The Brokerage Firm Effect in Herding: Evidence from Indonesia
33 Pages Posted: 14 May 2007 Last revised: 9 Dec 2009
Date Written: 2009
We examine herding behavior of domestic and foreign investors in the Indonesian stock market. We document that both domestic and foreign investors from a particular brokerage firm tend to herd. The foreign investors exhibit a greater propensity to herd than domestic investors. However, when we examine trading of investors across brokerage firms, we find only weak evidence of herding by domestic investors and no herding by foreign investors. Our overall findings suggest a strong brokerage firm effect on herding but a weak market-wide effect. Moreover, there exists evidence to support that the strong brokerage effect on herding is likely driven by acting on common information.
Keywords: Herding behavior, Foreign Investor, Domestic investor, Emerging stock market, Brokerage firm
JEL Classification: G14, G15
Suggested Citation: Suggested Citation