MULTIFACTOR ON MACROECONOMIC FUNDAMENTALS TO EXPLAIN THE BEHAVIOR OF SECTORAL INDICES IN INDONESIAN STOCK EXCHANGE

The purpose of this study is to investigate the impact of macro-fundamentals using factor approach on sectoral indices on Indonesia Stock Exchange. This study used monthly data of the returns of sectoral indices and utilized the Seemingly Unrelated Regression (SUR) analysis with multifactor model. T...

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Bibliographic Details
Published in:City University Research Journal 2016-01, p.276-282
Main Authors: Kaluge, David, Tufail, Muhammad Shahid, Muneer, Saqib
Format: Article
Language:English
Subjects:
Capital markets
Consumer goods
Consumption
Corporate profits
Crude oil prices
Economic conditions
Economic indicators
Efficient markets
Financial instruments
Industry analysis
Interest rates
Investments
Macroeconomics
Random walk theory
Regression analysis
Securities markets
Stock exchanges
Stock prices
Studies
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Summary:The purpose of this study is to investigate the impact of macro-fundamentals using factor approach on sectoral indices on Indonesia Stock Exchange. This study used monthly data of the returns of sectoral indices and utilized the Seemingly Unrelated Regression (SUR) analysis with multifactor model. The results show that macro economic variables can be classified into 2 common factors, Monetary Macro Factor (MMF) and Real Macro Factor (RMF). These factors give different effect to sectoral indices. Due to different characteristics embodied in each sector, sectors then respond differently towards the change in macroeconomic conditions in Indonesia. The MMF is dominated by variables: BI Rate, inflation, and the exchange rate, while the MRF by other variables: foreign exchange reserves, exports, and Indonesia crude oil prices. The MMF negatively affects indexes of: basic industry and chemical, consumer goods, infrastructure, manufacturing, mining, miscellaneous industry, property and trade, while the RMF has negative effect on mining sector. By applying the multifactor model combining with auto regression component of the factor of dependent variables, the model provides higher predictive power for the price behavior in each sector. This study suggests for researchers for comparing multifactor model and other methods such as CAPM, and Five Factor Model of Fama and French.
ISSN:2220-9174
2409-0441