Investor herding during financial crisis: A clinical study of the Jakarta Stock Exchange

Abstract

Jakarta Stock Exchange (JSX) data is used to analyse the investment patterns of foreign and domestic investors for evidence of herding and positive feedback trading before, during, and after the 1997 Asian crisis. Results indicate that both investor classes herd, foreigners herd more than locals, and foreign herding increases following the onset of the crisis. Domestic herding does not increase during the crisis, and has diminished subsequently. Domestic herding appears positively related to firm size, but there is very little evidence of size-conditioned foreign herding. There is no evidence of positive feedback trading among either class of investor, either at the market or the individual stock level. Overall, the evidence suggests that investor behaviour was not inherently destabilizing and positive feedback trading did not exacerbate stock market movements in Indonesia at the time of the 1997 Asian crisis.