Two Essays on Herding

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TWO ESSAYS ON HERDING_v14_07022023.pdf

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2023-2

Author

Tekel, Onur

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This thesis examines the herding behavior within the banking and the mutual fund industries. It highlights the existence of herding, its potential reasons, and its effects on the industry dynamics. A review of the herding behavior literature is provided in the first chapter. In the second chapter, we analyze herding in lending decisions. Using loan data from 30 commercial banks, the presence of herding in cash credit lending decisions is investigated first, followed by the effects of herding on bank performance and loan quality. We further examine whether the worldwide liquidity increase that accompanied credit growth in the 2000s and the regulator's policy responses have an impact on banks' collective lending decisions. We show that herding has a considerable negative impact on bank profitability from 2002Q4 to 2012Q2, and there is insufficient evidence to support a link between loan herding and credit risk. We document that a significant portion of the variance in herding behavior is explained by the increase in global liquidity and corresponding macroprudential policy applications during the 2000s. In the third chapter, we investigate industry herding by mutual funds in Turkey and its effects on industry valuations. Using monthly portfolio holdings of 37 stock-weighted mutual funds traded in BIST, we employ herding measures of Lakonishok et al. (1992, hereafter LSV) and Sias (2004). We find significant industry herding with the LSV measure and no overall industry herding with the Sias measure. We also document that industry herding is not one of the factors that destabilizes industry return.

Subject Keywords

loan herding, mutual fund herding, macroprudential policies, industry values, global liquidity

URI

https://hdl.handle.net/11511/102017

Collections

Graduate School of Social Sciences, Thesis

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Citation Formats

O. Tekel, “Two Essays on Herding,” Ph.D. - Doctoral Program, Middle East Technical University, 2023.