Understanding capital market responses to government economic policy announcements: An event study on Indonesia’s Economic Policy Package

Abstract

This paper investigates the changes in stock market returns before and after the announcement of a sample of three instalments, or 'volumes', (I, X, and XVI) of the Indonesian government's Economic Policy Package (EPP), between 2015 and 2017. It tracks Abnormal Return (AR) and Cumulative Abnormal Return (CAR) on the Composite Stock Price Index (JCI) and ten sectorial indices of the Indonesia Stock Exchange. By testing for the direction and significance of differences in AR and CAR, the paper aims to clarify whether those announcements provided sufficient informational content to sway prices. The study finds that the impact of the policy announcements was recorded primarily by individual sectors, but did not elicit a significant market-wide response. Moreover, the majority of economic sectors consistently reacted negatively. This shows that, overall, capital markets did not feel those government policies contain sufficient measures to remove obstacles to business activity.

Stock market reaction to government policy on determining coal selling price

“…For example, the market reacted positively to monetary policy [ 13 ] and oil prices [ 15 ]. The market responded negatively to the government's financial policy to raise interest rates [ 14 ] and Indonesia's economic package policy [ 19 ], which also received a negative response from the market. The market responded negatively to the government's policy on coal DMO.…”

“…Several studies on government policies have been conducted by many researchers, including monetary policy [ 13 , 14 ] and oil price policies [ 15 ], and tax reform policies [ 16 ]. Studies on the capital market reaction due to tax amnesty policies issued by the Indonesian government [ 17 , 18 ] and economical package policies in 2015–2017 [ 19 ] have also been studied by some researchers. However, the previous studies have not analyzed the potential for overreaction, which could lead to prolonged market turmoil due to a government policy.…”

The Link between Business Strategy, Competitive Advantage and Firm Value Msme's Constructions and Real Estate during COVID-19 Pandemic in Indonesia

“…Government policy, policies aimed at the public in the broadest sense (state, society in various statuses as well as for the public interest), whether it is carried out directly or indirectly, which is reflected in various dimensions of public life [58]. Likert scale business performance,is the result of work achieved by an individual and can be completed with the individual's tasks within the company and within a certain period, and will be associated with the size of the value or standard of the company that the individual works for [53] Performance measurement using items that have been developed by [56,53,57,48].…”

Dampak Pengumuman Penurunan Harga BBM Terhadap Abnormal Return Pada Perusahaan Yang Tergabung Dalam Idx30

“…Penelitian yang dilakukan oleh Ningsih & Cahyaningdyah (2014) mendapatkan hasil bahwa tidak terdapat perbedaan yang signifikan antara Abnormal return sebelum dan sesudah peristiwa kenaikan harga BBM pada 22 Juni 2013 yang menunjukkan bahwa pengumuman kenaikan harga BBM tanggal 22 Juni 2013 tidak menimbulkan Abnormal return. (Gursida & Indrayono, 2019) menemukan bahwa dampak pengumuman kebijakan tidak menimbulkan respons pasar yang signifikan, dimana mayoritas sektor ekonomi secara konsisten bereaksi negatif.…”