The Effect Of The Growth Of Macroeconomic Variables On Changes In Stock Prices In Sub-sector Companies In The Indonesia Stock Exchange In 2010-2016

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The Effect of Growth of Macroeconomic Variables on Changes in Stock Prices in Companies Sub Sector Various Industry in the Indonesia Stock Exchange in 2010-2016

Introduction

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a wide range of companies listed across various industries. The stock market is a crucial component of the Indonesian economy, providing a platform for companies to raise capital and for investors to diversify their portfolios. However, the stock market is subject to various factors that can influence stock prices, including macroeconomic variables. This study aims to investigate the effect of macroeconomic variables on changes in stock prices in sub-sector companies of various industries registered on the IDX during 2010 to 2016.

Literature Review

Macroeconomic variables have been widely studied in the context of stock market performance. These variables include inflation, money supply, exchange rates, interest rates, gross domestic product (GDP), world oil prices, and world gold prices. Inflation, for example, can affect stock prices by influencing the cost of living and the purchasing power of consumers. A high inflation rate can lead to a decrease in stock prices, as investors become risk-averse and seek safer investments. On the other hand, a low inflation rate can lead to an increase in stock prices, as investors become more confident in the economy and invest in riskier assets.

Money supply, another macroeconomic variable, can also affect stock prices. An increase in money supply can lead to an increase in liquidity in the capital market, encouraging investors to invest more and driving up stock prices. Exchange rates can also affect stock prices, particularly for companies that operate in the export sector. A depreciation of the exchange rate can lead to an increase in stock prices, as the company's exports become more competitive in the global market.

Interest rates, GDP, world oil prices, and world gold prices are also important macroeconomic variables that can affect stock prices. Interest rates, for example, can influence the cost of borrowing and the profitability of companies. A low interest rate can lead to an increase in stock prices, as companies can borrow money at a lower cost and invest in new projects. GDP, on the other hand, can reflect the overall health of the economy and can influence stock prices. A high GDP growth rate can lead to an increase in stock prices, as investors become more confident in the economy and invest in riskier assets.

Methodology

This study used a descriptive analysis and data panel regression technique to analyze the effect of macroeconomic variables on changes in stock prices in sub-sector companies of various industries registered on the IDX during 2010 to 2016. The population consisted of 38 companies incorporated in the various industry sub-sectors in the IDX. Of these, 31 companies were chosen as samples based on certain criteria. The data analysis technique used is descriptive analysis and data panel regression using EViews, with the selected data panel model is the Random Effect Model (Rem).

Results

The results of this study showed that there was a variety of influences from each macroeconomic variable on stock price growth. The following is an explanation of the influence of each variable:

1. Inflation

The results showed that inflation did not have a significant effect on stock price growth. This could be caused by the fact that high inflation is often balanced with strict monetary policy, so investors do not respond to changes in inflation immediately in stock investment decisions.

2. Number of Supply Money

This variable shows a significant positive effect on changes in stock prices. The growth of the amount of money in circulation tends to increase liquidity in the capital market, encourage investors to invest more, so that stock prices have increased.

3. Exchange Rate

The exchange rate variable does not show a significant positive effect on changes in stock price. This may be due to the fact that companies in the various industrial sub-sectors tend to have maintained performance despite the fluctuations in exchange rates, thanks to product and market diversification.

4. Interest Rate

Interest rates have a significant positive influence on changes in stock prices. When interest rates are low, loan costs become cheaper, encourage companies to invest and expand, which in turn can increase profits and stock prices.

5. Gross Domestic Product (GDP)

The results of the analysis indicate that GDP growth does not have a significant positive influence on changes in stock prices. Although GDP reflects economic growth, in the context of various industrial sub-sectors, there are other factors that are more dominating.

6. World Oil Prices

This variable shows an insignificant negative effect on changes in stock prices. Oil price fluctuations can affect operational costs, but do not always directly affect stock prices, depending on the resilience of each company.

7. World Gold Prices

Gold is often regarded as Safe Haven assets, so that the price increase can reflect economic uncertainty that encourages investors to find alternative investments that are more stable, including stocks.

Conclusion

The results of this study provide important insights for investors and policy makers. Understanding the effect of macroeconomic variables on stock prices can help in better investment decision making, as well as in formulating economic policies that support the growth of capital markets in Indonesia. The study found that macroeconomic variables such as money supply, interest rates, and world gold prices have a significant positive effect on changes in stock prices, while inflation, exchange rates, and GDP growth do not have a significant effect. The study also found that world oil prices have an insignificant negative effect on changes in stock prices.

Recommendations

Based on the findings of this study, the following recommendations are made:

  • Investors should consider the effect of macroeconomic variables on stock prices when making investment decisions.
  • Policy makers should formulate economic policies that support the growth of capital markets in Indonesia, taking into account the effect of macroeconomic variables on stock prices.
  • Companies should consider the effect of macroeconomic variables on their stock prices when making investment decisions and when formulating their business strategies.

Limitations

This study has several limitations. Firstly, the study only analyzed the effect of macroeconomic variables on stock prices in sub-sector companies of various industries registered on the IDX during 2010 to 2016. Secondly, the study only used a descriptive analysis and data panel regression technique to analyze the effect of macroeconomic variables on stock prices. Thirdly, the study did not consider other factors that may affect stock prices, such as company-specific factors and market-specific factors.

Future Research Directions

This study provides a foundation for future research on the effect of macroeconomic variables on stock prices in Indonesia. Future research should consider the following directions:

  • Analyzing the effect of macroeconomic variables on stock prices in other countries.
  • Considering other factors that may affect stock prices, such as company-specific factors and market-specific factors.
  • Using other data analysis techniques, such as time series analysis and machine learning techniques, to analyze the effect of macroeconomic variables on stock prices.
  • Considering the effect of macroeconomic variables on stock prices in other industries, such as the banking and finance industry.
    Q&A: The Effect of Macroeconomic Variables on Stock Prices in Indonesia

Introduction

The Indonesia Stock Exchange (IDX) is a crucial component of the Indonesian economy, providing a platform for companies to raise capital and for investors to diversify their portfolios. However, the stock market is subject to various factors that can influence stock prices, including macroeconomic variables. In this article, we will answer some frequently asked questions about the effect of macroeconomic variables on stock prices in Indonesia.

Q1: What are macroeconomic variables?

A1: Macroeconomic variables are economic indicators that affect the overall performance of an economy. These variables include inflation, money supply, exchange rates, interest rates, gross domestic product (GDP), world oil prices, and world gold prices.

Q2: How do macroeconomic variables affect stock prices?

A2: Macroeconomic variables can affect stock prices in various ways. For example, inflation can lead to a decrease in stock prices, as investors become risk-averse and seek safer investments. On the other hand, a low inflation rate can lead to an increase in stock prices, as investors become more confident in the economy and invest in riskier assets.

Q3: Which macroeconomic variables have a significant effect on stock prices in Indonesia?

A3: The results of our study showed that money supply, interest rates, and world gold prices have a significant positive effect on changes in stock prices in Indonesia. Inflation, exchange rates, and GDP growth do not have a significant effect on stock prices.

Q4: How can investors use this information to make better investment decisions?

A4: Investors can use this information to make better investment decisions by considering the effect of macroeconomic variables on stock prices. For example, if interest rates are low, investors may consider investing in stocks, as the cost of borrowing is cheaper. On the other hand, if inflation is high, investors may consider investing in safer assets, such as bonds.

Q5: What are the implications of this study for policy makers?

A5: The results of this study have implications for policy makers, as they can use this information to formulate economic policies that support the growth of capital markets in Indonesia. For example, policy makers can use monetary policy to control inflation and interest rates, which can affect stock prices.

Q6: What are the limitations of this study?

A6: This study has several limitations. Firstly, the study only analyzed the effect of macroeconomic variables on stock prices in sub-sector companies of various industries registered on the IDX during 2010 to 2016. Secondly, the study only used a descriptive analysis and data panel regression technique to analyze the effect of macroeconomic variables on stock prices. Thirdly, the study did not consider other factors that may affect stock prices, such as company-specific factors and market-specific factors.

Q7: What are the future research directions for this study?

A7: Future research directions for this study include analyzing the effect of macroeconomic variables on stock prices in other countries, considering other factors that may affect stock prices, using other data analysis techniques, and considering the effect of macroeconomic variables on stock prices in other industries.

Q8: How can companies use this information to make better business decisions?

A8: Companies can use this information to make better business decisions by considering the effect of macroeconomic variables on their stock prices. For example, if interest rates are low, companies may consider investing in new projects, as the cost of borrowing is cheaper. On the other hand, if inflation is high, companies may consider reducing their costs, as the purchasing power of consumers is reduced.

Q9: What are the implications of this study for the Indonesian economy?

A9: The results of this study have implications for the Indonesian economy, as they can help to promote the growth of capital markets in Indonesia. By understanding the effect of macroeconomic variables on stock prices, investors and policy makers can make better decisions that support the growth of the economy.

Q10: What are the next steps for this research?

A10: The next steps for this research include analyzing the effect of macroeconomic variables on stock prices in other countries, considering other factors that may affect stock prices, using other data analysis techniques, and considering the effect of macroeconomic variables on stock prices in other industries.