Modeling Herding Behavior in the Indonesian Capital Market

Abstract

Herding behavior generally occurs in developing markets and emerging markets. The condition of a capital market in a bullish or bearish state coupled with information asymmetry between investors will cause an increase in herding behavior phenomena. The phenomenon of herding behavior occurs when investors follow a crowd's behavior at a certain period and ignore their beliefs. Herding behavior explains the tendency of investor behavior to follow the behavior of other investors in the capital market. The study aims to analyze the herding behavior in the general, bearish, and bullish market conditions in the Indonesian capital market for the 2021- 2022 period. This research is quantitative research based on the formulation of the problem. This research is classified as associative research. The data used is secondary data in the form of monthly data from LQ45 for 2021-2022. The analysis was carried out in two stages: 1) crosssectional absolute deviation (CSAD) was used to determine to herd. 2) Multiple linear regression analysis with three market conditions: general, bearish, and bullish. The results showed that the general market and bearish market conditions explained the herding behavior in the Indonesian capital market for the 2021-2022 period, while for bullish market conditions, there was no herding behavior in the Indonesian capital market for the 2021-2022 period. Investors should still conduct fundamental and technical analysis before making investment decisions during bullish and bearish market conditions in the Indonesian capital market.