YOGYAKARTA-From Intraday data transactions during the period 2003-2005 in Indonesia Stock Exchange (IDX) it was found some 8.4% in intensity of institutional following The intensity of institutional following is not positively related to market volatility. In a stable market conditions, its intensity appears stronger. "It seems that institutional investors on Indonesia Stock Exchange are also like to follow trends. Mostly follow the strategy of positive-feedback and some others follow the strategy of negative-feedback. Behavior of institutional investors resembles the habit of a more informed agent," a lecturer at Faculty of Economics, University of Muhammadiyah Magelang (UMM), Setiyono, said while defending his dissertation entitled Following Behavior and Stock Market Efficiency in an open doctoral examination, Tuesday (17/1), at BRI Auditorium 3rd floor M.Si and Doctoral Program, Faculty of Economics and Business UGM.
Setiyono added as a merchant who resembles a more informed agent, institutional investor also gains an abnormal return exceeding the return received by non-institutional investors. Institutional trading does not actually cause the reversal of the price because the negative abnormal returns on stocks experiencing excess demand may be caused by lack of reaction given by noise traders. "This situation is soon lost when the demand for institutional investors (more informed) is higher," said the man born in Boyolali on October 7, 1966.
Setiyono said that following behavior in the stock market actually resembles mass behavior. It is similar to the long lines of people when buying fuels, which tends to be based on panic sentiment when it is reported there is a decline in fuel supply. In his dissertation, Setiyono also explained the role of rational social learning, level of market efficiency can be increased with the intensity of higher following.
Market condition does not moderate the relationship between following and efficiency, but serves as a predictor of the level of market efficiency. Level of market efficiency will decrease if market conditions are more volatile and market efficiency increase at a time is highly dependent on the level of efficiency in the past. "This positive relationship of following efficiency will be strengthened if block trade is greater or initiated by buyers," Setiyono said.
So far, there are people who view that following behavior is irrational and dubious of optimality pricing decisions generated through this behavior. However, those who look rationally recognize that this behavior can provide informational externalities for market participants, in addition to payoff externalities and reputation, thus improving market efficiency.
Level of market efficiency will decrease when market volatility rises and efficiency increase of the market now will also depend on the level of previous periods of market efficiency. In addition, the positive effect of following existence on the efficiency will also rise on condition there is a large block trades or block initiated buyer. "Therefore, the result of this study provides a general view that the institutional following behavior is rational for reasons of informational externalities," Setiyono said.
After defending his dissertation, Setiyono was stated by board of examiners as passing with honors. Presenting as examiners in the test team were Prof. Marwan Asri, M.B.A., Ph.D., Prof. Dr. Eduardus Tandelilin, M.B.A., Prof. Jogiyanto Hartono, M.B.A., Dr. Mamduh M. Hanafi, M.B.A., Dr. Suad Husnan, M.B.A., Prof. Dr. Sukmawati Sukamulya, M.M., and Dr. Erni Ekawati, M.B.A., M.S.A.