Causes and Impacts of Foreign and Domestic Institutional Investors’ Herding in the Taiwan Stock Market

Hao Fang, Yang-Cheng Lu, Hwey-Yun Yau and Yen-Hsien Lee

Emerging Markets Finance and Trade, 2017, vol. 53, issue 4, 727-745

Abstract: This study examines whether herding exists among foreign institutional investors (FIIs), what is the cause of their herding, and whether both foreign and domestic institutional investors are more likely to follow their similar types in the Taiwan stock market. By testing the cross-sectional dependence for FIIs’ stocks in two adjacent months, we demonstrate that the FIIs’ cascades mainly result from their herding. We find little evidence that FIIs’ herding behavior is driven by habit investing. The momentum trading of FIIs is found to account for little of their herding. Moreover, investigative herding, rather than informational cascades is the main reason for FIIs’ herding. One of our contributions may be to find that FIIs’ cascades mainly resulting from their herding does not change in the bullish and bearish Taiwan stock market. This study further finds that FIIs and dealers are more likely to follow similar-type institutions than different-type institutions, respectively.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:53:y:2017:i:4:p:727-745

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DOI: 10.1080/1540496X.2015.1103126

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