Article Sidebar

Cover JIELariba Volume 8, Issue 1, January-June 2022
Submitted
August 26, 2022
Accepted
October 13, 2022
Published
October 15, 2022
Download
PDF
Statistic
Read Counter : 364 Download : 183

Main Article Content

Abstract

This study examines the impact of investor sentiment, changes in exchange rates, and foreign capital flow on the Jakarta Islamic Index's return. This study uses daily data between January 2, 2017, and December 30, 2021. After examining the characteristics of autocorrelation and stationarity, we apply the Difference-Generalized Methods of Moment (D-GMM) model. In short, we do not find the effect of investor sentiment on stock returns in both contemporaneous and lag periods. Meanwhile, significant changes in exchange rates have a negative effect on stock returns on contemporaneous and lags, but foreign portfolio flows on contemporaneous and significant lags positively affect stock returns. Thus, our results have implications for trading strategies, asset pricing, and portfolio management carried out by foreign investors on Islamic stocks in Indonesia.

Keywords

Difference-Generalized Methods of Moment (D-GMM) Jakarta Islamic Index exchange rates investor sentiment foreign capital flow

Article Details

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Crossref
Scopus
Google Scholar
Europe PMC

References

  1. Ahmed, W. M. A. 2014. Dynamic interactions between Egyptian equity and currency markets prior to and during political unrest. Applied Financial Economics.Vol 24 (20). 1347-1359. https://doi.org/10.1080/09603107.2014.925061
  2. Ahmed, W. M. A. 2016. Cross-border equity flows and market volatility: the case of Qatar Exchange. International Journal of Emerging Markets. Vol 11 (3). 395-418. https://doi.org/10.1080/09603107.2014.925061
  3. Ahmed, W. M. A. 2020. Asymmetric impact of exchange rate changes on stock returns: evidence of two de facto regimes. Review of Accounting and Finance. Vol. 19 (2). 147-173. https://doi.org/10.1108/RAF-02-2019-0039
  4. Aggarwal, D. 2019. Defining and measuring market sentiments: a review of the literature. Qualitative Research in Financial Markets. Vol 14 (2). 270-288. https://doi.org/10.1108/QRFM-03-2018-0033
  5. Akarsu, S., dan Süer, Ö. 2022. How investor attention affects stock returns? Some international evidence. Borsa Istanbul Review. Vol 22(3). 616-626. https://doi.org/10.1016/j.bir.2021.09.001
  6. Andreou, E., Matsi, M., dan Savvides, A. 2013. Stock and foreign exchange market linkages in emerging economies. Journal of International Financial Markets, Institutions and Money. Vol 27. 248-268. https://doi.org/10.1016/j.intfin.2013.09.003
  7. Ansari, R., Al Hashfi, R. U., dan Setiyono, B. 2020. Examining Causality Effects On Stock Returns, Foreign Equity Inflow, and Investor Sentiment: Evidence From Indonesian Islamic Stocks. Indonesian Capital Market Review. Vol 12 (2).120-136. https://doi.org/10.21002/icmr.v12i2.12750
  8. Albuquerque, R., H. Bauer, G., & Schneider, M. (2009). Global private information in international equity markets. Journal of Financial Economics, 94(1), 18–46. https://doi.org/10.1016/j.jfineco.2008.06.008
  9. Alter, A., dan Elekdag, S. 2020. Emerging market corporate leverage and global financial conditions. Journal of Corporate Finance. Vol 62. https://doi.org/10.1016/j.jcorpfin.2020.101590
  10. Arroisi, A., dan Koesrindartoto, D. P. 2019. Domestic and Foreign Investor Dynamics in Indonesian Stock Exchange: Evidence from 10 Years High-Frequency Data. Indonesian Capital Market Review. Vol 11 (1). 58-75. https://doi.org/10.21002/icmr.v11i1.11176
  11. Arellano, M., dan Bover, O. 1995. Another look at the instrumental variable estimation of error-components models. Journal of Econometrics. Vol 68 (1). 29-51. https://doi.org/10.1016/0304-4076(94)01642-D
  12. Anand, A., Basu, S., Pathak, J., dan Thampy, A. 2021. The impact of sentiment on emerging stock markets. International Review of Economics & Finance. Vol 75. 161-177. https://doi.org/10.1016/j.iref.2021.04.005
  13. Aouadi, A., Arouri, M., dan Teulon. 2013. Investor attention and stock market activity: Evidence from France. Economic Modelling. Vol 35. 674-681. https://doi.org/10.1016/j.econmod.2013.08.034
  14. Baker, M., dan Wurgler, J. 2006. Investor sentiment and the cross-section of stock returns. The Journal of Finance. Vol 61(4). 1645-1680. https://doi.org/10.1111/j.1540-6261.2006.00885.x
  15. Branson, W. H. and Henderson, D. W. 1985. The specification and influence of assets markets. in Jones, R.W. and Kenen, P.B. (Eds), Handbook of International Economics, Vol. 2, Elsevier, Amsterdam.
  16. Brown, G. W., dan Cliff, M. T. 2004. Investor sentiment and the near-term stock market. Journal of Empirical Finance. Vol 11 (1). 1-27. https://doi.org/10.1016/j.jempfin.2002.12.001
  17. Bahmani-Oskooee, M., dan Saha, S. 2015. On the relation between stock prices and exchange rates: a review article. Journal of Economic Studies, Vol. 42 (4). 707-732. https://doi.org/10.1108/JES-03-2015-0043
  18. Bahmani-Oskooee, M., dan Saha, S. 2016. Do exchange rate changes have symmetric or asymmetric effects on stock prices?. Global Finance Journal. Vol. 31. 57-72. https://doi.org/10.1016/j.gfj.2016.06.005
  19. Bahmani-Oskooee, M., dan Saha, S. 2018. On the relation between exchange rates and stock prices: a non-linear ARDL approach and asymmetry analysis. Journal of Economics and Finance. Vol 42 (1). 112-137. https://doi.org/10.1007/s12197-017-9388-8
  20. Boako, G., Omane-Adjepog, M., dan Frimpong, J. M. 2015. Stock Returns and Exchange Rate Nexus in Ghana: A Bayesian Quantile Regression Approach. South African Journal of Economics. Vol 84 (1). 149-179. https://doi.org/10.1111/saje.12096
  21. Blundell, R., dan Bond, S. 1998. Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics. Vol 87 (1), 115-143. https://doi.org/10.1016/S0304-4076(98)00009-8
  22. Chadwick, M. G. 2019. Dependence of the “Fragile Five” and “Troubled Ten” emerging market financial systems on US monetary policy and monetary policy uncertainty. Research in International Business and Finance. Vol 49. 251-268. https://doi.org/10.1016/j.ribaf.2019.04.002
  23. Cagli, E. C., Ergün, Z. C., dan Durukan, M. B. 2019. The causal linkages between investor sentiment and excess returns on Borsa Istanbul Borsa Istanbul Review. Borsa Istanbul Review. Vol 20 (3). 214-223. https://doi.org/10.1016/j.bir.2020.02.001
  24. Chu, X., Wu, C., dan Qiu, J. 2015. A nonlinear Granger causality test between stock returns and investor sentiment for Chinese stock market: a wavelet-based approach. Applied Economics. Vol 48(21). 1915-1924. https://doi.org/10.1080/00036846.2015.1109048
  25. Chowdhury, A., Uddin, M., dan Anderson, K. 2022. Trading behaviour and market sentiment: Firm-level evidence from an emerging Islamic market. Global Finance Journal. Vol 53. https://doi.org/10.1016/j.gfj.2021.100621
  26. Cragg, J. G. 1983. More Efficient Estimation in the Presence of Heteroscedasticity of Unknown Form. Econometrica Vol. 51 (3). 751-763. https://doi.org/10.2307/1912156
  27. Dalika, N., dan Seetharam, Y. 2015. Sentiment and returns: An analysis of investor sentiment in the South African market. Investment Management & Financial Innovations. Vol 12 (1-2). 267-276.
  28. Delgado, N. A. B., Delgado, E. B., dan Saucedo, E. 2018. The relationship between oil prices, the stock market and the exchange rate: evidence from Mexico. The North American Journal of Economics and Finance, Vol. 54. 266-275. https://doi.org/10.1016/j.najef.2018.03.006
  29. Ding, R., dan Hou, W. 2015. Retail investor attention and stock liquidity. Journal of International Financial Markets, Institutions and Money. Vol 37. 12-26. https://doi.org/10.1016/j.intfin.2015.04.001
  30. Dornbusch, R., and Fischer, S. 1980. Exchange rates and the current account. The American Economic Review. Vol 70 (5). 960-71.
  31. Dvořák, T. 2005. Do Domestic Investors Have an Information Advantage? Evidence from Indonesia. Journal of Finance. Vol 60 (2). 817-839. https://doi.org/10.1111/j.1540-6261.2005.00747.x
  32. Derbali, A., dan Lamouchi, A. 2020. Global financial crisis, foreign portfolio investment and volatility: Impact analysis on select Southeast Asian markets. Pacific Accounting Review. Vol 32 (2). 177-195. https://doi.org/10.1108/PAR-07-2019-0090
  33. Danila, N., Kamaludin, K., Sundarasen, S., dan Bunyamin, B. 2021. Islamic index market sentiment: evidence from the ASEAN market. Journal of Islamic Accounting and Business Research. Vol 12 (3). 380-400. https://doi.org/10.1108/JIABR-05-2020-0166
  34. De Long, J. B., Shleifer, A., Summers, L. H, dan Waldmann, R. J. 1990. Noise trader risk in financial markets. Journal of Political Economy. Vol 98(4). 703-738. https://doi.org/10.1086/261703
  35. Delgado, N. A. B., Delgado, E.B. and Saucedo, E. 2018. The relationship between oil prices, the stock market and the exchange rate: evidence from Mexico. The North American Journal of Economics and Finance. Vol 54. 266-275. https://doi.org/10.1016/j.najef.2018.03.006
  36. Ding, L. 2021. Conditional correlation between exchange rates and stock prices. The Quarterly Review of Economics and Finance. Vol 80. 452-463. https://doi.org/10.1016/j.qref.2021.02.004
  37. Frankel, J. A. 1983. Monetary and portfolio-balance models of exchange rate determination, Technical report, National Bureau of Economic Research.
  38. Frazzini, A., dan Lamont, O. A. 2018. Dumb money: Mutual fund flows and the cross-section of stock returns. Journal of Financial Economics. Vol 88 (2). 299-322. https://doi.org/10.1016/j.jfineco.2007.07.001
  39. French, J. J., dan Vishwakarma, V. K. 2013. Volatility and foreign equity flows: evidence from the Philippines. Studies in Economics and Finance. Vol 30 (1). 4-21. https://doi.org/10.1108/10867371311300919
  40. French, J. J., dan Li, W. X. 2017. Sentiment, foreign equity flows, and returns: Evidence from Thailand’s stock markets. Research in International Business and Finance. Vol 42. 816-831. https://doi.org/10.1016/j.ribaf.2017.07.018
  41. Garg, R., dan Dua, P. 2014. Foreign portfolio investment flows to India: determinants and analysis. World Development. Vol 59. 16-28. https://doi.org/10.1016/j.worlddev.2014.01.030
  42. Glen, J. 2002. Devaluations and emerging stock market returns. Emerging Markets Review. Vol. 3 (4). 409-428. https://doi.org/10.1016/S1566-0141(02)00044-4
  43. Guo, H., Wang, Z., dan Yang, J. 2013. Time‐varying risk-return tradeoff in the stock market. Journal of Money, Credit, and Banking. Vol 45 (4). 623-650. https://doi.org/10.1111/jmcb.12018
  44. Han, L., Zheng, Q., Li, L., dan Yin, L. 2015. Do foreign institutional investors stabilize the capital market?. Economics Letters. Vol 136. 73-75. https://doi.org/10.1016/j.econlet.2015.09.008
  45. Hau, H., dan Rey, H. 2006. Exchange rates, equity prices, and capital flows. Review of Financial Studies. Vol 19 (1). 273-317. https://doi.org/10.1093/rfs/hhj008
  46. Horta, P., dan Lobão, J. 2018. Global and Extreme Dependence Between Investor Sentiment and Stock Returns in European Markets. Journal of Behavioral Finance. Vol 19 (2). 141-158. https://doi.org/10.1080/15427560.2017.1373647
  47. Ioannidis, C., dan Kontonikas, A. 2006. Monetary policy and the stock market: some international evidence. Working Papers 2006-12, Business School - Economics, University of Glasgow.
  48. Jeon, J. Q., dam Moffett, C. M. 2010. Herding by foreign investors and emerging market equity returns: evidence from Korea. International Review of Economics and Finance. Vol. 19 (4). 698-710. https://doi.org/10.1016/j.iref.2010.03.001
  49. Kartal, M. T., Ertuğrul, H. M., dan Ulussever, T. 2022. The impacts of foreign portfolio flows and monetary policy responses on stock markets by considering COVID-19 pandemic: Evidence from Turkey. Borsa Istanbul Review. Vol 22 (1). 12-19. https://doi.org/10.1016/j.bir.2021.06.003
  50. Keynes, J. M. 1937. The General Theory of Employment. The Quarterly Journal of Economics, Vol 51 (2). 209-223. https://doi.org/10.2307/1882087
  51. Kim, W., dan Wei, S.-J. 2002. Foreign portfolio investors before and during a crisis. Journal of International Economics. Vol. 56 (1). 77-96. https://doi.org/10.1016/S0022-1996(01)00109-X
  52. Leung, H., Schiereck, D., dan Schroeder, F. 2017. Volatility spillovers and determinants of contagion: exchange rate and equity markets during crises. Economic Modelling. Vol 61. 169-180. https://doi.org/10.1016/j.econmod.2016.12.011
  53. Li, M. Y., Makino, S., dan Jiang, C. 2019. Does national sentiment affect foreign direct investment, and if so, how? Additional evidence. International Business Review. Vol 28 (5). https://doi.org/10.1016/j.ibusrev.2019.101586
  54. Liang, C., Tang, L., Li, Y., dan Wei, Y. 2020. Which sentiment index is more informative to forecast stock market volatility? Evidence from China. International Review of Financial Analysis. Vol 71. https://doi.org/10.1016/j.irfa.2020.101552
  55. Lim, J. J., dan Mohapatra, S. (2016). Quantitative easing and the post-crisis surge in financial flows to developing countries. Journal of International Money and Finance. Vol 68, 331-357. https://doi.org/10.1016/j.jimonfin.2016.02.00
  56. Lin, C. 2012. The comovement between exchange rates and stock prices in the Asian emerging markets. International Review of Economics & Finance. Vol 22 (1). 161-172. https://doi.org/10.1016/j.iref.2011.09.006
  57. Liston-Perez, D., Torres-Palacio, P., dan Bayram, S. G. 2018. Does investor sentiment predict Mexican equity returns?. International Journal of Managerial Finance. Vol 14 (4), 484-502. https://doi.org/10.1108/IJMF-05-2017-0088
  58. Marfatia, H. 2022. What do foreign flows tell us about stock market movements in the presence of permanent and transitory shocks?. Studies in Economics and Finance. Vol. 39 (2). 219-238. https://doi.org/10.1108/SEF-05-2021-0213
  59. Miyakoshi, T., Shimada, J., dan Li, K. W. 2017. The dynamic effects of quantitative easing on stock price: Evidence from Asian emerging markets. International Review of Economics and Finance. Vol 49. 548-567. https://doi.org/10.1016/j.iref.2017.03.002
  60. Miwa, K. 2016. Investor sentiment, stock mispricing, and long-term growth expectations. Research in International Business and Finance. Vol 36. 414-423. https://doi.org/10.1016/j.ribaf.2015.10.003
  61. Naufa, A. M., Lantara, I. W. N., dan Lau, W. Y. 2019. The impact of foreign ownership on return volatility, volume, and stock risks: Evidence from ASEAN countries. Economic Analysis and Policy. Vol 64. 221-235. https://doi.org/10.1016/j.eap.2019.09.002
  62. Naresh, G., Vasudevan, G., Mahalakshmi, S., dan Thiyagarajan, S. 2018. Spillover effect of US dollar on the stock indices of BRICS. Research in International Business and Finance. Vol 44. 359-368. https://doi.org/10.1016/j.ribaf.2017.07.105
  63. OJK. (2021). Laporan perkembangan keuangan syariah indonesia. www.ojk.go.id
  64. Parsva, P., dan Tang, C. F. 2017. A note on the interaction between stock prices and exchange rates in Middle-East economies. Economic Research-Ekonomska Istraživanja. Vol 30 (1). 836-844. https://doi.org/10.1080/1331677X.2017.1311222
  65. Parveen, S., Satti, Z. W., Subhan, Q. A., dan Jamil, S. 2020. Exploring market overreaction, investors' sentiments and investment decisions in emerging stock market. Borsa Istanbul Review. 20 (3). 224-235. https://doi.org/10.1016/j.bir.2020.02.002
  66. Peiró, Amado. 2016. Stock prices and macroeconomic factors: Some European evidence. International Review of Economics & Finance. Volume 41, 287-294. https://doi.org/10.1016/j.iref.2015.08.004
  67. Pok, W. F., Kabir, M. H., dan Young. 2022. Investor sentiment and mean-variance relation: Evidence from emerging futures markets. Finance Research Letters. Volume 46. https://doi.org/10.1016/j.frl.2021.102397
  68. Qadan, M., dan Aharon, D. Y. 2019. Can investor sentiment predict the size premium?. International Review of Financial Analysis. Vol 63. 10-26. https://doi.org/10.1016/j.irfa.2019.02.005
  69. Qadan, M., Kliger, D., dan Chen, N. 2019. Idiosyncratic volatility, the VIX and stock returns. The North American Journal of Economics and Finance. Vol 47. 431-441. https://doi.org/10.1016/j.najef.2018.06.003
  70. Rahman, R. E. 2021. Understanding Indonesia’s exchange rate behavior. Studies in Economics and Finance. Vol 38 (2). 189-206. https://doi.org/10.1108/SEF-09-2018-0296
  71. Salisu, A. A., dan Ndako, U. B. 2018. Modelling stock price–exchange rate nexus in OECD countries: A new perspective. Economic Modelling. Vol 74. 105-123. https://doi.org/10.1016/j.econmod.2018.05.010
  72. Shah, S. F., dan Albaity, M. 2022. The role of trust, investor sentiment, and uncertainty on bank stock return performance: Evidence from the MENA region. The Journal of Economic Asymmetries. Vol 26. https://doi.org/10.1016/j.jeca.2022.e00260
  73. Stambaugh, R. F., dan Yuan, Y. 2017. Mispricing factors. In Review of Financial Studies. Vol 30 (4). 1270-1315. https://doi.org/10.1093/rfs/hhw107
  74. Stambaugh, R. F., Yu, J., dan Yuan, Y. 2012. The short of it: Investor sentiment and anomalies. Journal of Financial Economics. Vol 104 (2). 288-302. https://doi.org/10.1016/j.jfineco.2011.12.001
  75. Sui, L., dan Sun, L. 2016. Spillover effects between exchange rates and stock prices: evidence from BRICS around the recent global financial crisis. Research in International Business and Finance. Vol 36. 459-471. https://doi.org/10.1016/j.ribaf.2015.10.011
  76. Statman, M. 2014. Behavioral finance: Finance with normal people. Borsa Istanbul Review. Vol 14 (2). 65-73. https://doi.org/10.1016/j.bir.2014.03.001
  77. Tsagkanos, A., dan Siriopoulos, C. 2013. A Long-Run Relationship between Stock Price Index and Exchange Rate: A Structural Nonparametric Cointegrating Regression Approach. Journal of International Financial Markets, Institutions and Money. Vol 25. 106-118. https://doi.org/10.1016/j.intfin.2013.01.008
  78. Tiryaki, A., Ceylan, R., dan Erdogan, L. 2019. Asymmetric effects of industrial production, money supply and exchange rate changes on stock returns in Turkey. Applied Economics. Vol 51 (20). 2143-2154. https://doi.org/10.1080/00036846.2018.1540850
  79. Trichilli, Y., Abbes, M. B., dan Masmoudi, A. 2020. Predicting the effect of Googling investor sentiment on Islamic stock market returns: A five-state hidden Markov model. International Journal of Islamic and Middle Eastern Finance and Management. Vol 13 (2). 165-193. https://doi.org/10.1108/IMEFM-07-2018-0218
  80. Tsai, I. 2012. The relationship between stock price index and exchange rate in Asian markets: A quantile regression approach. Journal of International Financial Markets, Institutions and Money. Vol 22 (3). 609-621. https://doi.org/10.1016/j.intfin.2012.04.005
  81. Vlastakis, N., dan Markellos, R. N. 2012. Information demand and stock market volatility. Journal of Banking & Finance. Vol 36(6). 1808-1821. https://doi.org/10.1016/j.jbankfin.2012.02.007
  82. Vuong, N. B., dan Suzuki, Y. 2020. Impact of financial development on sentiment-return relationship: Insight from Asia-Pacific markets. Borsa Istanbul Review. Vol20 (2), 95-107. https://doi.org/10.1016/j.bir.2020.01.003
  83. Warshaw, E. 2020. Asymmetric volatility spillover between European equity and foreign exchange markets: Evidence from the frequency domain. International Review of Economics & Finance. Vol 68. 1-14. https://doi.org/10.1016/j.iref.2020.03.001
  84. Windmeijer, F. (2005). A finite sample correction for the variance of linear efficient two-step GMM estimators. Journal of Econometrics. Vol 126(1), 25–51. https://doi.org/10.1016/j.jeconom.2004.02.005
  85. Wong, H. T. 2022. The impact of real exchange rates on real stock prices. Journal of Economics. Finance and Administrative Science. https://doi.org/10.1108/JEFAS-03-2021-0011
  86. Wong, H. T. 2018. Volatility spillovers between real exchange rate returns and real stock price returns in Malaysia. International Journal of Finance and Economics. Vol 24. 131-149. https://doi.org/10.1002/ijfe.1653
  87. Wu, S. J., dan Lee, W. M. 2015. Intertemporal risk-return relationships in bull and bear markets. International Review of Economics & Finance. Vol 38. 308-325. https://doi.org/10.1016/j.iref.2015.03.008
  88. Xu, Y., Wang, J., Chen, Z., dan Liang, C. 2021. Sentiment indices and stock returns: Evidence from China. International Journal of Finance & Economics. 1-18. https://doi.org/10.1002/ijfe.2463
  89. Yan, C., dan Wang, X. 2018. The non-persistent relationship between foreign equity flows and emerging stock market returns across quantiles. Journal of International Financial Markets, Institutions and Money. Vol 56. 38-54. https://doi.org/10.1016/j.intfin.2018.03.002
  90. Zhang, D., Lei, L., Ji, Q., dan Kutan, A. M. 2019. Economic policy uncertainty in the US and China and their impact on the global markets. Economic Modelling. Vol 79. 47-56. https://doi.org/10.1016/j.econmod.2018.09.028