HERDING BEHAVIOR IN THE INDONESIAN STOCK EXCHANGE: THE ROLES AND CONTRIBUTIONS OF FOREIGN INVESTORS DURING THE PERIOD 2006 TO 2011 (original) (raw)

Domestic investors in the Indonesian capital market (IDX) growing niche to be very depend on the behavior of foreign investors (Panggabean, 2006). It is assumed that most of the domestic investors in the IDX would have been doing this, by the caused by an axiom that the bargaining position of foreign investors is stronger than the domestic investors and other emerging markets [Chen (2001) and Wei, et al. (2009)]. This study try to investigate whether the herd behavior is exist and whether the assumption that the foreign investors have the market by the caused instability [Neal, et al. (2002) and Wang (2000)], is true or just a myth, during the period 2006-2011. There are three objectives of the study: 1) To prove whether the conduct domestic investors herding behavior in IDX 2) To prove whether the trading of foreign investors cause the herding behavior 3) To prove whether the foreign and domestic investors affect the stock volatility. Trading Using the data from 2006 to 2011 it is found the existence of herding behavior in IDX, and moreover using VAR analysis, it also indicates that the occurrence of herding behavior by the caused by negative feedback trading from foreign investors. The volatility analysis using Parkinson and Garman-Klass methods, found the stock volatilities in IDX increased by the caused by the interaction of foreign and domestic investors.

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