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4.8 Economic Analysis on VECM Estimation Results
The economic analysis on VECM estimation results of this research will be divided into three sections based on the market categories, such as:
a. Capital Market
According to the result of VECM vector error correction model estimation above, we can analyze that domestic macroeconomics variables
and global variables have significant effect to Indonesia capital market in short term and long term. The domestic macroeconomics variables have
different effect to the islamic capital market in Indonesia, such as money supply has positive effect to Jakarta Islamic Index. It means that the
movement of money supply inline with the Islamic capital market in Indonesia. The basis of positive effect from money supply is the increasing
of corporate profit that will increasing the money supply. So, in the further it will increase the cash flow and will give impact to the increasing of stock
prices. The increasing of stock prices will increasing the capital market index. Meanwhile, exchange rate, CPI and BI rate have negative effect to
Jakart Islamic Index. It means that the movement of these three variables in contrast to the movement of capital market in Indonesia. The effect of
Bank Indonesia interest rate happens because the increasing of BI rate will make the investors withdraw their money in capital market and investing in
bank deposit which has minimum risk than capital market. The positive effect from the Dow Jones Islamic Market means that
Indonesia capital market still following the global market condition. So, if the crash occurs abroad, then it may trigger a crash in Indonesia capital
market. Beside that, the number of domestic investors are still lower than the foreign investors. It makes the money in domestic capital market can
inflow and outflow to abroad whenever, so it will make our capital market
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fluctuative. To reduce the fluctuation we should increasing the number of domestice investors to our capital market.
b. Money Market
Money market in Indonesia also got the impact from the movement of macroeconomics variables and capital market. Based on the result above
Figure 4.1, we can see that money supply has causal relationship with exchange rate, CPI, BI rate and JII. It means that the increasing of BI rate
will cause the decreasing of money supply. It is in line with the instrument of monetary policy such as rediscount policy. Then, in LM curve, it is
positive slope because in money market sector, if there is increasing in interest rate R, so national income Y will also increasing and vice versa.
The consumer price index as an indicator of inflation also has positive correlation to the money supply. If the money supply increasing it
will make the consumer price index increasing and it will lead to inflation. Jakarta Islamic Index JII as one of the best islamic index in Indonesia
capital market has negative effect to Money Supply in Indonesia. It means that the increasing of JII will make the decreasing money supply. It
happens because the the increasing of JII is caused by the increasing of stock price, the increasing of stock price will lead the investor to add more
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zϬ zϭ
D
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money to their stock investment that will make the money supply in society decreasing.
c. Foreign Exchange Market
Foreign exchange market in this research is between Indonesia Rupiah IDR and United Stated Dollar USD. The exchange rate between
US Dollar to Indonesian Rupiah was very fluctuative since the last quarter of 2013. Indonesian Rupiah deppreciate to US Dollar almost in Rp 13.000
per 1 USD. According to the VECM estimation result above, the exchange rate has negative effect to Jakarta Islamic Index. It means that the
increasing of exchange rate will decreasing the Jakarta Islamic Index respectively.
The fluctuation of exchange rate is affected by domestic factors such as export, import, capital market and also foreign country factors. The
increasing of import it will lead Indonesian rupiah depreciate to US Dollar and the increasing of export will lead Indonesian rupiah appreciate to US
Dollar. The capital market is also give influence to the foreign exchange market. The foreign investor that invest their money in our capital market
can make capital inflow or capital outflow whenever, it will lead the volatility of exchange rate. If the rupiah depreciate to US Dollar, the
foreign investor will increasing the capital inflow to Indonesia capital market and vice versa.
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CHAPTER V CONCLUSION
5.1 Key Findings
This study started with descriptive statistics examination. It followed with the Augmented Dickey Fuller
± Unit Root testing and continued with the Johansen Juselius
± Cointegration test. Then, it applied vector error correction model VECM to test the causality. In the end, we conduct
Variance Decomposition Analysis. According to the analysis and explanation in the previous chapter, there are several key findings as
follows: 1.
Johansen Juselius Cointegration test defines the long term relationship among JII stock returns JII, Dow Jones Islamic
Market stock returns DJIM, FTSE Bursa Malaysia Hijrah Shariah stock returns FHSI, money supply M2 and Bank
Indonesia interest rate BIR are significant in 90 confidence OHYHOĮ
2. Vector Error Correction Model VECM is to examine the short term causality among all variables. The VECM estimation result
show that in the short term, Jakarta Islamic Index JII stock returns influenced by Dow Jones Islamic Market Index
DJIMstock returns and money supply LNM2 are positive significantly. Meanwhile, FTSE Bursa Malaysia Hijrah Shariah
Index FHSI stock returns, exchange rate LNEXRATE, consumer price index CPI and Bank Indonesia interest rate
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