Cross Border Portfolio Investment and The Volatility of Stock Market Index and Rupiah's Rate
Keywords:
Foreign Capital Flows, Capital Market of Volatility, Currency Exchange
Abstract
This paper use daily data during the period 2010-2014 to analyse the impact of foreign capital inflows on capital market volatility and on the volatility of Rupiah’s rate. The results shows the flow of foreign capital positively affect the Jakarta Composite Index (JCI) but not the rate of Rupiah. Using Vector Error Correction Model, this paper finds a cointegrated and dynamic relationship between the changes in foreign capital flow in Indonesia, with the JCI and the exchange rate of Rupiah against USD. Changes in the Rupiah’s rate significantly affect the foreign capital flow and the JCI, while the JCI does not significantly affect the flow of foreign capital and the changes of Rupiah’s rate.
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References
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Wongbangpo, P., and Sharma, C.S. 2002. Stock Market and Macroeconomic Fundamental Dynamic Interaction: ASEAN-5 Country. Journal of Asian Economics, 13, 27-51.
Agarwal, S., Sheri, F., Chunlin, L., and Ghon, R. 2009. Why do Foreign Investors Underperform Domestic Investors in Trading Activities? Evidence from Indonesia. Journal of Financial Market, 12, 32-53.
Ajayi, R.A., and Mougoue. 1996. On the Dynamic Relation between Stock Price and Exchange Rates. Journal of Financial Research, 19, 193-207.
Bapepam-LK. 2008a. Analisis Hubungan Kointegrasi dan Kausalitas serta Hubungan Dinamis antara Aliran Modal Asing, Perubahan Nilai Tukar, dan Pergerakan IHSG di Pasar Modal Indonesia. Bapepam-LK, Kementerian Keuangan Republik Indonesia. Jakarta.
___________. 2008b. Identifikasi Pemodal Asing di Pasar Modal Indonesia. Bapepam-LK, Kementerian Keuangan Republik Indonesia. Jakarta.
___________. 2008c. Pengaruh Transaksi Asing terhadap Neraca Pembayaran Indonesia.
Bapepam-LK, Kementerian Keuangan Republik Indonesia. Jakarta.
Bartman, S.M., & Dufey, G. 2001. International Portfolio Investment: Theory, Evidence, and Institutional Framework. Maastricht University. Maastricht.
Bekaert, G., and Harvey, C.R. 2003. Emerging Market Finance. Journal of Empirical Finance, 10, 3-55.
Bodnar, G.M., and Gentry, W.M. 1993. Exchange Rate Exposure and Industry Characteristics: Evidence from Canada, Japan, and U.S.A. Journal of International Money and Finance, 12, 29-45.
Bohn, H., and Tesar, L. (1996). U.S. Equity Investment in Foreign Market: Portfolio Rebalancing on Return Chasing? American Economic Review, 2, 77-81.
Bursa Efek Indonesia. 2014. IDX Annual Statistic. http://www.idx.co.id.
_________________. 2014. IDX Monhtly Statistic. http://www.idx.co.id.
_________________. 2014. IDX Fact Book. http://www.idx.co.id.
Chayawadee, Chai-Anant and Corrine, Ho. 2008. Understanding Asian Equity Flows, Market Returns, and Exchange Rate. Monetary and Rconomic Department, BIS Working Papers, No. 245, Januari 2008.
Dornbusch, R., and Fischer, S. 1980. Exchange Rates and Current Account. American Economics Review, 70, 960-710.
Dvorak, T. 2005. Do Domestic Investors have an Information Adventage? Evidence from Indonesia. Journal of Finance, 60, 817-839.
Edwards, K. 2000. Foreign Portfolio and Direct Investment: Complementary, Differences, and Integration. OECD Global Forum on International Investment-Attracting Foreign Direct Investment for Development.
Enders, W. 2004. Applied Econometric Times Series, 2nd Eddition. John Wiley and Sons, Inc. New York.
Evans, K. 2002. Foreign Portfolio and Direct Investment: Complementary, Differences, and Integration. OECD Global Forum on International Investment-Attracting Foreign Direct Investment for Development. Shanghai.
Franke, J.A. 1993. Monetary and Portfolio-Balance Models of the Determination of Exchange Rates. MIT Press, Chambridge.
Frensidy, Budi. 2008. Analisis Pengaruh Aksi Beli-Jual Asing, Kurs, dan Indeks Hang Seng terhadap Indeks Harga Saham Gabungan di Bursa Efek Indonesia dengan Model GARCH. Media Riset & Bisnis, 8, 25-42.
Froot, K.A., and Donohue, J. 2002. The Persistence of Emerging Market Equity Flows. Emerging Market Review, Vol. 3, pp. 511-534.
________________, & Tarun Ramadorai. 2002. The Information Content of International Portfolio Flows. NBER Working Paper, No. 8472.
He, J., and Ng, L.K. 1998. The Foreign Exchange Exposure of Japanese Multinational Corporations. Journal of Finance, 53, 733-753.
Ibrahim, M.H. 2000. Cointegration and Granger Causality Test of Interaction in Malaysia. Asian Economic Buleten, 17, 36-47.
Jorion, P. 1990. The Exchange Rate Exposure of U.S. Multinationals. Journal of Business, 63, 331-345.
_______. 1991. The Pricing of Exchange Rate Risk in Stock Market. Journal of Financial and Quantitative Analysis, 363-376.
Karolyi, A.G. 2002. Did the Asian Financial Crisis Scare Foreign Investors Out of Japan? Pasific- Basin Finance Journal, 10, 411-442.
Ma, C.K., and Kao, G. 1990. On Exchange Rate Changes and Stock Price Reaction. Journal of Business Finance Review, 60, 668-675.
Parthapratim Pal. 1998. Foreign Portfolio Investment in India Equity Market: Has the Economy Benefited? Economics and Political Weekly, March 1998, 14-20.
Ramasamy, B., and Mathew, Y. 2001. The Causality between Stock Returns and Exchange Rates: Revisted. Research Paper Series, 11. Division of Business and Management, the University of Nottingham in Malaysia.
Richard, A. 2005. Big Fish in Small Ponds: the Trading Behavior and Price Impact of Foreign Investors in Asian Emerging Equity Markets. Journal of Financial and Quantitative Analysis,
40, 1-27.
Solnik, Bruno. 1974. Why Not Diversify Internationally Reather than Domestically? Financial Analysts Journal, 30, 48-54.
Todaro, M.P., & Smith, S.C. 2004. Pembangunan Economi Dunia Ketiga. Erlangga. Jakarta.
Wang, J. 2007. Foreign Equity Trading and Emerging Market Volatility: Evidence from Indonesia and Thailand. Journal of Development Economics, 84, 798-811.
Wongbangpo, P., and Sharma, C.S. 2002. Stock Market and Macroeconomic Fundamental Dynamic Interaction: ASEAN-5 Country. Journal of Asian Economics, 13, 27-51.
Published
2015-10-07
How to Cite
Muntasir, A. (2015). Cross Border Portfolio Investment and The Volatility of Stock Market Index and Rupiah’s Rate. Buletin Ekonomi Moneter Dan Perbankan, 17(4), 403-432. https://doi.org/10.21098/bemp.v17i4.504
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
