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return of Islamic stock market in Indonesia is significantly affected by the return of Islamic stock market in Malaysia Hussin, Yusof, Muhammad,
Razak, Hasim, Marwan, 2013.
2.1.8 Exchange Rate
The exchange rate is the price at which residents of those countries trade with each other. Economists distiungish between two exchange rates,
such as the nominal exchange rate and the real exchange rate. The nominal exchange rate is the relative price of currency of two countries. The real
exchange rate is the relative price of the goods of two countries. That is, the real exchange rate tells us the rate at which we can trade the goods of
one country for the goods of another Mankiw, 2006. Traditional economic models argue that changes in exchange rates
affect balance sheet items of a firm through its competitiveness as expressed in foreign currency and ultimately, profits and equity leading to
price adjustments in the capital markets. This volatility in price adjustments of individual firms leads to the impact on the index.
Some empirical evidences about the influence of exchange rate on stock returns show that exchange rate had negative impact on stock returns.
The research from Vejzagic and Zarafat 2013 and Mohd Yahya 2012 show that exchange rate had negative influence on stock returns in
Malaysia. That research inline with the research from Syukma 2011 who found that exchange rate of RupiahUs Dollar had negative influence on
stock returns in Jakarta Islamic Index JII.
2.1.9 Consumer Price Index
Consumer Price Index is the most popular measurement of inflation and price level Tangjitprom, 2012. Inflation is defined as a rise in the
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average level of price for all goods and services . and we can be defined it as a permanent increase in the aggregate price level which implies a
diminishing of the purchasing power and increase the cost of living. It is important to note from this definition that the movement in the price level
needs to be permanent to believe it as inflation. Inflation considered one of the economic phenomena that still polarized attention of both development
and developing countries. Some differences of relationship among inflation and stock return
are found in several researches. In 2009, consumer price index had negative relationship to stock price in Pakistan stock market. In the next
two years, consumer price index also had negative relationship to Islamic stock market in Malaysian stock market Hussin, Muhammad, Abu,
Awang, 2012. In addition, inflation had positive relationship to stock returns of 10 companies listed in Jakarta Islamic Index Panatagama,
2013.
2.1.10 Money Supply
Money supply is the total amount of money that circulate in society at specific time. There are several standard measures of the money supply,
including monetary base, M1, M2 and M3. The monetary base is defined as the sum of currency in circulation and reserve balances. M1 is defined as
WKH VXP RI FXUUHQF\ SOXV GHPDQG GHSRVLWV WUDYHOHU¶V FKHFNV DQG RWKHU checkable deposits. M2 is defined as the sum of M1 plus money market
mutual fund balances, saving deposits and small time deposits. M3 is defined as M2 plus large time deposits, repurchase agreements, Eurodollars
and institution-only money market mutual fund balances Mankiw, 2006.
