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This result of Belgacem and Lahiani also concordance with the study of Saeedi and
Chahardeh 2013 that the low uncertainty effect of public information can reduce the
herding behavior. The second reason of this study is using the
stock trading volume as it shows investor intention towards a certain stock. The
movement of stock trading volume in enterprise can be a guidance for investor
regarding market trends. According to Karpoff 1987, the stock trading volume is
positively related to the changing of price in stock exchange and stock price changing in
enterprise. The volume of stock trading is a signal information flow moves to market,
which comes from private information Bessembinder et al. 1996and the spreading
of information trust Chen et al. 2001. Al- Shboul 2012and Economou et al. 2010
examined
the asymmetry
of herding
behavior, that is created by the high volume of stock trading. If the volume of trading
stock increases, the herding behavior intensity decreases, due to the stock
exchange is more liquid. Based on the above explanation, this study is
important to be examined as it shows there is the herding behavior or not in Indonesia
stock exchange, with the entrance of SBI interest rate information and fluctuation of
stock trading volume. The result of this study provides more insight knowledge of
finance especially the finance behavior as the factor behavior is a phenomenon that is
difficult to be anticipated. The presence of herding behavior due to the release of the
SBI interest rate and the movement of trading volume refers to government policy
regarding the importance of enterprise information and other formal information to
be released publicly.
2. THEORETICAL REVIEW
ANDHYPOTHESIS DEVELOPMENT
Theoretical Review
Fundamentals Factor of Macroeconomic
Fundamental factors of macroeconomic are greatlyaffecting performance ofa stock
market, particularlyinan
outlook of
companys profit. In their fund investment, investors
very dependon
the expectedearningsanddividend
paymentsin thefuture. Because the profit expectationand
dividend payments very rely on macro economic onditions, so investors perform
analysis on stage of a company’s macro
economic. The analysis of investors about several macro economic variable saffectst
heir investtment decision. With abilities of understanding and predicting direction of the
macro economic in the future, the investors can, of course, make profitable investment
decisions. Tandelilin 2001
summarized and
explained some
macroeconomic variables affecting investment in a country,
namely 1 Gross Domestic Product GDP. An increased GDP carries positive signals to
investors and a decreased GDP brings a negative signal to investors. The rise of GDP
indicates an increased purchasing power of consumers, thereby enhance demand for the
companys products; 2. An increased level of inflation provides a negative impact on
performance of capital markets, and vice versa. The high level of inflation can erode
corporate profits as a result of higher production costs and also, the high inflation
lowers purchasing power of people. If the increase of production cost is higher than the
increase of prices that a company can gain, profitability of the company will be reduced;
3. Other variable of macroeconomic bringing negative signal about stock price is
high interest rate. There is a close relationship between high level of inflation
and government policy of raising interest rate. The governmental policy is to curb
inflation. The raising of interest rates is to motivate investors to invest some of their
funds in savings and deposits with a hope of reducing amount of money circulated within
the public. However, this policy causes investors to draw their stocks investments
and move on investment of savings or deposits; 4. The strengthening of rupiah
against foreign currencies is a positive signal for an economy experiencing inflation. A
rise of one of macroeconomic variables, namely the exchange rate of rupiah against
foreign currencies, will lower importing cost of raw materials for production and also, it
will lower the applicable interest rate; 5. Budget deficit gives a positive impact on an
economy experiencing recession, because it
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can encourage consumption and government investment, thus increasing the demand for
the companys products. Conversely, the budget deficit brings a negative signal for an
economy experiencing inflation. This is because the budget deficit will increase the
amount
of circulated
money and
consequently it leads to inflation; 6. An increased private investment is a positive
signal to investors, because it can increase the gross domestic product, so that it
ultimately increases income of customer; 7. Deficit of trade balance and payments carry
a negative impact on performance of a company. Deficit of the balance must be
financed by attracting foreign capital, so that government makes policy of raising interest
rates. The interest rate is increased to attract interest of foreign investors to invest.
Stock TradingVolumeShares Turnover
Movement ofstock pricesis very influenced by informationor news. Notonly macro
economic news BI rate whichis releasedon a
scheduled basis
butalsoany news
information about stock split, dividend announcements, merger announcement as
well as other incidental event srelated to capital market and the economy as a whole
or information that is even just a rumor. Investors would do transactions leading to
stock turnover and it affects fluctuations of stock price. If agood signal is seen, investors
willbuy the stock, but ift he signal is negative,the investor will do the opposite.
This turn over could provide an explanation of the common signal-factor or uncertainty
of a countrys economy. In this study, the turnoveris definedas thenumber of shares
tradeddivided by thenumber of shares outstanding.
Variousstudies have been conducted related to the volume of trade of financial markets
including quoted from Lo and Wang 2000: 1.
Ying 1996; Epps and Epps 1976; Gallant, et al 1992; as well as Hiemstra
and Jones 1994 conducted researches on aggregate of trading activity by using
total number of shares traded on the NYSE as a measure of volume.
2. Smidt 1990; Le Baron 1992; Cambel,
et al 1993; and
1996 NYSE Fact Book
, conducted researches using the aggregate
turnover number of shares traded divided by the number of shares
outstanding as a measure of volume. 3.
Epps and Epps 1976; Lamoureux and Lastrapes 1990, 1994; and Danersen
1996 performed
researches on
individual share volume that is used to analyze
the relationship
between pricevolume and volatilityvolume.
4. Morse 1980; Bamber 1986, 1987;
Lakonishok and
Smidt 1986;
Richardson, et al 1986; and Stickel and Verrecchia 1994 conducted researches
on the effect of information events on trading activity by using company’s
turnover as a measure of volume. 5.
Yet another study of Tkac 1996 examined individually dollar volume
normalized by aggregate volume of dollar in market.
6. Conrad, et al 1994 conducted a study
using the total number of trades as a measure of trading activity.
7. Research of James and Edmister 1983
used the number of trading days per year as a measure of trading activity.
Research by Lo and Wang 2000 is used asa reference to explore turn over shock.
They examined implications of portfolio theory of the cross-sectional behavior of
volume of stock trading by using weekly data of individual stocks on the NYSE and
AMEX fromyear1962 to 1996. The research found strong evidence of two stockm arkets
two-fund separately and decomposed principal-components that urnover can be
estimate dasa good linear model.
Herding Behavior
The herding
behavioris behavior
ofinvestorsto sellor buy securities shares regardless of the underlying reasons for
investing. When the herding behavior is occurring, they make investment swithout
taking into account is ksan dreturns that they will get. Some of negative impacts of
herding behavior are investors may perform types of investments they do not understand
and take unnecessary risks. The model is used to detect the presence of herding
behavior is:
……… 1
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Given: CSAD tisa cross section alab solute deviation of timetand ,
m, t is return portfolio of market attimet.
According to Chang et al. 2000 if a
herding behavior is found in a market, a distribution of rate of return CSAD willin
crease lower than proportion of increase of the market return portfolio oreventhe
distribution of the return will decrease. It canbe seen from the model inequation1, if
value of the parameter
is negative and statistically significant, then there is an
indication of herding behavior in the stock market.
The herding behavior occurs when a market is not transparent i.e. when investors face
uncertainty source of public information and receive signal uncertainty about the future of
a company Kremer and Nautz 2012. Based on a thesis by Chandra 2012entitled
Measurement and Analysis of Herding Behavior In IPO of Shares in Indonesia
Stock Exchange, according to Chang et al 1999, gives four reasons why institutional
investors make transaction in the same direction. First, they processed the same
information as happened in an emerging market with limited micro information and
more focused on macro information. Second, they preferred stocks with common
traits, namely prudent, liquid, and better known. Third, managers had a tendency to
follow transactions steps carried out by other managers in order to maintain their
reputation. Fourth, the managers followed valuation of other managers. This strongly
suggests a possibility that the herding behavior of institutional investors is likely to
occur due to peer pressure among financial managers. Bikch andani and Sharma 2001
added that when investors have limited information, they will follow movement of
other investors in making investment decisions that will ultimately ignores their
own signal and follow decision of the majority herding behavior and form an
information cascade.
HYPOTHESIS DEVELOPMENT
Relationship of Macroeconomic Release Interest Rate SBIand Herding Behavior
Change of macroeconomic variable is an important indicator in making an investment
decision, especially for investors in stock exchange.
Change of
macroeconomic variables makes investors to correct again
their portfolio assessment and the will make a reallocation of some of their assets. It has
been a measure that macroeconomic variables, especially inflation and interest
rates, affect performance of individual companies. According to Tandelilin 2001
an increased level of inflation reduces the purchasing power of consumers so that it
will erode corporate profits. At other hand, a high interest rate will degrade performance
of the stock market because of transition from a stock investment to deposit
investment.Both variables are a major concern, but there variables are released
periodically
by government
so that
emergence of this news has been anticipated by investors Connolly and Stivers 2005;
Nikkinen and Sahlstrôm 2004; Jones et al. 1998. Based on study by Belgacem and
Lahiani 2013the presence of periodical release of macroeconomic news can reduce
intensity of herding behavior.The finding of Lahiani Belgacem research is also in line
with the study bySaeedi and Chahardeh 2013, they proved that effect of uncertainty
of information available if the information is public, then the herding behavior decreases.
Ha1: There is a negative effect to fmacro economic release on herding behavior
Relationship of Stock Trading Volume and Herding Behavior
Volume is the total number of shares traded in a certain period. The figures of volumes
are reported daily by a stock exchange, both individual emissions trading and the total
trading amount conducted in a stock exchange. The existence of a sharp rise of
the volume is believed to be a sign of a sharp increase or decrease of price, because
it reflects an increased interest of investors in a particular security or a given market
index. The volume is a proxy of information entry into the trading floor, so that an
increase or decrease of the trading volume of
a particular is a measurement of investors‘ interest in a stock. Information entered into
an exchange can vary, possibly due to
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corporate action information, issues or rumors developed. In conjunction with
herding behavior of investors, a trading volume of stock provides clues of investors’
interest in general, so the herd behavior will increase while the trading volume will
decrease. Investors make the herd behavior because they do not have certainty of
information or lack of understanding of movement of the variables affecting the
decisions of investors to invest.This is supported by research conducted by Al-
Shboul
2012and Economou
et al.
2010they tested the asymmetry herd behavior, in which the herding behavior is
created due to high volume of stock trading. If the herding behavior increases, stock
trading volume will decrease due to factor of mimicking
direction of
the market
movement so that excessive transaction will not occur as reflected in the increased
volume of stock trading.
Ha2: There is a negative effect of high trading volume on herding behavior
3. Research Method
