earticle

영어

This study extends Sias (2004) and Wylie (2005) to examine whether herding exists among foreign institutional investors (FIIs), what is the cause of their herding, and whether their herding is stable across both bullish or bearish periods or institutional types in the Taiwan stock market. By testing the cross-sectional dependence in the FIIs’ demand for stocks in two adjacent months and decomposing them into their own cascades and other cascades, we demonstrate that the FIIs’ cascades mainly result from their herding for securities traded at medium to high frequency even though their own cascades still exist. We find little evidence that FIIs’ herding behavior is driven by habit investing in stocks which FIIs trade with at least medium to high frequency. The momentum trading of FIIs is found to account for little of their herding, and the obviously positive relationship between the FIIs’ demand and their lag demand changes little, even with their momentum trading being taken into consideration. Moreover, FIIs are more likely to herd in large capitalization securities, and thus investigative herding, rather than informational cascades, is the main reason for herding among FIIs in the Taiwan stock market, contrary to the result put forward by Sias (2004) and Wylie (2005). One of our contributions may be to find that the phenomenon that FIIs’ cascades mainly result from their herding does not change in the bullish and bearish Taiwan stock market. However, since FIIs are more likely to herd in large-capitalization securities, their herding will obviously increase (decline) when they herd in large-capitalization (small-capitalization) stocks in the bullish (bearish) stock market period. This study further finds that FIIs and dealers are more likely to follow similar-type institutions than different-type institutions, respectively, which is consistent with the view proposed by Del Guercio (1996) and Bennett, Sias and Starks (2003) that institutional herding is driven by reputational or characteristic herding. Security dealers in Taiwan will tend more often to follow same-type herding while FIIs will more often negatively follow different-type herding, which implies that, contrary to FIIs, security dealers will exhibit the strongest tendency to herd especially in same-type institutions possibly due to reputation concerns, which is consistent with the view of investigative and reputational herding put forward by Sias (2004) and Wylie (2005).