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Stock return will get effected by the fluctuation of exchange rate in a country Wu, 2000. When the exchange rate fluctuates, foreign investor
will get atrratcted to invest their money in capital market. Thus will make the price of stock corrected.
H. Previous Research In 2004, Maysami, et al. made a research about relationship between
selected macroeconomic variables and the Singapore Stock Market Index STI, as well as with various Singapore Exchange Sector Indices-the finance index, the
property index, and the hotel index. This research used VCEM model proposed by Johansen1990 which allows for testing cointegration in a whole system of
equations in one stop, without requiring a specific variable to be normalized. The research‟s data is the monthly time-series which is obtained from the
PublicAccess Time-Series system, an online service by the Singapore Department of Statistics. And the SES All-S Equities indicies figures are obtained from the
Singapore Statistics published by the Singapore Department of Statistics. The
study concludes that the Singapore‟s stock market and the property index form cointegrating relationship with changes in the short and long-term interest rates,
industrial production, price levels, exchange rate and money supply macroeconomics variables.
Gay 2008 conducted a research about effect of macroeconomic variables on
stock market return for four emerging economies: Brazil, Russia, India and China. The Box-Jenkins ARIMA model used to describe the relationship will use the
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moving-averages at the one-month MA1, three-month MA3, six-month MA6, and twelve-month MA12 for the lagged dependent of stock market price
and the two intervening variables of exchange rate and oil price. Available monthly data for stock market price index, exchange rate, and oil price between
1999:03 to 2006:06 for Brazil, Russia, India, and China from the Organization for Economic Cooperation and Development OECD is used in this study, which
will provide 90 observations per variable for each BRIC for a total of 1,080 observations. This study concludes that no significant relationship was found
between respective exchange rate and oil price Macroeconomic variables on the stock market index prices of either BRIC country, this may be due to the influence
other domestic and international macroeconomic factors on stock market returns, warranting further research. Also, there was no significant relationship found
between present and past stock market returns, suggesting the markets of Brazil, Russia, India, and China exhibit the weak-form of market efficiency.
Wan Mahmood
2009 from Universiti Teknologi Mara Trengganu, Malaysia, examine the dynamics relationship between stock prices and economic variables
in six Asian-Pacific selected countries of Malaysia, Korea, Thailand, Hong Kong, Japan, and Australia. The monthly data on stock price indices, foreign exchange
rates, consumer price index and industrial production index that spans from January 1993 to December 2002 are used. This study performed two cointegration
tests of Engle and Granger 1987 and Johansen and Juselius as his method. The results indicate the existing of a long run equilibrium relationship between and
among variables in only four countries, i.e., Japan, Korea, Hong Kong and
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Australia. As for short run relationship, all countries except for Hong Kong and Thailand show some interactions. The Hong Kong shows relationship only
between exchange rate and stock price while the Thailand reports significant interaction only between output and stock prices. An accurate estimation of these
relationships enables investors to make effective investment decisions. At the same time, it helps policy makers in designing policies to encourage more capital
inflows into the respective countries‟ capital market.
Pakistani scholar, Ahmad et al. 2010 performed a study that examines the
relationship between stock return, interest rate and exchange rates in Pakistani economy. For this, the data of short term interest rate, exchange rate RsUS
and stock market returns KSE-100 over the period of 1998-2009 is collected. A multiple regression model is applied to test the significance of change in interest
rate and exchange on stock returns. The results show that both the change in interest rate and change in exchange rate has a significant impact on stock returns
over the sample period.
Kandir 2008 investigates the role of macroeconomic factors in explaining
Turkish stock returns. A macroeconomic factor model is employed for the period that spans from July 1997 to June 2005. Macroeconomic variables used in this
study are, growth rate of industrial production index, change in consumer price index, growth rate of narrowly defined money supply, change in exchange rate,
interest rate, growth rate of international crude oil price and return on the MSCI World Equity Index. This study uses data for all non-financial firms listed on the
ISE. The analysis is based on stock portfolios rather than single stocks. In
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portfolio construction, four criteria are used: market equity, the book-to-market equity, the earnings-to-price equity and the leverage ratio. A multiple regression
model is designed to test the relationship between the stock portfolio returns and seven macroeconomic factors. Empirical findings reveal that exchange rate,
interest rate and world market return seem to affect all of the portfolio returns, while inflation rate is significant for only three of the twelve portfolios. On the
other hand, industrial production, money supply and oil prices do not appear to have any significant affect on stock returns.
Meanwhile, In Indonesia, there was Handoko 2003 who examines a few of
macro economics variables which are influencing the rate of return of stocks portfolios from all public companies in consumer goods industry which are
already listing at Jakarta Stocks Exchange. The model in building a portfolio is based on market share with Ordinary Least Square OLS analyzing method is
using to test the six-independent variables simultaneously which are predicted influencing the rate of return in every portfolio, which are Stock Price Index in
Jakarta Stocks Exchange, non-gas and petroleum export, the currency of Rupiah, rate of interest, price of gold and Consumer Price Index in food industry. The
sample uses in this study is taking from all go-public companies in consumer goods industry during January 2000 -December 2003 period of time and gets 48
observations. The analysis result is showing that not all the independent variables which are predicted having a significant influence through the rate of return of
stock portfolio.
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Another research conducted by Softameiono 2007 proposed there is relationship
between macroeconomics variable; inflation, interest rate, and exchange rate, and stock return in banking sector. The data is gathered from Jakarta Stock Exchange
which are the stock returns in Banking sector listed in two effects from January 2002 to February 2004. The method used to analyze the data is regression of panel
data with random effect. Besides, the T test, F test, and Determination test is also employed. The result is macroeconomic variables interest rate, inflation and
exchange rate give significance influence to the stocks return in Indonesia Stock Exchange. The most significant variable is exchange rate.
I. Research Framework and Hypotheses a.
Inflation and Stock’s Return
Theoretically, inflation and a stock‟s rate of return have a negative relationship. If an inflation rate increased, a stock‟s rate of return will decrease and vice versa.
Based on the theories and previous studies, we formulate hypothesis as follow: H
: There is no relationship between inflation rate and stock‟s rate of return
H
1
: There is a negative relationship between inflation rate and stock‟s rate
b. Interest Rate and Stock’s Return
Theoretically, interest rate and a stoc k‟s rate of return have a negative
relationship. If an interest rate increased, a stock‟s rate of return will decrease and
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vice versa. Based on the theories and previous studies, we formulate hypothesis as follow:
H : There is no relationship between inte
rest rate and stock‟s rate of return.
H
1
: There is a negative relationship between interest rate and stock‟s rate of return.
c. Exchange Rate and Stock’s Return
Theoretically, exchange rate and a stock‟s rate of return have a negative relationship. If an
exchange rate increased, a stock‟s rate of return will decrease and vice versa. Based on the theories and previous studies, we formulate
hypothesis as follow: H
: There is no relationship between exchange rate and stock‟s rate of return.
H
1
: There is a negative relationship between exchange rate and stock‟s
rate of return. Based on the previous study, there is no fixed explanation about what
macroeconomic factors that influence the stock‟s rate of return. Therefore, this research aims to investigate the specific macroeconomic factors that influence the
stock‟s rate of return with developing multi index model as follows:
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Figure 2.2 Research Model
Interest Rate Stock‟s
Rate of Return
Inflation
Exchange Rate
Dependent Variable
Independent Variable
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CHAPTER 3 RESEARCH METHODOLOGY
A. Data Collection 1. Unit of Analysis and Research Sampling
The unit of analysis refers to the level of aggregation of the data collected during the subsequent data analysis stage Cooper et al., 2006. This research
focusing on the influence of selected macroeconomic variables on stock‟s rate of return. The unit of analysis for this study is the market sector indices listed in
Indonesia Stock Exchange IDX. The market sector indices in Indonesia Stock Exchange IDX is divided into 10 sectors; mining, agricultural, consumer goods,
miscellaneous industry, manufacturing, infrastructure and transportation, finance,
trade investment and services, chemical basic industry and property and real estate
The sample of this research is the market sector indices on consumer goods and property and real estate sector during the period 2006-2010. Both categories are
chosen because each category have different characteristic than others. The market sector indicies on consumer goods sector is less likely to be affected by the
cyclical factor in this research, we examine 3 macroeconomic variable compared with the market sector indices on property and real estate sector. From that
sample, the writer able to calculate the stock‟s return during the period stated.
