The Brokerage Firm Effect in Herding: Evidence from Indonesia

33 Pages Posted: 14 May 2007 Last revised: 9 Dec 2009

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Chunlin Liu

University of Nevada, Reno - College of Business

S. Ghon Rhee

University of Hawaii - Shidler College of Business; University of Hawaii - Department of Financial Economics and Institutions

I-Ming Chiu

Rutgers, The State University of New Jersey - Rutgers University, Camden

Date Written: 2009

Abstract

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

Agarwal, Sumit and Liu, Chunlin and Rhee, S. Ghon and Chiu, I-Ming, The Brokerage Firm Effect in Herding: Evidence from Indonesia (2009). Journal of Financial Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=986029

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Chunlin Liu (Contact Author)

University of Nevada, Reno - College of Business ( email )

University of Nevada, Reno
Reno, NV 89557-0016
United States

S. Ghon Rhee

University of Hawaii - Shidler College of Business ( email )

2404 Maile Way
C-304, FEI/CBA
Honolulu, HI 96822
United States

University of Hawaii - Department of Financial Economics and Institutions ( email )

United States

I-Ming Chiu

Rutgers, The State University of New Jersey - Rutgers University, Camden ( email )

Camden, NJ 08102
United States

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