STOCK CHARACTERISTICS HERDED BY FOREIGN INVESTORS WITH HIGHER ABNORMAL RETURNS IN THE TAIWAN STOCK MARKET

Hao Fang (), Yang-Cheng Lu, Hwey-Yun Yau () and Yen-Hsien Lee ()
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Hao Fang: Department of Assets and Property Management, Hwa Hsia Institute of Technology, Taipei, Taiwan 23568, R.O.C.
Yang-Cheng Lu: Department of Finance at Ming Chuan University, Taipei, Taiwan
Hwey-Yun Yau: Department of Accounting and Information at National Taipei College of Business, Taipei
Yen-Hsien Lee: Department of Finance at Chung Yuan Christian University, Chung Li, Taiwan

Journal for Economic Forecasting, 2013, issue 4, 232-245

Abstract: This paper analyses the types of stocks herded by foreign institutional investors (FIIs) with higher positive abnormal returns in the emerging stock markets. Using a panel smooth transition regression (PSTR) model, we demonstrate that the positive price impact of the herd buying patterns of FIIs in Taiwan depends on preferences for higher-turnover stocks, and larger-size stocks. Furthermore, the price impact of FIIs herd buying behavior influenced by stock characteristics is different during bullish and bearish periods. Investors in the emerging market can follow FIIs and purchase stocks that the latter have overbought to improve the portfolio performance.

Keywords: price impact; herding; stock characteristics; FIIs; PSTR (search for similar items in EconPapers)
JEL-codes: C21 G11 G14 G21 (search for similar items in EconPapers)
Date: 2013
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