Inflation, exchange rate, and stock return: The evidence from the LQ45 index constituents in Indonesia

Martalena Martalena; Dini Iskandar; Bram  Hadianto

doi:10.33395/owner.v7i4.1859

Authors

Martalena Martalena Maranatha Christian University
Dini Iskandar Maranatha Christian University
Bram Hadianto Maranatha Christian University

DOI:

10.33395/owner.v7i4.1859

Keywords:

Exchange rate, inflation, LQ45 index, non-financial companies, pooling regression model, stock return

Abstract

Economic factors affect companies, especially those listed in the capital market. Consequently, it fundamentally affects investors’ wealth, reflected by the stock price movement. Accordingly, this study aims to investigate and analyze the influence of inflation and exchange rate as related ones on stock return. The population comes from 20 coherent non-financial companies selected as LQ45 index from 2016 to 2022. Then, this study applies the Slovin formula with a 10% error margin to determine the sample size of 17, taken by a simple random sampling method. Also, it uses the regression model with pooling data and t-statistic to examine stock return determinants. Once meeting classical assumptions, this study checks the relationships. Its result demonstrates a positive influence of inflation on stock return, confirming the perspective declaring common stock becomes the hedging tool on inflation. Meanwhile, the IDR/USD exchange rate negatively associates with this return: The more powerful the US Dollar, the more diminished the stock price of non-financial companies belonging to the LQ45 index.

Downloads

Download data is not yet available.

Plum-X Analityc

References

Adebowale, E. A., & Akosile, A. I. (2018). Interest rate, foreign exchange rate, and stock market development in Nigeria. Binus Business Review, 9(3), 247–253. https://doi.org/10.21512/bbr.v9i3.4941

Alfaro, R. (2017). The effect of the exchange rate, inflation, and GDP on copper exports in Indonesia. Jurnal Budget, 4(1), 64–81. https://ejurnal.dpr.go.id/index.php/jurnalbudget/article/view/32

Ali, K., Malik, I. A., Chisti, K. A., & Showkat, N. (2023). Inflation and Stock Market Returns: An empirical study of sectoral indices with special reference to India. Economics and Business Quarterly Reviews, 6(1), 148–154. https://doi.org/10.31014/aior.1992.06.01.493

Amarkhil, D. K., Hussain, J., & Ayoubi, M. (2021). Effect of exchange rate on stock return. JournalNX - Multidisciplinary Peer Reviewed Journal, 7(1), 297–310. https://repo.journalnx.com/index.php/nx/article/view/918

Cynthia, C., & Salim, S. (2020). The impact of dividend yield, sales growth, firm value, and firm size on stock return. Jurnal Paradigma Akuntansi, 2(4), 1540–1549. https://doi.org/10.24912/jpa.v2i4.9331

Dudesy, R. P., Priyarsono, D., & Irawan, T. (2018). Inflation and stock return in the Indonesian stock exchange. Jurnal Ekonomi Dan Kebijakan Publik, 9(1), 29–51. https://doi.org/10.22212/jekp.v9i1.961

Ekadjaja, M., & Dianasari, D. (2017). The impact of inflation, certificate of Bank Indonesia, and exchange rate of IDR/USD on the Indonesian composite stock price index. Jurnal Muara Ilmu Ekonomi Dan Bisnis, 1(1), 42–51. https://doi.org/10.24912/jmieb.v1i1.405

Eldomiaty, T., Saeed, Y., Hammam, R., & AboulSoud, S. (2020). The associations between stock prices, inflation rates, and interest rates are still persistent: Empirical evidence from the stock duration model. Journal of Economics, Finance, and Administrative Science, 25(49), 149–161. https://doi.org/10.1108/JEFAS-10-2018-0105

Firdaus, F. (2021). Quantitative Research Methodology. CV. DOTPLUS Publisher.

Ghozali, I. (2021). Multivariate Analysis Application by IBM SPSS 26 (10th ed.). Badan Penerbit Universitas Diponegoro.

Goh, T. S., Henry, H., Toni, N., Erika, E., & Liem, G. S. (2022). Factors affecting tourism stock price in Indonesia. International Journal of Communication and Society, 4(1), 163–171. https://doi.org/10.31763/ijcs.v4i1.507

Gujarati, D. N., Porter, D. C., & Pal, M. (2019). Basic Econometrics (6th ed.). McGraw-Hill Education.

Harahap, A. P., Hasibuan, R. R., & Candanni, L. R. (2020). Opportunities and challenges of the initial public offering for start-up companies in Indonesia. Indonesian Journal of Islamic Economics and Business, 5(2), 30–45. https://doi.org/10.30631/ijoieb.v5i2.294

Hartono, J. (2017). Portfolio Theory and Investment Analysis (11th ed.). Badan Penerbit Fakultas Ekonomi Universitas Gadjah Mada.

Isnandari, M. L., & Chalid, D. A. (2017). Stock returns and inflation: Evidence from emerging markets in Asia. The Indonesian Capital Market Review, 9(1), 53–61. https://doi.org/10.21002/icmr.v9i1.8554

Jensen, G. R., & Jones, C. P. (2019). Investments: Analysis and Management (14th ed.). Wiley.

Mayasari, V. (2021). The effect of inflation and BI rate on the stock price of the manufacturing companies in the food and beverage sub-sector on the Indonesian capital market. Akuntansi Dan Manajemen, 14(2), 31–49. https://doi.org/10.30630/jam.v14i2.24

Pratama, L. (2019). The analysis of optimal share portfolio using the single index model method (Empirical study on the LQ45 index shares on the Indonesian stock exchange). Jurnal Ilmu Manajemen, 16(1), 48–60. https://doi.org/10.21831/jim.v16i1.25064

Sukirno, S. (2019). Macroeconomics: The introduction (3rd ed.). Rajawali Pers.

Tandelilin, E. (2017). Capital Market: Portfolio and Investment Management. Penerbit Kanisius.

Widyawati, G., Juanda, B., & Andati, T. (2019). The factors of initial return related to IPO companies on the Indonesian stock exchange. Journal of Consumer Sciences, 4(2), 119–135. https://doi.org/10.29244/jcs.4.2.119-135