Trading Behavior of Foreign Vis a Vis Local Investors in The Indonesian Stock Market

Soemarso Slamet Rahardjo
(Submitted 28 April 2015)
(Published 28 April 2015)


This paper studies the behavior of foreign, local investors and total market in a stock trading. The analysis is focused on their implementation of positive feedback strategy, the existence of mean reverting process and their sensitivity toward expected capital gain and losses. The result reveals that both of these two investors apply the positive feedback strategy, at a different degree. The investment horizon of the foreign investors is shorter than the local investors. There is a mean reverting pattern in the price volatilities. The convergence period for local investor is 2.4. The market needs 1.8 month. No convergence period for foreign investors. The local investors and total market are neutral toward expected gain and losses. The foreign investors are more sensitive to capital loss. Previous price and volume changes have a leverage effect to the current demand of foreign investors. The local investors are affected by changes in price only.

Full Text: PDF

DOI: 10.22146/gamaijb.6149


Agenor, P-R. 2000. The Economics of Adjustment and Growth: 240-249. Academic Press.

Widarjono, A. 2007. Ekonometrika, Teori dan Aplikasi untuk Ekonomi dan Bisnis: 319-391. Ekonisia.

Aiyagari, S. R. 1988. Economic fluctuations without shock to fundamentals; or, does the stock market dance to its own music. Quarterly Review 12 (1) (Winter). Federal Reserve Bank of Minneapolis.

De Long, J. B., and A. Shleifer, L. H. Summers, and R. J. Waldmann. 1990a. Noise Trader Risk in Financial Market. Journal of Political Economy (98) (4) (December): 703–738.

De Long, J. B., and A. Shleifer, L. H. Summers, and R. J. Waldmann, 1990b. Positive Feedback Investment Strategies and Destabilizing Rational Speculation. The Journal of Finance (45) (2): 379–395.

De Long, J. B., A. Shleifer, L. H. Summers, and R. J. Waldmann. 1988. The Survival of Noise Traders in Financial Markets. The National Bureau of Economic Research.

Edenfield, A. K. 2003. Book review: Irrational exuberance’ Robert J. Shiller. Journal of Banking & Finance (27): 779–782.

Fama, E. 1970. Efficient capital market: A review of theory and empirical work. Journal of Finance (May): 383–417.

Fama, E, and R. F. Kenneth. 1988. Permanent and temporary components of stock price. The Journal of Political Economy (96) (2): 246–273.

Keynes , J. M. 1936. The General Theory of Employment, Interest and Money. UK: Palgrave Macmillan.

Malkiel, B. G. 1990. A Random Walk Down Wall Street. US: W.W Norton & Company.

Malkiel, B. G. 2010. Bubbles in asset prices. CEPS Working Paper (200): 1–21.

Picerno, J. 2010. Dynamic Asset allocation, Modern Portfolio Theory Updated for the Smart Investor. NY: Bloomberg Press.

Shiller, R. J. 1981. Do stock price move too much to be justified by subsequent changes in dividends?. The American Economic Review 71 (3) (June): 421-436.

Shiller, R. J. 2000. Irrational Exuberance. Princeton University Press.

Shiller, R. J. 2008. The Subprime Solution, How Today’s Global Financial Crisis Happened and What to Do about It. Princeton University Press.

Shleifer, A. 2000. Inefficient Market, an Introduction to Behavioral Finance. Oxford University Press.

Shleifer, A; and L. H. Summers. 1990. The noise trader approach to finance. Journal of Economic Perspectives (4) (2): 19–33.

Singleton, K. J. 2006. Empirical Dynamic Asset Pricing. Princeton University Press.

Rahardjo, S. R. 2012. The role of investor’s debt paying ability in the stock market crisis. Asia Pacific Journal of Accounting and Finance (2) (2) (June): 147–164.

Tirole, J. 1985. Asset bubbles and overlapping generations. Econometrica (53) (6): 1466–1528.

West, K. D. 1988. Bubbles, fads and stock price volatility tests: A partial evaluation. The Journal of Finance (XLIII) (3): 639–656.

Wu, G., and Z. Xiao. 2008. Are there speculative bubbles in stock markets? Evidence from an alternative approach. Statistics and Its Interface (1): 307–320.


  • There are currently no refbacks.

Copyright (c)