Symmetric and Asymmetric Effects of Exchange Rate on Indonesia Stock Prices

Abstract

Understanding the effect of exchange rates on stock prices is essential essential because of how they are tied to various aspects of the economy. This study examines the symmetric and asymmetric effects of exchange rate changes on stock prices in Indonesia using both auto regressive distributed lag (ARDL) and nonlinear ARDL (NARDL) techniques. To determine short run and the long run association between the study variables. This study using Indonesia monthly data collected from January 2022 to December 2022. The study discovered a long-run equilibrium for both the ARDL and NARDL models, showing a symmetric short and longrun relationship between exchange rates and stock prices. Exchange rates have a negative effect on stock prices, which lowers investor trust in the market. Even in linear and nonlinear analysis, inflation has a negative impact on stock prices over the and long terms. High inflation can reduce consumer purchasing power, which can result in a drop in sales and profitability for businesses that significantly rely on consumer spending. authorities and investors require taking consider the relationship between exchange rates and stock prices to manage foreign exchange and stock markets.