MINOR THESIS PRESENTATION

THE INFLUENCE OF
MACROECONOMIC VARIABLES
TOWARDS
INDONESIAN SHARIA STOCK INDEX (ISSI)
by
Tasnima Nur Azizah
125020107121016

INTRODUCTION

Research Gap
The Sharia stock market index

Formulation of the Problem

Which of the macroeconomic variables is influencing
ISSI and how does that variable influence the ISSI?

ISSI vs JCI
ISSI.
300

ISSI VS JCI

JCI.
6000

250

5000

200

4000

150

3000

100
50
0

ISSI
JCI

2000
1000
0

MATRIX OF LITERATURE REVIEW

Research Title

Does Stock Market

Respond to
Economic
Fundamentals?
Time Series
Analysis from
Indian Data

Relationship
Between
Macroeconomic
Fundamentals and
Stock Market
Indices in Selected
CEE Countries

The Researchers

Research Variables

General Conclusion

Pramod Kumar Naik

(2013)

Methods:
Johansens Co-integration
Vector Error Correction Model (VECM)
Granger Causality
Dependent Variable:
BSE Sensex (Indian Stock Market Index)
Independent Variables:
Industrial Production Index (IIP)
Wholesale Price Index (WPI)
Money Supply
Exchange Rate
Short-Run Interest Rate

IIP is significantly positive in

influencing BSE
WPI is significantly negative in
influencing BSE
MS is significantly positive in
influencing BSE
ER is insignificantly negative in
influencing BSE
IR is insignificantly negative in
influencing BSE

Tajana Barbi
Iva ondi-Jurki
(2011)

Methods:
Johansens Co-integration
Granger Causality
Dependent Variable:
Croatian, Czech, Hungarian, Polish, and
Slovenian stock market (CROBEX, PX, BUX,
WIG, and SVSM)
Independent Variables:
Broad Money Supply (M3)
Foreign Exchanges Reserves (FXR)
Money Market Interest Rates (MMIR)
Harmonized Index of Consumer Prices

Money market interest rate is the

most prominent variable to predict
the long run developments on
Croatian and Hungarian stock
market
Stock index in Czech republic is
led by money supply and foreign
exchange, while Slovene stock
index is led by inflation rate
(represented by HICP) and money
market interest rate

MATRIX OF LITERATURE REVIEW

Research Title

Impact of
Macroeconomic
Variables on Stock
Market Prices of the
Stockholm Stock
Exchange (OMXS30)

Causal Relationship
between MacroEconomic Indicators
and Stock Market in
India

The Researchers

Research Variables

General Conclusion

Joseph Tagne Talla

(2013)

Methods:
Unit Root Test
Multivariate Regression Model on OLS
Granger Causality
Dependent Variable:
Stockholms Stock Market Index (OMXS30)
Independent Variables:
Consumer Price Index (CPI)
Interest Rate (IR)
Exchange Rate (ER)
Money Supply (MS)

CPI is significantly negative in

influencing OMXS30
IR is insignificantly negative in
influencing OMXS300
ER is significantly negative in
influencing OMXS300
MS is insignificantly positive in
influencing OMXS300

Dr. Naliniprava Tripathy

(2011)

Methods:
Ljung-Box Q Test
Breusch-Godfrey LM Test
Unit Root Test
Granger Causality Test
Dependent Variable:
BSE Sensex
Independent Variables:
91-days Treasury Bill Rate (Interest Rate)
Exchange Rate
Wholesale Price Index (Inflation Rate)
S&P 500 Return (International Market Index)
BSE Trading Volume

Inflation rate, exchange rate, and interest

rate influence the Indian stock market.
Thus, stock market can be predicted
using those three variables
The change of trading volume is affected
by international market and exchange
rate

MATRIX OF LITERATURE REVIEW

Research Title

The role of
Macroeconomic
Variables on Stock
Market Index in China
and India

An Empirical Study
of Macroeconomic
Factors and Stock
Market: An Indian
Perspective

The Researchers

Research Variables

General Conclusion

Seyed Mehdi Hosseini

Zamri Ahmad
Yew Wah Lai
(2011)

Methods:
Augmented Dickey-Fuller Unit Root Test
Multivariate Co-integration
Vector Error Correction Model (VECM)
Dependent Variables:
Bombay Stock Exchange (BSE)
Shanghai Stock Exchange (SSE)
Independent Variables:
Crude Oil Price (COP)
Money Supply (M2)
Industrial Production (IP)
Inflation Rate (IR)

BSE:
Negative influence from COP and MS
Positive influence from IP and IR
SSE:
Negative influence from IP
Positive influence from COP, MS, and IR

Saurabh Yadav
(2012)

Methods:
Unit Root Test
Co-integration
Ljung-Box Q Test
Multivariate VAR Analysis
Dependent Variables:
BSE Sensex
Independent Variables:
Money Supply (M1)
Consumer Price Index
Producer Price Index
Industrial Production
Exchange Rate

Domestic demand leads Indian

stock price, because it tends to
depend more on domestic factors.
BSE can be of help in predicting
the industrial climate in India for it
is the leading indicator of industrial
production.
MS, CPI, PPI, and IP have longrun relationship with BSE
ER does not have long-run
relationship with BSE

MATRIX OF LITERATURE REVIEW

Research Title

Macroeconomic
Activity and the
Malaysian Stock
Market: Empirical
Evidence of
Dynamic Relations

Macroeconomic
Factors and Stock
Market Movement:
Evidence from Ghana

The Researchers

Research Variables

R. Ratneswary V.
Rasiah
(2010)

Method:
Johansens Co-integration
Vector Error Correction Model
Dependent Variable:
Stock Price Index (KLCI)
Independent Variables:
Industrial Production (Real Output)
Consumer Price Index (CPI)
Money Supply (M1)
Real Exchange Rates (RER)

Anokye M. Adam
George Tweneboah
(2008)

Methods:
Johansens Multivariate Co-integration Test
VECM
Dependent Variable:
Databank Stock Index
Independent Variables:
Net Foreign Direct Investments
Treasury Bill (proxy for Interest Rate)
CPI (proxy for Inflation)
Exchange Rate

General Conclusion

Industrial production, money

supply, inflation, and exchange
rates have positive relationship
with the stock returns, but the
dominant influence variables on
the stock price are CPI
(representing inflation), money
supply, and exchange rates.

FDI is significantly positive in

influencing DSI
TB is significantly negative in
influencing DSI
CPI is significantly positive in
infuencing DSI
ER is significantly negative in
influencing DSI

MATRIX OF LITERATURE REVIEW

Research Title

Can Macroeconomic
Variables Explain
Long Term Stock
Market Movements? A
Comparison of the US
and Japan

Economic Forces and

10
the Thai Stock
Market, 1993-2007

The Researchers

Research Variables

Andreas Humpe
Peter Macmillan
(2007

Method:
Johansens Co-integration
Dependent Variable:
Stock Prices in US and Japan
Independent Variables:
Industrial Production
Consumer Price Index
Money Supply
Interest Rates

Komain Jiranyakul
(2009)

Method:
Johansens Co-integration
Granger Causality
Dependent Variable:
Stock Market Index
Independent Variables:
Real GDP
Money Supply (M1)
Nominal Effective Exchange Rate (NEER)
Consumer Price Index (CPI)

General Conclusion

US:
Significantly positive influenced by IP
Significantly negative influenced by
CPI and IR
Insignificantly positive influenced by
MS
JP:
Significantly positive influenced by IP
Significantly negative influenced by
CPI, MS, and IR

Stock market index is significantly

imposed a positive impact by real
GDP, money supply, and NEER
CPI insignificantly gives negative
impact to the stock market index.

HYPOTHESIS
1

CPI influences negatively significant towards ISSI

Interest rate influences negatively significant towards ISSI

Exchange rate influences negatively significant towards ISSI

Money supply influences positively significant towards ISSI

DATA AND VARIABLES

Monthly secondary data from May 2011 to October 2015

Y = f(X1, X2, X3, X4)

Where,
Y
= ISSI
X1 = CPI
X2 = interest rate
X3 = exchange rate
X4 = money supply

METHOD
ADF Unit Root Test
Data must be stationary

Johansens Co-integration Test

Both variables must be co-integrated

VECM
Wald Test

Granger Causality

RESULT
ADF Unit Root Test
Null Hypothesis

P-Value Null Hypothesis

Results

Y (ISSI) is not stationary

0.0000* Reject

Y is stationary

X1 (CPI) is not stationary

0.0000* Reject

X1 is stationary

X2 (IR) is not stationary

0.0151* Reject

X2 is stationary

X3 (ER) is not stationary

0.0003* Reject

X3 is stationary

X4 (MS) is not stationary

0.0000* Reject

X4 is stationary

(*) means significant at 5% critical level

All variables are stationary at 1st difference

RESULT
Johansens Co-integration Test
Hypothesized
No. of CE(s)

Trace
Statistic

Critical Value
= 5%

Prob.

Max-Eigen
Statistic

Critical Value
= 5%

Prob.

None*

82.75457

69.81889

0.0033

37.34908

33.87687

0.0185

At most 1

45.40550

47.85613

0.835

21.90812

27.58434

0.2251

At most 2

23.49737

29.79707

0.2225

17.77579

21.13162

0.1385

At most 3

5.721588

15.49471

0.7281

5.415418

14.26460

0.6887

At most 4

0.005985

3.841466

0.5800

0.306170

3.841466

0.5800

The variables are co-integrated

RESULT
VECM

Y = 102.67 0.1541X1 + 12.1252X2 0.0422X3 + 0.00001X4

(1.02)
(-4.40)
(10.4)
(-12.8)
The value of t-statistics of each variables is in parentheses
The value of t-statistics lower than 1.96 indicates
insignificancy (negative sign does not matter)

RESULT
Wald Test
Variables

Null Hypothesis

Chi-Square
P-Value

X1

C(4)=C(5)=0

0.0641

X2

C(6)=C(7)=0

0.2845

X3

C(8)=C(9)=0

0.4100

X4

C(10)=C(11)=0

0.8071

No short-run relationship between the independent variables

and dependent variable

RESULT
Granger Causality Test
Null Hypothesis

F-Statistic

Prob.

X2 does not Granger Cause X1

7.65405

0.0013

X1 does not Granger Cause X4

3.63716

0.0340

X2 does not Granger Cause X3

3.38301

0.0424

Y does not Granger Cause X2

6.19831

0.0041

X4 does not Granger Cause X3

3.41082

0.0414

Y does not Granger Cause X3

6.58025

0.0030

ECONOMIC ANALYSIS
CPI, interest rate, exchange rate, and money
supply have long-run relationship with ISSI
However, they do not influence ISSI in the shortrun
CPI gives negative impact to ISSI insignificatly
Significantly, ISSI follows the movement of interest
rate and money supply positively, while it follows
exchange rate negatively
ISSI might be used as the leading indicators for
interest rate and exchange rate respectively.

CONCLUSION

In the short-term, the independent variables, namely

consumer price index, interest rate, exchange rate,
and money supply, do not have causality relationship
towards ISSI. However, they cause an influence
towards Indonesian Sharia Stock Index in the long-run.
Interest rate and money supply significantly give
positive influence towards Indonesian Sharia Stock
Index, while the depreciation of rupiah towards dollar
significantly gives a negative influence towards ISSI.
Inflation rate represented by consumer price index in
this study is not significant in determining the
Indonesian Sharia Stock Index.
Therefore, investors should follow money supply and
interest rate, because Indonesian Sharia Stock Index
reacts to those macroeconomic variables positively.
It is also important for investors to follow the
movement of rupiah rowards dollar, because periods of
high depreciation will probably create difficulty for the

Thank you