Herd Behavior and its Effects on the Purchasing Behavior of Investors

Abstract Starting in the 1980s, financial liberalization and technological developments have enabled individual investors to participate in financial markets and carry out easy transactions. With these developments, academics began to wonder how the individual investors decide to invest and what factors affect these decisions. According to traditional finance theory, it is suggested that markets are efficient and investors show rational behaviors in their financial purchasing decisions. However, in many studies conducted in recent years, it was determined that investors included emotional elements as well as rational elements in their decision-making process and therefore exhibited irrational behaviors by believing rumors instead of real information. It is thought that many factors such as personal characteristics, psychological factors, demographic and socio-economic factors play a role in the behavior of investors in purchasing a financial product. In this study, the importance of herd behavior, which is one of the psychological factors that play a very important role in financial markets, on financial product purchasing process is examined in the light of the behavioral finance theory. It is thought that information included in the study will be useful for researchers who want to study herd behavior and for those who are interested in the subject.