The price impact of foreign institutional herding on large-size stocks in the Taiwan stock market

Lu, Yang-Cheng; Fang, Hao; Nieh, Chien-Chung

doi:10.1007/s11156-011-0244-1

Cited by 27 publications

(9 citation statements)

References 25 publications

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“…Herd behavior is found for foreign investors in national markets such as the Japanese market by Karolyi (2002), the Korean market by Choe et al (1999) and Jeon and Moffett (2010), and the Taiwanese market by Lu, Fang, and Nieh (2012). Despite the fact that foreign investors are positivefeedback investors, who trade in herd, Choe at al.…”

Section: Trading Strategies Herd Behavior and Market Destabilizationmentioning

confidence: 99%

Foreign Investors’ Abnormal Trading Behavior in the Time of COVID-19

Khanthavit¹

2020

JAFEB

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This study investigates the behavior of foreign investors in the Stock Exchange of Thailand (SET) in the time of coronavirus disease 2019 (COVID-19) as to whether trading is abnormal, what strategy is followed, whether herd behavior is present, and whether the actions destabilize the market. Foreign investors' trading behavior is measured by net buying volume divided by market capitalization, whereas the stock market behavior is measured by logged return on the SET index portfolio. The data are daily from Tuesday, August 28, 2018, to Monday, May 18, 2020. The study extends the conditional-regression model in an event-study framework and extracts the unobserved abnormal trading behavior using the Kalman filtering technique. It then applies vector autoregressions and impulse responses to test for the investors' chosen strategy, herd behavior, and market destabilization. The results show that foreign investors' abnormal trading volume is negative and significant. An analysis of the abnormal trading volume with stock returns reveals that foreign investors are not positive-feedback investors, but rather, they self-herd. Although foreign investors' abnormal trading does not destabilize the market, it induces stock-return volatility of a similar size to normal trade. The methodology is new; the findings are useful for researchers, local authorities, and investors.

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Section: Trading Strategies Herd Behavior and Market Destabilizationmentioning

confidence: 99%

Foreign Investors’ Abnormal Trading Behavior in the Time of COVID-19

Khanthavit¹

2020

JAFEB

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“…In view of the above motives underlying institutional herding, the possibility of fund managers imitating each other in their trades has been extensively researched during the past two decades with evidence from a large array of long-established developed and emerging markets -including the US (Li and Yung, 2004;Sias, 2004;Choi and Sias, 2009;Liao et al, 2011), Germany (Walter and Weber, 2006;Kremer and Nautz, 2013), South Korea (Choe et al, 1999;Kim and Wei, 2002a;2002b) and Taiwan (Hung et al, 2010;Lu et al, 2012) -suggesting that investment professionals exhibit significant mimicry in their trading behaviour. However, no evidence has as yet been reported regarding institutional herding for the specific subset of markets known as frontier markets, despite the increased attention they have been receiving recently from professional investors (De Groot et al, 2012).…”

Section: Institutional Herding and Its Motivationsmentioning

confidence: 99%

Do fund managers herd in frontier markets — and why?

Economou

Gavriilidis

Kallinterakis

et al. 2015

International Review of Financial Analysis

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Frontier markets constitute a category of markets for which very little is known regarding the behaviour of their institutional investors. This study attempts to shed light on this issue by investigating whether fund managers herd in frontier markets and whether their herding is intentional or not using data on quarterly portfolio holdings of funds from two such markets (Bulgaria and Montenegro). Results show that fund managers herd significantly in both markets; controlling for the interaction of their herding with different market states, we find that herding is stronger for both markets during periods of positive market performance and high volume, while in the case of Montenegro it also appears significant during periods of low volatility. Our findings are consistent with fund managers herding intentionally, in anticipation of informational and/or professional payoffs. We also find that Bulgarian (Montenegrin) fund managers herd significantly after (before) the outbreak of the 2008 global financial crisis and we attribute this to a volume-effect, since Montenegro (Bulgaria) saw the heaviest trading activity before (after) the crisis' outbreak.

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“…Moreover, the results of Stephanie Kremer and Dieter Nautz (2013) indicate that institutional buying herding significantly increases cumulative returns over the complete time horizon. Lu, Fang, and Nieh (2012) empirically find that the herding behaviour of foreign institutions positively affects stock prices in an emerging stock market. Chiang et al (2013) indicate that dynamic herding is positively related to stock returns and that the herding phenomenon across markets is positively correlated.…”

Section: Is Fund Managers' Herding Informational By Examining Their Pmentioning

confidence: 94%

The informational and non-informational compositions of UK fund managers’ dynamic herding in the stock market

Fang

Lee

2017

Panoeconomicus

Self Cite

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This paper examines whether UK fund managers engage in herding behaviour in the stock market using the dynamic herding measure, whether their herding behaviour is different during bullish and bearish periods, whether most of their herding is informational, which types of informational reasons act as the main drivers of their herding and whether there are non-informational drivers of their herding. Our results reveal that UK fund managers engage in significant herding behaviour and that this behaviour does not differ significantly from bullish to bearish stock markets. Moreover, we confirm that there are weak positive correlations between fund managers' herding and stock returns within the subsequent year, which indicates that their herding is mainly informational. To improve portfolio performance, other investors could follow UK fund managers and purchase stocks overbought by them with at least 15 traders quarterly in the following one-year period, particularly for growth-type, sectorspecific and international-type funds. Moreover, because they are more likely to herd in large-capitalisation securities, the informational reasons driving managers' herding behaviour are mainly related to investigative herding. We also find that growth-type and international-type funds are more likely to herd with similar-type funds. This finding may result from reputational and characteristic herding, which illustrates that non-informational reasons for managers' herding still exist.

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The price impact of foreign institutional herding on large-size stocks in the Taiwan stock market

Cited by 27 publications

References 25 publications

Foreign Investors’ Abnormal Trading Behavior in the Time of COVID-19

Foreign Investors’ Abnormal Trading Behavior in the Time of COVID-19

Do fund managers herd in frontier markets — and why?

The informational and non-informational compositions of UK fund managers’ dynamic herding in the stock market

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