| Summary: | This research was conducted to examine the relationship of foreign
investment flows into Indonesia's capital market with the herding behavior of
domestic investors. Swift flow of foreign funds into the capital market has
increased the capitalization of transactionin the stock market. This prompted the
formation of a belief among investors that when follow the movement of the
foreign funds in the capital market, investors could get abnormal return.
This research using purposive sampling method in order to minimize bias
in the results obtained. The research takes a sample of stocks that have never been
out of the LQ45 index membership during the period February 1, 2010 until
January 31, 2012. From these criteria gained a total of 32 stocks meet the criteria
of 61 stocks that have become members of the LQ45 index over the period. The
testing conducted on four portfolios with members drawn at random from the 32
stocks that meet the foregoing criteria. Testing performed using the method of chisquare
test to compare the herding of the four beta portfolio and the flow of
foreign funds into the portfolio.
The results showed that there was no correlation between the flows of
foreign investment into Indonesia's capital market with domestic herding investor
behavior in a portfolio. The flow of foreign funds into the capital market
Indonesia is making a positive impact on the movement of stock price index
(Securities and Exchange Commission, 2008), but does not provide a significant
impact on a portfolio herding behavior.
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