EconPapers    
Economics at your fingertips  
 

DO INVESTORS MIMIC TRADING STRATEGIES OF FOREIGN INVESTORS OR THE MARKET: IMPLICATIONS FOR CAPITAL ASSET PRICING

W Chamil Senarathne and Wei Jianguo
Additional contact information
W Chamil Senarathne: Wuhan University of Technology, China
Wei Jianguo: Wuhan University of Technology, China

Studies in Business and Economics, 2018, vol. 13, issue 3, 171-205

Abstract: This paper examines the presence of herding on foreign trading at individual stock level and portfolio level in the Colombo Stock Exchange as a response to a long-standing trading belief that investors mimic the trading strategies of foreign investors. The standard CSAD framework of Chang et al (2000) is extended replacing return on market portfolio with return on market foreign portfolio holding in the model specification. The standard CSAD specification is also used to identify the presence of herding towards the market under high market volatility, bullish market condition, high trading and transaction volume, domestic and global market crisis and up and down market conditions. Except for the evidence on herding towards the market under bullish market condition at portfolio level, the regression results under other market conditions do not provide reasonable evidence for the presence of herding on foreign trading or herding towards the market on average. Further, taking CSAD as a proxy for heteroskedastic residuals following the framework of Banz (1981), the capital asset pricing model of Black (1972) is used to test the specification of CSAD. The findings suggest that the form of herding accounted for by CSAD is a manifestation of residual heteroskedasticity.

Keywords: Herding; Capital Asset Pricing; Cross Sectional Absolute Deviation; Foreign Portfolio Return; Market Efficiency (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://eccsf.ulbsibiu.ro/RePEc/blg/journl/13312senarathne.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:blg:journl:v:13:y:2018:i:3:p:171-205

Access Statistics for this article

More articles in Studies in Business and Economics from Lucian Blaga University of Sibiu, Faculty of Economic Sciences Lucian Blaga University of Sibiu, Faculty of Economic Sciences Dumbravii Avenue, No 17, postal code 550324, Sibiu, Romania. Contact information at EDIRC.
Bibliographic data for series maintained by Mihaela Herciu ().

 
Page updated 2019-01-26
Handle: RePEc:blg:journl:v:13:y:2018:i:3:p:171-205