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Foreigners' perceptions of U.S. markets: Do foreigners exhibit herding tendencies?

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  • Lin, Anchor Y.
  • Swanson, Peggy E.

Abstract

This paper investigates the herding behaviors and investment performance of foreign investors in the U.S. market. Little evidence is found of foreigners' herding behavior within one time period. However, there is strong evidence that foreign investors follow their past behavior into and out of the U.S. market over adjacent months. Foreigners' buy-side behavior of buying U.S. equities as a group is positively related to past high returns in the U.S. market and this buy-side behavior leads to superior investment performance. Evidence shows that independent of whether the U.S. market is up or down, foreign investors continue to increase their holdings of U.S. equities and these purchasing activities result in superior performance. When the U.S. market experiences extreme ups and downs, foreigners are net purchasers one month before and after the market moves and, in general, they perform well.

Suggested Citation

  • Lin, Anchor Y. & Swanson, Peggy E., 2008. "Foreigners' perceptions of U.S. markets: Do foreigners exhibit herding tendencies?," Journal of Economics and Business, Elsevier, vol. 60(3), pages 179-203.
  • Handle: RePEc:eee:jebusi:v:60:y:2008:i:3:p:179-203
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    References listed on IDEAS

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    Cited by:

    1. Hagerman, Amy D. & Jin, Yanhong H., 2009. "The Buzz In The Pits: Livestock Futures' Response To A Rumor Of Foreign Animal Disease," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49493, Agricultural and Applied Economics Association.
    2. Mehmet Balcilar & Riza Demirer & Talat Ulussever, 2016. "Does speculation in the oil market drive investor herding in net exporting nations?," Working Papers 15-29, Eastern Mediterranean University, Department of Economics.
    3. Ashish Kumar Garg & Subrata Kumar Mitra & Dilip Kumar, 2016. "Do foreign institutional investors herd in emerging markets? A study of individual stocks," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 43(3), pages 281-300, September.
    4. Wang, Yudong & Liu, Li & Gu, Rongbao & Cao, Jianjun & Wang, Haiyan, 2010. "Analysis of market efficiency for the Shanghai stock market over time," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(8), pages 1635-1642.
    5. repec:eee:eneeco:v:65:y:2017:i:c:p:50-63 is not listed on IDEAS

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