Abstract
This study examines the relationship between foreign ownership and return volatility, trading volume, and risk of stocks at the Indonesia Stock Exchange (IDX). Panel data of selected companies listed on the LQ45 index of the IDX was employed for the period between 2011 and 2017. Foreign ownership was found to positively affect stock return volatility, trading volume, and risk. Hence, more substantial foreign ownership of stocks meant more drawbacks to Indonesian stocks. Therefore, there is a need for the Indonesian government to limit and regulate foreign shareholders in Indonesia.
Highlights
One of the financial instruments in the world entailing Indonesia is stock
Return volatility (RV in annual) is obtained from the standard deviation of shares return i at the time t; LNvolume is the natural logarithm of company shares i at the time t; SDROA is the standard deviation of Return on Asset (ROA) of each company i at the time t; SDROE is the standard deviation of Return on Equity (ROE) of each company i at the time t; foreign is the percentage of foreign ownership obtained from the number of owned shares divided by the number of recorded foreign ...; leverage is the ratio of company debt
Return volatility is obtained from the standard deviation of shares of return i and time t; LNvolume is the natural logarithm of company shares i and time t; SDROA is the standard deviation of ROA of each company i and time t; SDROE is the standard deviation of ROE of each company i and time t; foreign is the percentage of foreign ownership obtained from the number of owned shares divided by the number of recorded foreign ... ; leverage is the ratio of company debt
Summary
One of the financial instruments in the world entailing Indonesia is stock. Stock becomes an investment since it is expected to give a return to investors. It could extend the literature in this field as this study is about the relationship between foreign ownership and return volatility (Dvorak, 2005; Agarwall et al, 2009) in particular on trading volume and risk. It could be enlarged empirically by using various estimation methods such as ordinary least square (OLS), generalized least square (GLS), random and fixed effects. The probable implication of this study based on its findings is that foreign ownership of stock has a positive relationship with return volatility, volume, and risk both as an asset and equity. The remainder of this paper comprises a literature review, research methodology, analysis of results, followed by a conclusion and some recommendations for further research
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