Dedi Hariyanto

Rare events (RE) are substantial with significant impact but are difficult to predict, often deviating from regular expectations. These events trigger psychological reactions in the market and susceptible to irrational decisions that challenge logical assumptions. The rapidity of the crisis has led to highly volatile market conditions, fostering instances of asymmetric information. Therefore, this study aimed to explore the impact of attention on market dynamics by examining diverse possibilities over time. The article focused on all publicly listed industries on the Indonesian Stock Exchange (IDX/BEI). Using time series regression data from 1997 to 2020, the article comprised 5,615 observations across nine sectors. The primary model was based on three factors originating from the Fama-French and prospect theory, with attention serving as the main risk element to assess the impact of attention on abnormal returns (AR) during RE. The results disclosed that various events showed diverse effects on attention behavior, varying across all sectors. Additionally, moderation analysis showed a correlation between attention and AR. The results signified that RE mitigates the negative relationship between attention and AR. The adverse impact of attention on AR diminishes during RE. These results contributed to the literature by providing insights into the excessive attention to specific information disrupts market mechanisms, triggers disproportionate emotional responses, and alters investor preferences. Furthermore, this study established that events prompting excessive attention have varying effects on attention behavior across all sectors.

The efficient market hypothesis is struggling to explain market behavior during rare, high-impact events. In such uncertain times, familiarity guides the decisions, allowing the brain to rely on subconscious processing for optimal outcomes. Therefore, this research aimed to examine the relationship between elevated familiarity bias and abnormal returns during rare events. Data were collected from all companies listed and active on the Indonesia Stock Exchange from 1997 to 2020. A systematic sampling method was used to establish the sample criteria, which led to a total of 5,615 observations derived from the number of trading days over 23 years across nine industries on the Indonesian Stock Exchange. The data collected were analyzed using the traditional Capital Asset Pricing Model, prospect theory and extending the Fama and French three-factor model with the addition of a psychological factor. The results show that familiarity bias behavior does not uniformly occur across all industries in Indonesia during rare events. The industries negatively impacted by these events include agriculture, consumer goods, trade services and investment, finance, basic industry, chemicals, mining, miscellaneous industries, property, real estate and building construction at values of –0.0847, –0.0946, –0.0721, -0.0405, –0.0717, –0.1258, –0.024, and –0.0805, respectively. A positive impact was only found in the infrastructure, utilities, and transportation industry at 0.0028. In conclusion, stock market behavior also affects the economy from a behavioral finance perspective.

Type of the article: Research Article

Abstract
This study aims to examine whether herding behavior intensifies during shock events and whether such crisis-induced herding leads to abnormal returns across nine IDX sectors over the 1997–2025 period. The study employs a quantitative event study approach using daily stock return data from 13 major global and domestic shock events representing nine industrial sectors listed on the Indonesia Stock Exchange. Herding behavior is measured using the cross-sectional absolute deviation model, while its effect on abnormal returns is analyzed through time series regressions incorporating interaction terms between herding indicators and shock event dummies, controlling for firm size, SMB, and HML factors. The results show strong asymmetry across market conditions and sectors. During bearish market phases, herding intensifies significantly in the agriculture, finance, and property real estate construction sectors and is associated with positive short-term abnormal returns, indicating crisis-driven market inefficiency. In contrast, during bullish market phases, most sectors exhibit anti-herding behavior, reflected in greater return dispersion and more selective investor decision making. The interaction between herding behavior and shock events is positive and statistically significant in most sectors, with the strongest effects observed during the 1997–1998 Asian Financial Crisis, the 2008 Global Financial Crisis, and the 2020 COVID-19 pandemic. Overall, the findings indicate that the Indonesian capital market remains in a transitional stage toward full efficiency, where psychological factors and information asymmetry continue to influence price formation during periods of extreme uncertainty.