Information Asymmetry And The Role Of Foreign Investors In Daily Transactions During The Crisis; A Study Of Herding In The Indonesian Stock Exchange

Abstract

<p>The purpose of this study is to prove that there was herding behavior by domestic investors following that of foreign investors in the Indonesian Capital Market (IDX) and that the herding was influenced by information asymmetry. It began when global investors undertook international diversification to the IDX because the returns on their portfolios were not on the efficient frontier during the crisis and because of the low correlation between Indonesia’s economy and the American and European economies. Utilizing the IDX daily transaction data during the years 2009-2011, the herding behavior of domestic investors, which followed that of foreign investors, was tested by Lakonishok models as was the influence of information asymmetry on the herding. It was found that the herding behavior in the IDX occurred in buy, sell or entire herdings (buy and sell). There were 0.40 to 0.55 buy herdings and 0.20 to 0.40 sell herdings during the crisis in 2008 and 2009. Buy herding then continued in 2010 onwards, although with lower intensity (0.05 to 0.20); however, sell herding decreased dramatically, and there has been almost no sell herding since then. Nevertheless, domestic investors did then sell in the opposite strategy, which was to sell when foreign investors tended to buy. Subsequent findings demonstrated that herding occurred with the influence of information asymmetry between domestic and foreign investors. </p>

Islamic index market sentiment: evidence from the ASEAN market

“…In other words, the magnitude effect of sentiment on the index is the same for good news and bad news. This finding is supported by the research of Baker et al (2012); Ramli et al (2016), Widhiarti et al (2018); and Rupande et al (2019). The authors argued that individual investor sentiment influences stock returns.…”

“…In the ASEAN front, using the excess returns of Indonesian stocks, Widhiarti et al (2018) confirmed the significant effect of investor sentiment on excess returns. Ramli et al (2016) found that herding occurs in the Indonesian stock exchange owing to information asymmetry between domestic and foreign investors. By using two separate models of macroeconomic and sentiment data, Rashid et al (2014) identified the impact of investor sentiment on the Malaysian Islamic index.…”

Interdependent Trading Behavior of Foreign and Local Investors: Evidence from the Colombo Stock Exchange

“…Accordingly, during a downturn period, homegrown financial investors can procure a superior return by putting resources into unfamiliar unfavoured stocks because of the low unsettling influence from unfamiliar financial investors. Ramli et al (2016), using the Indonesian Capital Market day by day exchange information during the years 2009-2011, analyzed the grouping conduct of homegrown financial investors, which followed that of unfamiliar financial investors by apply the Lakonishok models. They tracked down that the grouping conduct in the Indonesian Capital Market happened in both purchase exchanges and sell exchanges during 2008 and 2009.…”

Herding Behavior in Indonesian Investors

“…However, when they separated market turns, they found that herding behavior was asymmetric to them. They determined that herd behavior was significantly higher during market upturns.In Indonesia,Ramli, Agoes, & Setyawan (2016) studied herd behavior by observing domestic investors following foreign investors. This research categorized buy herding and sell herding to prove donation effect as mentioned by Testa (2012) Data were obtained from daily trade history from 2009…”