidence, Journal of Finance, 54: 237-268.
  • Grinblatt, M., S Titman ve R. Wermers (1995), “Momentum Investment Strategies, Portfolio Performance and Herding: A Study of Mutual Fund Behaviour”, The American Economic Review(85, 5): 1089-1105.
  • Hawley, C. B., Fujii, E.T. (1993). An Empirical Analysis of Preferences for Financial Risk: Further Evidence on the Friedman-Savage Model. Journal of Post Keynesian Economics, 16 (2), 197-204
  • Jianakoplos, N. A., Bernasek, A. (1998). Are Women More Risk Averse?.Economic Inquiry, 36, October, 620-630.
  • Kayalıdere, K. (2012). “Herding in Shares Market: An Empirical Examination in BİST’, Management Researches Journal, 4 (4): 77-94.
  • KEYNES, J.M. (2008), Employment, Interest Rate and General Theory of Money, Trans. Uğur Selçuk Akalın, 1.Edition, Kalkedon Publishing, İstanbul.
  • Küçüksille, E. (2004). Behavioral Approach to Formation of Optimal Portfolio.(Unpublished Thesis of Master’s Degree), SüleymanDemirel University / Institute of Social Sciences, Isparta.
  • Lakonishok, J., Shleifer, A. &Vishny, R.W. (1992).The Impact of Institutional Tradaing on Stock Prices. Journal of Financial Economics, 32, 23-43.
  • Park, A. veSabourian, H. (2006). Herd Behavior in Efficient Financial Markets, working paper, http://131.111.165.101/faculty/sabourian/resversion141206.pdf, (Access Date: 18.03.2013 ).
  • Peterson, R. L. (2012). Moment of Decision: Power of Wisdom on Money. Scala Publishing 1 st Edition, İstanbul.
  • Prendergast, C. ve Stole, L. (1996). Impetuous Youngters and Jaded Old-Timers: Acquiring a Reputation for Learning, Journal of Political Economy, 104 (6): 1105-1134.
  • Saraç, Mehmet; M. BurakKahyaoğlu (2011) “Analysis of Socio-Economic and Demographic Factors Affecting the Tendency of Individual Investors to Take Risks,’’ BDDK Banking and Financial Markets Journal, Volume 5, Number 2, p. 135-157.
  • Scharfstein, D. ve Stein, J. (1990). Herd Behavior and Investment, American Economic Review, 80: 465-479.
  • Trueman, B. (1994). Analyst Forecast and Herding Behavior, Review of Financial Studies, 7: 971
  • Yao, R., Hanna, S.D. (2005). The Effect of Gender and Marital Status on Financial Risk Tolerance.Journal of Personal Finance, 4, (1), 66 85.
  • Zweibel, J. (1995). “Corporate Conservatism and Relative Compensation”, Journal of Political Economy, 103 (1): 1-25.

Year 2013, Volume: 2 Issue: 2, 28 - 42, 01.06.2013

Suleyman Ic Burak Kahyaoglu

Abstract

References

  • Alevy, J.E., Haigh, M.S. & List, J.A. (2003). Information Cascades with Financial Market Professionals: An Experimental Study. Paper presented at the NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management. St. Louis, Missouri, April 21-22, 2003.
  • Altay, E. (2008). Herding in Shares Market: Analysis of Herding in line with Market in BİST, BDDK Banking and Financial Markets, 2(1).
  • Aronson, Eliot (1992), The Social Animal, W. H. Freeman and Company, New York
  • Ash, S. E. (1951), “Effects of Group Pressure Upon the Modification and Distortion of Judgments”, Experiencing Social Psychology: Reading and Projects. McGraw-Hill International Editions: 119-124.
  • Bajtelsmit, V. L. (1999). Evidence of Risk Aversion in the Health and Retirement Study. March 1, 1Banerjee, A. (1992). A Simple Model for Herd Behavior, Quarterly Journal of Economics,107: 797-8
  • Bikhchandani, S., D. Hirshleifer and I. Welch (1998), Learning From the Behavior Of Others: Conformity, Fads, And Informational Cascades, Journal Of Economic Perspectives (12-3), 1511
  • Bikhchandi, S. and Sharma, S. (2000). Herd Behavior in Financial Markets: A Review, working paper.
  • Bikhchandi, S. and Sharma, S. (2001). Herd Behavior in Financial Markets, working paper, http://www.imf.org/External/ Pubs/FT/staffp/2001/01/pdf/bikhchan. pdf, IMF Staff Papers, 47.
  • Borensztein, E. R. &Gelos, R. G. (2000).A Panic-Prone Pack?The Behavior of Emerging Market Mutual Funds.IMF Working Paper.
  • Brunnermeier, M.K. (2001). Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis and Herding, Oxford University Press Inc., New York.
  • Bulow, J., Geankoplos, J. ve Klemperer, P. (1985). Multimarket Oligopoly: Strategic Substitutes and Complements, Journal of Political Economy,93 (3):488-511.
  • Ceyhan, G. (2008). An Application on Effects of Living Styles on Financial Risk Tolerance (Unpublished Thesis of Master’s Degree).Hacettepe University / Institute of Social Sciences, Ankara.
  • Chang, E. C. , Cheng, J. W. ve Khorana, A. (2000), An Examination of Herd Behavior in Equity Markets: An International Perspective, Journal of Banking and Finance, 24:1651-1679.
  • Choe, H., Kho, B.C. and Stulz, R.M. (1999). Do Foreign Investors Destabilize Stock Markets? The Korean Experience in 1997, Journal of Financial Economics, 54:227-264.
  • Christie, W.G..and Huang, R.D. (1995). Following the Pied Piper: Do Individual Returns Herd Around the Market?, Financial Analysts Journal, July-August: 31-37.
  • Çoban, A.T. (2009). Testing Herding in BİST.Unpublished Thesis of Master’s Degree.Çukurova University, Institute of Social Sciences, Adana.
  • Dassiou, X. (1999). The Impact of Signal Dependence and Own Ability Awereness on Herding Behaviour: A Tale of Two Managers, Managerial and Decision Economics, 20:379-395.
  • Decamps, J. P. ve, Stefano Lovo (2002), “Risk Aversion and Herd Behaviour in Financial Markets”, http://ssrn. com.
  • Demirer, R., Gubo, D. &Kutan, A.M. (2007). An Analysis of Cross- Country Herd Behavior in Stock Markets: A Regional Perspective. Downloaded Date: 14.01.2013, www:web:https://netfiles. uiuc.edu/skarimi2/www/MEEA/Paper%20by%20Demirer%20&%20 Gubo%20&%20Kutan.pdf
  • Devenow, A. ve Welch, I. (1996). Rational Herding in Financial Markets, European Economic Review, 40:603-615.
  • Doğukanlı, H. and BahadırErgün (2011), Herding in BİST: A Research on Cross-Sectional Base, Journal of Management Faculty, Volume 12, Number 2, 227-242.
  • Doğukanlı, H., Önal, Y.B. (2000). Research on Factors Affecting Profile of Shares Profile and Decisions for Investments in Shares in Adana’’.Çukurova University, Journal of Social Sciences Institute. 6 (6), 185-209.
  • Doğukanlı, Haticeve Y.B. Önal (2000), ‘‘Research on Factors Affecting Profile of Shares Profile and Decisions for Investments in Shares in Adana’’, Çukurova University, Journal of Social Sciences Institute, Volume 6, Issue 6, p.185-209.
  • DÖM, Serpil (2003), Psychology of Investors, Değişim Publications, 1 st Edition, İstanbul.
  • Ede, Müjdat (2007), An Empirical Application on Behavioral Finance and Individual Investors, Unpublished Thesis of Master’s Degree, Marmara University, Institute of Banking and Insurance. Emektar, B. (2007). Motivations Determining the Behaviors of Individual Investors in Shares Market and An Application in BİST. (Unpublished Thesis of Master’s Degree).Kocaeli University / Institute of Social Sciences, Kocaeli.
  • Grable, J. E., Joo, S.H. (2000). A Cross-Disciplinary Examination of Financial Risk Tolerance. Consumer Interests Annual, 46, 1-7.
  • Grable, J. E., Joo, S.H. (2004). Environmental and BiopsychosocialFactors Associated with Financial Risk Tolerance. Financial Counseling and Planning, 15 (1), 73-82.
  • Grable, J. E., Lytton, R.H. (1998). Investor Risk Tolerance: Testing the Efficacy of Demographics as Differentiating and Classifying Factors. Financial Counseling and Planning, 9 (1), 61-73.
  • Grable, J. E., Lytton, R.H. (1998). Investor Risk Tolerance: Testing the Efficacy of Demographics as Differentiating and Classifying Factors. Financial Counseling and Planning, 9 (1), 61-73.
  • Grable, J. E., Lytton, R.H. (1999). Assessing Financial Risk Tolerance: Do Demographic, Socioeconomic and Attitudinal Factors Work?. Family Relations and Human Development /Family Economics and Resource Management Biennial, 1-9.
  • Graham, J.R. (1999). Herding among Investment Newsletters: Theory and Evidence, Journal of Finance, 54: 237-268.
  • Grinblatt, M., S Titman ve R. Wermers (1995), “Momentum Investment Strategies, Portfolio Performance and Herding: A Study of Mutual Fund Behaviour”, The American Economic Review(85, 5): 1089-1105.
  • Hawley, C. B., Fujii, E.T. (1993). An Empirical Analysis of Preferences for Financial Risk: Further Evidence on the Friedman-Savage Model. Journal of Post Keynesian Economics, 16 (2), 197-204
  • Jianakoplos, N. A., Bernasek, A. (1998). Are Women More Risk Averse?.Economic Inquiry, 36, October, 620-630.
  • Kayalıdere, K. (2012). “Herding in Shares Market: An Empirical Examination in BİST’, Management Researches Journal, 4 (4): 77-94.
  • KEYNES, J.M. (2008), Employment, Interest Rate and General Theory of Money, Trans. Uğur Selçuk Akalın, 1.Edition, Kalkedon Publishing, İstanbul.
  • Küçüksille, E. (2004). Behavioral Approach to Formation of Optimal Portfolio.(Unpublished Thesis of Master’s Degree), SüleymanDemirel University / Institute of Social Sciences, Isparta.
  • Lakonishok, J., Shleifer, A. &Vishny, R.W. (1992).The Impact of Institutional Tradaing on Stock Prices. Journal of Financial Economics, 32, 23-43.
  • Park, A. veSabourian, H. (2006). Herd Behavior in Efficient Financial Markets, working paper, http://131.111.165.101/faculty/sabourian/resversion141206.pdf, (Access Date: 18.03.2013 ).
  • Peterson, R. L. (2012). Moment of Decision: Power of Wisdom on Money. Scala Publishing 1 st Edition, İstanbul.
  • Prendergast, C. ve Stole, L. (1996). Impetuous Youngters and Jaded Old-Timers: Acquiring a Reputation for Learning, Journal of Political Economy, 104 (6): 1105-1134.
  • Saraç, Mehmet; M. BurakKahyaoğlu (2011) “Analysis of Socio-Economic and Demographic Factors Affecting the Tendency of Individual Investors to Take Risks,’’ BDDK Banking and Financial Markets Journal, Volume 5, Number 2, p. 135-157.
  • Scharfstein, D. ve Stein, J. (1990). Herd Behavior and Investment, American Economic Review, 80: 465-479.
  • Trueman, B. (1994). Analyst Forecast and Herding Behavior, Review of Financial Studies, 7: 971
  • Yao, R., Hanna, S.D. (2005). The Effect of Gender and Marital Status on Financial Risk Tolerance.Journal of Personal Finance, 4, (1), 66 85.
  • Zweibel, J. (1995). “Corporate Conservatism and Relative Compensation”, Journal of Political Economy, 103 (1): 1-25.
There are 46 citations in total.

Details

Journal Section Articles
Authors

Suleyman Ic This is me

Burak Kahyaoglu This is me

Publication Date June 1, 2013
Published in Issue Year 2013 Volume: 2 Issue: 2

Cite

APA Ic, S., & Kahyaoglu, B. (2013). Herd Behavior in BIST: An Application on Individual Stock Investors. Journal of Business Economics and Finance, 2(2), 28-42.

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