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

Abstract

The purpose of this study is to examine the stock market’s resiliency in the face of economic fluctuations and a crisis caused by the COVID-19 outbreak. using monthly data from 2011 to 2020 and an error correction model with the Composite Stock Price Index (conventional stock market system) and the Jakarta Islamic Index (Islamic stock market system) as dependent variables and policy interest rates, exchange rates, inflation, and crises as independent variables. In both stock market models, the regression results reveal that there is a short-term to long-term equilibrium relationship. Interest rates set by policymakers and crisis variables have a detrimental impact. In the long run, the exchange rate has a beneficial effect, and inflation has no influence on the two stock markets. In the short run, the findings in both markets are nearly identical, meaning that inflation and policy interest rates have little influence, whereas exchange rates have a negative impact. The crisis, on the other hand, had no impact on the JCI stock market. The crisis had a positive impact on the JII stock market, unlike the JII stock market. These findings are significant because they reveal a distinction that leads to a significant increase in the number of investors who believe it is safe to invest in the Islamic stock market in the short term, notwithstanding the crisis.

Examining the Role of Inflation Moderation in Mitigating the Impact of Crude Oil Prices on Indonesia's Sharia Stock Market

“…Studies have found that inflation rates can affect the returns of both Islamic and conventional stock markets, with some research indicating a positive long-term relationship between inflation and stock market returns (Jelilov, Iorember, Usman, & Yua, 2020;Kwofie & Ansah, 2018). However, other studies suggest that inflation may have a negative impact on the Sharia Stock Market index in the short term, especially during economic shocks such as the COVID-19 pandemic (Halim, 2020;Suriani, Nasir, & Ernawati, 2022).…”