Gusdinar , Isabelle Aranditha and Koesrindartoto, Deddy Priatmodjo
(2014)
Institutional Investors Trading Strategy In
Indonesia’s Government Bond Market During
The 2008 Crisis.
Asian Academy of Management Journal of Accounting and Finance, 10 (1).
pp. 1-24.
ISSN 1823-4992
Abstract
The importance of government bonds in covering shortages in a government’s budget is
inseparable from the market players’ role in the government bond market. In this study,
we examine whether institutional investors’ behaviour had causal effects on the
government bond market index from April 2008 to April 2009. Moreover, we also observe
whether foreign, bank, non-bank and central bank investors exhibit similar strategies in
their bond trading activities. Granger causality tests and a Vector Error Correction
Model (VECM) methodology have indicated that foreign investors become market leaders
and tend to hold long-tenor bonds during crises to maintain an optimal level of risk in
their portfolio. This also shows that foreign investors tend to hold the fall of index.
Another result shows that both foreign and non-bank investors become market leaders
who influence the bond market index and have similar trading strategies in the aftercrisis period. Meanwhile, the central banks become foreign investors’ and non-bank
investors’ trade counterparts to provide liquidity and stabilise the bond price. Moreover,
the results indicate that bank investors become the market makers in the bond market.
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