CHAPTER 1 INTRODUCTION 1.1 Introduction The fact that future economic condition could not be predicted and the existence of time value of money, makes people tend to invest in instrument which generates return higher than inflation. Nowadays, people are familiar with investing in financial instrument. One of the financial instruments which is generating high return is stock market. Based on Indonesian financial statistics, the issued shared in Indonesia stock exchange shows increasing value, 8399 in 2008 and 8680 in 2010. The increasing of issued shares is aligned with increasing investment in capital market each year. Investor should also consider that in every investment that generate higher return, it should be greater risk behind. In order to avoid or manage risk, investor has to analyze the factors that possibly affecting stock price return, either internal or external factor. Some factors such as crisis, political condition, and economic condition are considered as external factor in investment risk which affecting the company activity and could not be controlled by them. Every investor should realize the impact of this external factor to their investing activity. Jakarta Composite Index (JCI) is used as benchmark of stock performance and commonly used as an indicator of the stock price movement in Indonesia Stock Exchange. There are nine sectoral index in Indonesia Stock Exchange, which are agriculture, infrastructure, finance, trade, consumer goods, basic industry, miscellaneous industry, mining, manufacture, and infrastructure. During the period of 2008-2010, Jakarta Composite Index (JCI) indicates a fluctuative performance. In 2008, JCI level declined to 1355,41 from 2745,83 which is decreasing 50,6% from 2007. This market declining was a response to global crisis in 2008 which derived from the subprime mortgage default in United States. As the impact of the crisis, Indonesia Stock Exchange faced the worst market condition in 2008 for the last five years. Since the mid of 2009, the capital market condition in Indonesia started to recover from the crisis. It is proved by the JCI level increases of 86,9% to the 2534,36 in the end of 2009. In 2010, JCI also have quite significant increase of 46,1% to the level of 3703,51. The economic 1
and financial situation which started to be stable, makes investor back to invest in capital market, including foreign investors. Two sectoral index that indicate outstanding performance are consumer goods and trade and services sectors. Based on Bloomberg, two sectors that generate highest gain in 2010 are trade and service sector and consumer goods sector. In 2008, the trade and services index (JKTRAD) price was decline 62,18% to 148,33. In 2009, the price start to indicate increasing performance by increasing 85,91% to 274,76. In 2010, this sector generate highest return compared to other sector with the 71,92% rate of return. Moreover, the Jakarta Consumer Goods Index (JKCONS) also indicate a decreasing level of 25,04% from 436,04 to 671,3 by the end of 2008. In 2009, Jakarta Consumer Goods Index start to back to the stable level to 671,3 which increase 105,39%. By the end of 2010, this sector was in the second position after consumer goods in terms of generating high return with 63,06% compared to 2009. As a defensive stock, consumer goods is still promising stock for investor. From the data above, it is implied that investor still have to consider the external factor or systematic risk that might affecting the stock return. Inflation, interest rate, and exchange rate are determined as some indicators of macroeconomics condition in a country. Inflation has a relevance with money supply, demand, production, and consumption. Based on the historical data of the last five years, the worst inflation rate in Indonesia occurred in September 2008 which is 12,14%, while BI rate also in the same year at the level of 9,5%. As one of the trading partner of Indonesia s export, the situation in United State is indirectly related with economic condition in Indonesia. The used of US Dollar as international currency in global trading also other consideration to use USD/IDR as an indicator of economic situation in Indonesia. The fluctuation currency rate of US Dollar in terms of rupiah is determined by USD/IDR. The worst performance of USD/IDR currency during 2008-2010 was at 11352,75 in beginning 2009. Those macroeconomics risk are could not be controlled by the company. If the stabillity in economic activity is interrupted, only government who has authority in controling the macroeconomic condition using monetary policy. Investor should manage the risk that might arise during the investment in capital market by scanning the condition globally. 2
In this research, the author is more focus on shareholder perspective which is gaining more benefit in terms of return percentage. Statistical technique are required to process the time series data of stock return, inflation rate, interest rate, and exchange rate. Multiple regression analysis is used in this research in order to get a quantitative model and an accurate result in analyzing the effect of marcoeconomic variables to the Jakarta Composite Index (JCI), Jakarta Consumer Goods Index (JKCONS), and Jakarta Trade and Service Index (JKTRAD) return in Indonesia Stock Exchange. 1.2 Problem Identification In accordance with the background explained previously, the problem identification in this research are: 1. Do the inflation, interest rate, and exchange rate have a simultaneous impact to the stock return of JCI, JKCONS, and JKTRAD in Indonesia Stock Exchange of January 2008 December 2010? 2. Do the inflation, interest rate, and exchange rate have a partial impact to the stock return of JCI, JKCONS, and JKTRAD in Indonesia Stock Exchange of January 2008 December 2010? 1.3 Research Objective Based on the background and problem identification, the research is purposed to: 1. To analyze the simultaneous effect of macroeconomics variables (inflation, interest rate, exchange rate) to the stock return of JCI, JKCONS, and JKTRAD in Indonesia Stock Exchange period of 2008-2010. 2. To analyze the partial effect of macroeconomics variables (inflation, interest rate, exchange rate) to the stock return of JCI, JKCONS, and JKTRAD in Indonesia Stock Exchange period of 2008-2010. This research is expected to equip investors with an appropriate model which could be used as a reference of investing in the future. 1.4 Problem Limitation The study has following limitations : 1. This research will use the historical monthly data of index price, inflation, BI rate, and exchange rate period of January 2008 December 2010. 3
2. This research will use the stock return of three indexes (JCI,JKCONS,JKTRAD) in Indonesia Stock Exchange by using historical prices period of January 2008 December 2010 3. The method in processing the data will use stastical method (multiple regression analysis) This research will not explore about other variables except inflation, interest rate, and exchange rate which probably could affecting the JCI, JKCONS, and JKTRAD stock return in Indonesia Stock Exchange. 1.5 Writing Structure This project will be systematically written as shown : Chapter I : Introduction This chapter explain about the background in conducting this final project. It consist of introduction, problem identification, research objective, problem limitation and wriitng structure. Chapter II : Literature Study The theory and other important information related to the topic of this project will be explained in this chapter. It will be taken from previous project, international journal, books, article, and other various sources. Chapter III : Methodology This chapter will explain about the steps in conducting the research. First step is problem identification, followed by studying the literature, set the hypothesis, data gathering and processing, data analysis, and the last is conclusion and also giving some recomendation. The statistical methodology will be also explained in this chapter, including the step in conducting multiple regression analysis. The classical assumption and multiple regression model used during this research are discussed in this chapter. Chapter IV : Data Collection and Analysis This chapter will be focus on processing and analyzing the data using multiple regression analysis. The author will start to input the data to the SPSS software and make an analysis based on the result. 4
Chapter V : Conclusion and Recommendation This is the last chapter of this research. In this chapter will be provided the conclusion and some recommendation for next research. The author will be provide the conclusion based on the result and analysis of this research. 5