How herding led to a speculative bubble during a period of severely negative macro fundamentals: the case of Istanbul stock market

Umit Erol and Burak Dogan ()
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Umit Erol: Bahcesehir University
Burak Dogan: Bahcesehir University

Eurasian Economic Review, 2024, vol. 14, issue 2, No 6, 395 pages

Abstract: Abstract A significant bullish trend began in the Istanbul Stock Exchange (ISE) by March 2020, causing a five-fold rise in the BIST-30 index despite negative Macro Fundamentals. This surge seemed to contradict fundamental analysis, suggesting behavioral biases, notably herding, were influential. We investigated herding in the ISE, analyzing daily data from March 2, 2015, to September 8, 2022. Using methodologies like ordinary least squares (OLS), least squares (LS) with breakpoints, and quantile regression, we aimed to offset biases from outliers and structural data breaks. These methods revealed two distinct phases in the ISE. Pre-March 2020, no bullish trend or herding was evident. Post-March 2020, however, we observed a substantial bullish trend and herding, apparent across market conditions and all stock return dispersion quantiles. This suggests herding significantly influenced the speculative bubble, despite poor macro fundamentals and the severe Covid-19 pandemic impact post-March 11, 2020.

Keywords: Herding; Cross-sectional standard deviation of returns (CSSD); Cross-sectional absolute deviation of returns (CSAD); Quantile regression; Covid-19 pandemic; G14; G15; G12 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s40822-024-00267-x

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