The Brokerage Firm Effect in Herding: Evidence from Indonesia

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 examining investor trading 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, we find evidence that the strong brokerage effect on herding is likely driven by acting on common information.

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