ANALYZING TIME EFFECT IN THE PUSH AND PULL FACTORS AFFECTING FOREIGN PORTFOLIO INVESTMENT IN INDONESIA STOCK MARKET (CASE STUDY OF FOREIGN BUYING DURING THE PERIOD 2003-2018)

Matrodji H Mustafa ,Agustini Hamid

doi:10.31933/dijms.v2i5.876

Abstract

This study examined the influence of pull and push factors on foreign portfolio investment in Indonesia Stock Market. Two measures of foreign portfolio investment are foreign investor total buying and foreign investor net buying. The pull factors are represented by Return on Jakarta Composite Index, Jakarta Stock Marker liquidity, IDR Exchange Rate, and Infation Rate. The push factors included are return on Dow Jones Industrial Average, Yield on US Treasury Bill, and return on Gold. This study takes Foreign Investor Total Buying and Foreign Investor Net Buying as dependent variables. To accomodate time or year effect, a panel data regression is employed as analytical tool. Processing monthly data from January 2003 to December 2018, and using Foreign Investor Total Buying as dependent variable, this study finds that exchange rate and stock market liquidity affect the foreign investor total buying significantly. The negative coefficients of exchange rate and the positive coefficient of stock market liquidity support the hypotheses. The regression on Net Buying shows that exchange rate, stock market return, and stock market liquidity affect foreign investor net buying significantly. The negative coefficient of exchange rate and positive coefficient of stock market return support the hypotheses while the negative coefficient of stock market liquidity does not. The individual year fixed effect and individual year random are present in the first and second regressions repectively. In both regressions, no variables in push factors affect foreign portfolio investment significantly. hence, the foreign portfolio investment in Indonesia is affected only by pull factors

Highlights

Indonesia capital marlet offers atractive investment opportunities for foreign investors.Continuously increasing stock market index from 2003 to 2018 and relatively its low corelation, for example with DJIA, can contribute positively in trade-off of risk and return
This study examined the influence of pull and push factors on foreign portfolio investment in Indonesia Stock Market
This study has investigated the influence of pull factors and push factors on foreign portfolio investment entering Indonesia Stock Market

Summary

Introduction

Indonesia capital marlet offers atractive investment opportunities for foreign investors.Continuously increasing stock market index from 2003 to 2018 and relatively its low corelation, for example with DJIA, can contribute positively in trade-off of risk and return. Foreign capital provides sources of funds for domestic companies and has a positive impact on employment and income. Foreign portfolio investment increases the liquidity of Indonesian capital market. For foreign portfolio investors, Bley and Saad (2011) and Naceur et al (2008) argued that liberalization of emerging capital market gives foreign investors an opportunity to obtain high return and international diversification. FPI can bring benefits through increasing the liquidity of domestic capital markets, encourage the development of other financial intermediaries, strengthen the financial infrastructure and deepen the process of financial intermediation. The activities of foreign portfolio investors have increased the liquidity of Indonesian stock market dan have becomed sources of funds for Indonesian companies through IPOs. To maintain foreign investors presence, Indonesia capital market authority needs to know the factors that are attractive to them

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Results

Conclusion