Herding Behavior in the Indonesian Stock Exchange: The Roles and Contributions of Foreign Investors During the Period 2006 to 2011

Abstract

ABSTRACT Domestic investors in the Indonesian capital market (IDX) tend to be very dependent on the behavior of foreign investors. It is assumed that most of the domestic investors in the IDX are like this, caused by an axiom that the bargaining position of foreign investors is stronger than that of the domestic investors and those of other emerging markets. This study tries to investigate whether the herding behavior exists and whether the assumption that foreign investors have caused instability is true or just a myth during the period 2006-2011.There are three objectives of the study: 1) To prove whether the conduct of domestic investors’ herding behavior in the IDX exists, 2) To prove whether the trading of foreign investors causes the herding behavior and 3) To prove whether the interaction between foreign and domestic investors affect the stock volatility. Using the data from 2006 to 2011, it is found that herding behavior in the IDX exists; moreover, by using VAR analysis, it also indicates that the occurrence of herding behavior is caused by negative feedback trading from foreign investors. The volatility analysis using Parkinson and Garman-Klass methods found the stock volatilities in the IDX increased, caused by the interaction of foreign and domestic investors. Keywords: Herding behavior; foreign investors; domestic investors; market volatility; IDX (Indonesian Stock Exchange) ABSTRAK Pelabur tempatan dalam pasaran modal Indonesia (IDX) adalah sangat bergantung dengan gelagat pelabur asing. Adalah diandaikan, kebanyakan pelabur tempatan dalam Bursa Saham Indonesia (IDX) bersikap begini disebabkan kepercayaan bahawa kedudukan tawar-menawar pelabur asing adalah lebih kuat berbanding pelabur tempatan terutamanya di pasaran yang sedang membangun. Kajian ini cuba menyiasat sama ada gelagat “herding” wujud dan sama ada andaian bahawa gelagat pelabur asing menimbulkan ketidakstabilan adalah benar atau hanya anggapan dalam tempoh 2006 – 2011. Kajian ini mempunyai tiga objektif: 1) Untuk membuktikan bahawa gelagat “herding” di kalangan pelabur tempatan dalam IDX benar-benar wujud; 2)Untuk membuktikan sama ada urus niaga melibatkan pelabur asing menyebabkan gelagat “herding” dan 3)untuk mengenal pasti sama ada interaksi pelabur tempatan dan pelabur asing menyebabkan volatility pasaran saham. Menggunakan data dari tahun 2001 hingga 2011, adalah didapati gelagat “herding” wujud. Tambahan pula berdasarkan analisis VAR, berlakunya gelagat “herding” ini disebabkan oleh tindak balas negatif terhadap urus niaga pelabur asing. Analisis volatility menggunakan kaedah Parkinson dan Garman-Klass mendapati naik turun nilai saham dalam IDX meningkat disebabkan interaksi di antara pelabur asing dan pelabur tempatan. Kata kunci: Gelagat “herding; pelabur asing; pelabur tempatan; volatiliti pasaran; IDX (Bursa Saham Indonesia)