THE INVESTIGATION OF FUNDAMENTAL EFFECTS, INTEREST RATE, EXCHANGE RATE AND INFLATION ON STOCK RETURN OF BANKING SECTOR IN INDONESIA STOCK EXCHANGE

Nurazi , Ridwan (2016) THE INVESTIGATION OF FUNDAMENTAL EFFECTS, INTEREST RATE, EXCHANGE RATE AND INFLATION ON STOCK RETURN OF BANKING SECTOR IN INDONESIA STOCK EXCHANGE. In: THE 14TH MIICEMA CONFERENCE, 9-10 Oktober 2013, Bogor.

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Abstract

The objective of the study is to examine the effect of financial fundamentals proxied by the CAMEL ratio and to examine macroeconomic variables on stock returns. CAMEL ratio measurements use several aspects such as, capital, assets, management, earnings and liquidity. The five aspects are measured by using several indicators: CAR, NPL, ROE, NIM, BOPO and LDR. In the other hand, the macroeconomic variables consist of interest rate, exchange rate and inflation. Samples used in this study were obtained by applying the purposive sampling method. The research sample consists of sixteen companies that engage in the banking sector during period 2002 to 2011. The hypothesis testing conducted by using panel data regression, (10-year time series and 16 cross section). Furthermore, this analysis technique requires an appropriate model in order to obtain an efficient estimation results and also BLUE criteria (Best, Linear, Unbiased, and Estimator). Based on the results of testing with chow test, it was determined that the model estimate used in this study is common effect model or also called as PLS (Pooled Least Square). The estimation results by using common effect model reveals that some of financial ratios show a bit contrary to the theory, in which the ratio of CAR shows positive sign but does not have a significant effect on stock returns. Furthermore, the ratio of NPL does not affect the return. ROE and LDR show positive and significant effect on return, meanwhile NIM and BOPO show negative sign and significant impact on return. The further macroeconomic variables, interest rate, exchange rate and inflation consistent with the theory, which are negative and significantly effect on stock return companies belonging to the banking sector.

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