Abstract
This paper provides the relationship between macroeconomic variables, including exchange rate, BI rate and inflation, and stocks performance, particulary bluechip stocks listed in LQ45 index in Indonesia Stock Exchange. The study particularly gives insights on bluechip stocks listed in LQ45 stock price index in Indonesia Stock Exchange between 2015 and 2017. The data were obtained from various sources during the period, including the Indonesia Stock Exchange (IDX), the Central Bank of Indonesia (BI), and the Ministry of Trade. This study followed a Vector Error Correction Model (VECM) attempting to estimate the relationship between variables both in the short term and in the long term. The findings of the study showed that in the long run, exchange rate, BI rate and inflation have a negative impact on stock market performance, particularly on LQ45 index in Indonesia Stock Exchange. It implies that an increase in macroeconomic variables results in the decline of stock market performance. Meanwhile, in the short run, two variables, namely the exchange rate and inflation, positively affect stock market performance in Indonesia. On the contrary, the relationship between BI rate and stock market performance showed a negative correlation. These findings have significant implication for the understanding of how macroeconomic variables affect the stock market performance, particularly LQ45 price index in Indonesia Stock Exchange.
Highlights
The presence of financial sectors plays an important role in the economy by providing demand and supply for money, as well as lenders and borrowers
This can be evidenced from the t-statistic shows that the increase in inflation will increase value that exceeds the t-table, that is about 3.46863 stock prices, this is because if inflation increases, for the exchange rate, 2.07614 is for Bank of Indonesia (BI) rate, and the costs incurred by companies will be higher, 2.03809 is for inflation, respectively
The results of this study indicated the same rejects the results of Gursida (2018) who states that findings with Jawaid and Haq (2012) who state inflation does not significantly affect the LQ45 that the exchange rate has a positive effect on stock price index
Summary
The presence of financial sectors plays an important role in the economy by providing demand and supply for money, as well as lenders and borrowers. Given the ups and downs of stock prices here, in 6 months, for 45 issuers, LQ45 stock price index changes according to the assessment criteria of its shares (Hermuningsih, 2012) Macroeconomic factors such as exchange rate, BI rate, and inflation have a relationship with the performance of the company and stock prices. Several macroeconomic variables, including money supply, exchange rates, and inflation, affect the stocks market return in Kenya (Mumo, 2017). A high level of inflation may cause a Studies on the relationship between exchange rate negative impact on the particular country It will and stock market performance have been conalso cause a decrease in purchasing power of mon- ducted in many countries. They showed that interest rate prices in an open economy given the enormous has a significant negative relationship with the influence on the current account balance and oth- growth of share price
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