Analysis of the relationship of leading macroeconomic indicators with the Jakarta stock exchange Composite Stock Price Index (CSPI)
The stock market is a mirror which provides an image of the fundamental economic situation. The economic condition should be strongly reflected in the stock market. In recent years, the Jakarta Stock Exchange Composite Stock Price Index has generally been volatile, as, to a lesser extent, have been the leading macroeconomic indicators. But there have been certain periods when the JSX CSPI has fluctuated heavily even though the economy has been relatively stable.rnThe objectives of the study were to find any significant relationship between the SBI rate, inflation rate and USD-IDR exchange rate with the JSX CSPI, to analyze the extent of the relationship, to study whether anomalies occurred in the relationship and to analyze the extent of the anomalies as well as providing logical explanations behind the anomalies. rnThe study was conducted using secondary data. The data was time-series data from 1996 until 2003 which was compiled from the Indonesian Capital Market Reference Center in JSX, the Central Bank of Indonesia, other reference and information centers, as well as from the internet. The approach used for the study was the Multiple Linear Regression Analysis supported by Graph Analysis for Movement Trends. rnThe result of the multiple linear regression analysis showed that there was a significant relationship between the SBI rate and the USD-IDR exchange rate with the Jakarta Stock Exchange Composite Stock Price Index at 99% confidence interval. The inflation rate was not significant in relation to the JSX CSPI overall model at the confidence interval of 95%. The result of the F-test showed that there was a significant relationship to the overall model. rnThe relationship between the SBI rate and the JSX CSPI showed an inverse relationship: for each 1% increase in the SBI rate, the level of the JSX CSPI was estimated to decrease by 2.266 points, holding other variables constant. Between the USD-IDR exchange rate and the JSX CSPI, the relationship was positive: an appreciation of Rp 100,- in the value of Rupiah against US Dollar, ceteris paribus, was estimated to increase the level of the JSX CSPI by 1.972 points. rnAn anomaly occurred in the relationship between the inflation rate and the JSX CSPI. The relationship between them which according to the constructed systematic cause and effect relationship was supposed to be negative turned out to be positive in the analysis result. The result showed that for a given value of other variables, the expected level of the JSX CSPI was estimated to increase by 6.616 points per month for every 1% increase in the inflation rate. rnThe anomaly of the relationship between the inflation rate and the Jakarta Stock Exchange Composite Stock Price Index can probably be explained by the abnormal macroeconomic condition of Indonesia, when the market mechanism is not fully working in an ideal way, especially during a period of crisis. Hence, ideal macroeconomic models and theories are less likely to be applicable in such circumstances, where other factors such as social factors and a weak legal system might have a bigger influence on the market mechanism. rnOverall, 48.2% of the variation in the JSX CSPI can be explained by the variability in the SBI rate, inflation rate and USD-IDR exchange rate. The other 51.8% of factors influencing the JSX CSPI can be explained by factors other than what are accounted for by the linear regression model. These other factors, omitted in this limited study, might be the US Fed Fund rate, regional stock exchange indices, government policy, political and security condition and others.
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