Does the Covid-19 Pandemic Affect the Stock Market in Indonesia?

Abstract

This study aimed to analyze the existence and effect of the Covid-19 pandemic on the stock market over the long-term and short-term in Indonesia. The study followed Krugman’s (1979) approach stating the pandemic crisis problems have the potential to decrease the performance of the international balance of payments which will ultimately lead to uncertainty in the market. The research method was the Error Correction Model (ECM) with stock markets as an endogenous variable; and exchange rate, inflation, interest rate, foreign stock markets, commodity price, and pandemic as exogenous variables. The pandemic indicator was measured by total accumulative cases of Covid-19 per day in Indonesia. Using ECM, the result showed that foreign interest rates and commodity prices positively affect the stock markets. Conversely, the exchange rate has a negative effect on the stock markets. However, the estimation fails to reflect the significant impact of the Covid-19 pandemic in the short-term, but it has a negative effect on stock markets in the long-term. This result implies that the higher total accumulative cases of Covid-19 has been the source of Indonesia’s stock market weakness in the long-term. To the best of the author’s knowledge, this study is the first to examine Indonesia’s stock market’s pandemic impact between the short term and long term.

The Influence of Covid-19 Daily Cases, World Oil Prices, World Gold Prices And Rupiah Exchange Rates

“…However, the results of this study are not in line with the results of study conducted by Alfi Syahri & Robiyanto, (2020); Khoiri & Arghawaty, (2020); Rahmayani & Oktavilia, (2021);and Supriyanto et al, (2021) who stated that rupiah exchange rate against the USD had a negative and significant effect on the JCI movement during the pandemic. It means that when the rupiah weakens, investors will shift their investment to investments into USD.…”

“…The results of this study are in line with the findings of (Haryanto, 2020), which stated that the daily number of Covid-19 cases had a negative impact on the JCI. Rahmayani & Oktavilia, (2021), stated that Covid-19 had no impact on the JCI movement in the short term, but the accumulation (long-term) of Covid-19 had a negative impact on the JCI movement. Based on this description, the hypothesis in this study is formulated as follow:…”

Economic fluctuations and monetary policy on the stock market during the COVID-19 pandemic in Indonesia

“…Crisis conditions have a negative effect on the stock market. t is consistent with previous research by reference [19] which stated that the stock market would suffer as a result of the Covid-19 pandemic. Their findings, however, do not match the results of this regression for the exchange rate, which has a positive impact, and inflation, which has a negative impact.…”

Analysis of Abnormal Return and Volume Activity of Telecommunications Sector Shares in Indonesia Before and After Covid-19

“…According to (Rahmayani & Oktavilia, 2020) stated that the existence and effect of the pandemic in Indonesian stock market has negative effect. Their study utilized the Error Correction Model where the stock market acted as an endogenous variable, and the exogeneous variables are commodity price, pandemic and exchange rate, among others.…”