Abstract:

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.

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