Investor Limited Information Processing Capacity: Industry Level Analysis

Main Article Content

Winston Sutandar
Angel Angel
Trixie Josunarto
John Iwan Kusno
Adrian Teja


Investor has cognitive limitation in the form of limited information-processing capacity relative to the amount of information available to them. This limitation force investors to optimize their valuable resources by focusing only to a specific set of information based on their unique preference. Since different industry have different information complexities, different industries will have different investor segment in terms of investor number, investor sophistication, and investor speed to gather and to comprehend information from other industry. We investigate the prevalence of investor’s limited information-processing capacity in Indonesian stock market using autoregressive model. We used monthly data from 31 December 1999 to 30 September 2015 to identify whether there are industries that consistently lead other industries. We find only mining industry return, with small market capitalization only 3.3% relative to total Jakarta Composite Index market capitalization, which consistently leads Jakarta Composite Index return for one to two months.

Article Details

How to Cite
Sutandar, W., Angel, A., Josunarto, T., Iwan Kusno, J., & Teja, A. (2019). Investor Limited Information Processing Capacity: Industry Level Analysis. Jurnal Manajemen Dan Keuangan, 8(1), 99-112.


Arjoon, V., Bougheas, S., & Milner, C. (2016). Lead-Lag Relationships in an Embryonic Stock Market: Exploring The Role Of Institutional Ownership and Liquidity. Research in International Business and Finance 38, 262-276.
Bodnaruk, A., & Ostberg, P. (2009). Does Investor Recognition Predict Returns? Journal of Financial Economics 91, 208-226.
Chiao, C., Hung, K., & Lee, C.F. (2004). The Price Adjustment and Lead-Lag Relations Between Stock Returns: Microstructure Evidence from The Taiwan Stock Market. Journal of Empirical Finance 11, 709-731.
Drakos, A.A. (2016). Does The Relationship Between Small and Large Portfolios’ Returns Confirm The Lead-Lag Effect? Evidence from The Athens Stock Exchange. Research in International Business and Finance 36, 546-561.
Hacibedel, B. (2014). Does Investor Recognition Matter For Asset Pricing? Emerging Markets Review 21, 1-20.
Hong, H., Torous, W., & Valkanov, R. (2007). Do Industries Lead Stock Markets? Journal of Financial Economics 83, 367-396.
Judge, A., & Reancharoen, T. (2014). An Empirical Examination of The Lead-Lag Relationship Between Spot and Futures Markets: Evidence from Thailand. Pacific-Basin Finance Journal 29, 335-358.
Kleidon, A.W. (1986). Anomalies in Financial Economics: Blueprint for Change? Journal of Business 59, 469-499.
Merton, R.C. (1987). A Simple Model of Capital Market Equilibrium with Incomplete Information. Journal of Finance 42, 483-510.
Oprean, C., & Tanasescu, C. (2014). Effects of Behavioral Finance on Emerging Capital Markets. Procedia Economics and Finance 15, 1710-1716.
Peng, L. (2005). Learning With Information Capacity Constraints. Journal of Financial and Quantitative Analysis 40, 307-329.
Peng, L. & Xiong, W. (2006). Investor Attention, Overconfidence and Category Learning. Journal of Financial Economics 80, 563-602.
Pompian, M.M. (2016). The Behavioral Biases of Individuals. CFA Level III Volume 2 Behavioral Finance, Individual Investors, and Institutional Investors, Reading 6.
Poshakwale, S., & Theobald, M. (2004). Market Capitalization, Cross-Correlations, The Lead-Lag Structure and Microstructure Effects in The Indian Stock Market. Journal of International Financial Markets, Institutions, and Money 14, 385-400.
Sahi, S.K., & Arora, A.P. (2012). Individual Investor Biases: A Segmentation Analysis. Qualitative Research in Financial Markets 4, 6-25.
Statman, M.. (2014). Behavioral Finance: Finance with Normal People. Borsa Istanbul Review 14, 65-73.
Qiao, Z., Li, Y., & Wong, W.K. (2008). Policy Change and Lead-Lag Relation Among China’s Segmented Stock Markets. Journal of Multinational Financial Management 18, 276-289.

DB Error: Unknown column 'Array' in 'where clause'