The impact of the last two presidential periods on the performance of the Indonesia stock exchanges: An approach of arbitrage pricing theory

Garnia, Erna; Riadi, Deden Rizal; T Tahmat; Nainggolan, Ida Margareta Article The impact of the last two presidential periods on the performance of the Indonesia stock exchanges: An approach of arbitrage pricing theory Contemporary Economics Provided in Cooperation with: VIZJA University, Warsaw Suggested Citation: Garnia, Erna; Riadi, Deden Rizal; T Tahmat; Nainggolan, Ida Margareta (2024) : The impact of the last two presidential periods on the performance of the Indonesia stock exchanges: An approach of arbitrage pricing theory, Contemporary Economics, ISSN 2300-8814, University of Economics and Human Sciences in Warsaw, Warsaw, Vol. 18, Iss. 3, pp. 301-320, https://doi.org/10.5709/ce.1897-9254.539 This Version is available at: https://hdl.handle.net/10419/312955 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ www.ce.vizja.pl 301 This work is licensed under a Creative Commons Attribution 4.0 International License. This study aims to examine the influence of economic and non-economic macro factors on the performance of the Indonesia Stock Exchange (IDX) and the differences in their effects on the last two presidential terms using the Arbitrage Pricing Theory (APT) approach. The macro factors studied are an aggregate of 41 indicators of stock market index returns, benchmark interest rates, exchange rates, economic stability indicators, commodity prices, and corruption perception index (CPI). For the process of aggregation and identification of macro factors, this study uses Principal Component Analysis (PCA). The population studied were publicly listed companies on the IDX since October 2004 (299 companies) with a sample size of 157 companies. The observation period is 205 months: 120 months of the presidency of Susilo Bambang Yudhoyono (SBY) and 85 months of the presidency of Joko Widodo (JKW). The research design used the explanatory study method. The research model was analyzed using panel data regression. The results identified seven macro factor aggregates from 41 indicators studied: global index, macro economy, world oil prices, China index, Arabia index, inflation, and competitive resources. There was a simultaneous effect of macro factors on stock performance during the presidency of SBY and JKW. Partially, stock returns during the SBY era were positively influenced by the global index, world oil prices, the China index, the Arabian index, and inflation and negatively influenced by the macroeconomy. Meanwhile, during the JKW period, returns were positively influenced by the global, China, and Arabia indexes and inflation. 1. Introduction1. Introduction Technological advances in the Industrial Revolution 4.0 positively impact the progress of the Indonesian capital market. The development of financial technology (fintech) services will provide efficiency and convenience for those who want to invest in the capital market. This condition has an impact on increasing public interest in investing in the capital market. Investment decisions are closely related to returns and risks. Return and risk are natural conditions faced by investors in making investment decisions. To reduce investment risk, investors need to be familiar with various types of investment risks. One type of investment risk that can affect all stocks is systematic risk or risk that cannot be diversified. Some examples of systematic risk included in macroeconomic factors are inflation and interest rates (Nguyen et al., 2022). One of the other macro factors that influence stock performance is government policy (Samsul, 2015). Government policy decisions significantly The Impact of the Last Two Presidential Periods on the Performance of the Indonesia Stock Exchanges: An Approach of Arbitrage Pricing Theory ABSTRACT C10, C38, G10. KEY WORDS: JEL Classification: Stock Performance, Stock Returns, Macro Factors, President's Term, Arbitrage Pricing Theory. Sangga Buana University, Indonesia Correspondence concerning this article should be addressed to: Erna Garnia, Jl. Khp Hasan Mustopa No.68, Cikutra, Kec. Cibeunying Kidul, Kota Bandung, Jawa Barat 40124, Indonesia. E-mail: [email protected] Erna Garnia , Deden Rizal Riadi , T Tahmat , and Ida Margareta Nainggolan Primary submission: 10.01.2023 | Final acceptance: 05.11.2023 302 Erna Garnia , Deden Rizal Riadi , T Tahmat , Ida Margareta Nainggolan 10.5709/ce.1897-9254.539DOI: CONTEMPORARY ECONOMICS Vol. 18 Issue 3 301-3202024 affect the economy's structure and impact financial markets (Nasution, 2020). Risks that occur in certain countries due to unforeseen events and policy changes in that country. Uncertainty about the impact of government policies has an effect on unstable economic conditions (Siregar & Diana, 2019). This condition can be analyzed in Indonesia's last two presidential periods, during the financial crisis of 2007-2010 (SBY's presidency) and during the Covid-19 pandemic (Jokowi's presidency). Arbitrage Pricing Theory (APT) is based on the principle of the law of one price, or it can be considered that securities with the same characteristics cannot be valued at different prices (Husnan, 2015). Arbitrage Pricing Theory (APT) explains that there are certain factors that affect the return of a stock. The possibility of influencing factors is more than one, but this theory does not explain what factors affect the formation of security prices. There are many specific factors that affect the return of a stock. This research originated from the phenomenon of problems due to the empirical gap, where the factors that affect stock returns with different economic conditions are not completely explained and are also influenced by decision-making related to the economic policies underlying the capital market, especially in Indonesia. Various studies on the application of APT show different results in influencing stock performance. Research on the influence of macro factors on stock performance is shown in Table 1. The results show that inconsistencies in macro factors affect stock performance. Research conducted by Oktarina (2016) related to the influence of several global stock indexes and macroeconomic indicators on the movement of the IHSG was driven by the financial crisis that occurred in the USA in 2007. After the financial crisis, the Junior Chamber International (JCI) suffered a decrease and also caused the collapse of the Dow Jones index. This economic condition affected all countries, including Indonesia. The results showed that the global index affects the movement of the JCI. This is in line with research by Riantani and Tambunan (2013), which states that the global index significantly affects stock returns. However, in the research of Zikri et al. (2020), there are several foreign stock indexes (FTSE Index, Hang Seng Index, Strait Times Index) that have no effect on the JCI. According to Fadah et al. (2018), oil prices have no effect on stock indexes in the mining sector and consumer goods industry sectors. This could be caused by other unexamined factors, such as a decrease in coal exports during the study period or the election, and World Cup in 2014, which gave positive sentiment to the consumer goods industry sector. This research is in line with the results of research by Mubarok et al. (2014) that world oil prices have no significant effect on stock returns in the plantation sub-sector. However, these results are inversely related to research on the basic and chemical industry sector, miscellaneous industry sector, property and real estate sector and infrastructure, utilities, and transportation sector. Research on the effect of exchange rates on stock returns has been widely practiced on the IDX. Fadah et al. (2018), Mustafa (2017), Djamaluddin and Hosea (2021), Susan and Winarto (2021), and Saputri et al. (2020) conducted research on different sectors but with the same research results by showing that exchange rates have a significant negative effect. These results align with research by Habib and Islam (2017) on the Islamic Stock Market in India, which showed that the exchange rate (USD/ INR) affects stock returns. This result is inversely proportional to Ali's research (2014). The results of this study show that the exchange rate positively affects the Jakarta Islamic Index (JII). This result can be caused because the rupiah exchange rate has increased. Therefore, investors will try to exchange foreign currency for a rupiah and invest it in stocks. This condition can increase stock prices and increase the stock market. Research related to the effect of inflation on stock returns has been widely conducted on the IDX. Fadah et al. (2018) and Mustafa (2017) studied the manufacturing sector with different data periods but with the same research results, which showed that inflation has a significant negative effect. Inflation causes an increase in the price of goods and services. The industry that uses raw materials has experienced a decrease in profits due to an increase in the price of raw materials, and the industry cannot directly increase the cost of goods. The decline www.ce.vizja.pl 303 The Impact of the Last Two Presidential Periods on the Performance of the Indonesia Stock Exchanges: An Approach of Arbitrage Pricing Theory This work is licensed under a Creative Commons Attribution 4.0 International License. in profits is responded to by investors with changes in stock prices. This research is in contrast to Ali's research (2014). The results showed that the inflation rate positively affects the JII. This condition will reduce the real value of the rupiah and affect the exchange rate against the dollar, or the rupiah depreciates. According to the Financial Services Authority (OJK), government policies can affect stock prices even though the policies are still in the discourse stage and have not been realized. Many examples of government policies cause stock price volatility, such as export and import policies, corporate policies, debt policies, and foreign investment policies. In addition, stock returns are influenced by macro and microeconomic factors (Samsul, 2015). This is supported by research conducted by Wibowo (2017), that investors in the capital market responded to the Jokowi-JK Phase I economic policy package as good news. This condition can be represented by a significant positive abnormal return when the economic policy is published. In line with this research, the announcement of Jokowi's cabinet in 2014 was rumored to affect the Indonesian capital market. Then, the phenomenon is called the “Jokowi Effect”. The results of this study indicate that the 2014 Jokowi Working Cabinet announcement event affects the JCI (Hidayah, 2018). The urgency of this research is the inconsistency of information on factors that affect stock returns with different economic conditions during the last two presidencies. Research on economic policy decision-making that can affect stock returns is still relatively limited. Currently, Masulili and Sinaga (2017) studied the influence of economic and political variables on stock returns in the telecommunications, real estate, and construction industries by comparing the SBY administration period (2009Oct 2014) with the Jokowi administration period (Nov 2014 - Jun 2017). Several studies have examined the aggregate factor perspective regarding many factors that affect stock returns in empirical studies of Arbitrage Pricing Theory. Darma (2020) examined the ability of the multi-factor APT model to describe the relationship between the expected return of the LQ45 stock portfolio and systematic risk in the Indonesian capital market. The study used 13 macroeconomic variables that were reduced with Principal Component Analysis (PCA) to obtain variables of USD exchange rate, inflation, and market risk using the LQ45 proxy. Similar research was also conducted by Garnia (2021), regarding the impact of macroeconomic factors on the performance of the Indonesian Islamic stock market using the APT approach. Garnia (2021) simplified 8 (eight) macroeconomic factors into 2 (two) factors, namely regional factors and global factors, using Principal Component Analysis (PCA). Based on this background, it is necessary to investigate more specifically, the impact of government policies from two different presidential leadership periods on the Islamic stock market in Indonesia using the APT approach. 2. Literature Review and Hypothesis 2. Literature Review and Hypothesis DevelopmentDevelopment 2.1. Literature Review • Arbitrage Pricing Theory (APT) Empirical research related to stock returns has been carried out with various approaches. Of these many studies, Arbitrage Pricing Theory (APT) is an approach often used to explain stock returns (Ross in Husnan, 2015). However, this theory has not specifically confirmed what macro factors affect stock returns. Many researchers using the APT approach are still conducting research on macro factors as a determinant of stock returns. • Stock Index Return (Y) Stock index return is the result obtained from the profit of an investment in a certain period (Dewi & Vijaya 2018). Capital gain occurs if the current investment price is higher than the previous period's investment price. Otherwise, a capital loss occurs if the investment price is lower than the investment price of the previous period. • Government Leadership Period (D) The government leadership period is the ability or skill of a leader to influence other people in order to achieve government goals at a specific time (Muslim & Hariyati in Nas, 2015). The command leadership period can affect stock performance by making government policy decisions that significantly affect 304 Erna Garnia , Deden Rizal Riadi , T Tahmat , Ida Margareta Nainggolan 10.5709/ce.1897-9254.539DOI: CONTEMPORARY ECONOMICS Vol. 18 Issue 3 301-3202024 the economy's structure and impact financial markets (Nasution, 2020). • Market Index Return (x1 to x23) The market return is the level of profit in the market. Therefore, to get the maximum profit, it would be preferable to know the conditions in the market by using the market index (Waskito and Fitria in Jamil, 2018). For companies that carry out international trade or import-export activities, the economic conditions of counterparty countries (export destination countries or import origin countries) significantly affect issuers' performance in the future. • Exchange Rate (x24 to x29) The exchange rate is the price of currency owned by a country assessed by another country. In this case, the price is the amount of money that must be spent. The currency's value can be constant or change to be more expensive or cheaper depending on the amount of demand and supply for the currency (Pujiwati et al in Saputri et al., 2020). For foreign investors, investment opportunities in international capital markets need to pay attention to the factor of changes in foreign exchange rates. This factor does not need to be considered for domestic investors. • Reference Interest Rate (x30 to x32) The reference interest rate is the price of using investment funds (loanable funds). The interest rate is one of the indicators in determining an individual to invest or save (Boediono in Saputri et al., 2020). A high-interest rate will certainly affect investors' allocation of investment funds. Investment in bank products such as deposits or savings is less risky than investing in stocks. • Crude Oil Price (x33) Commodities as a means of investment will affect prices in the capital market. Oil price changes can affect the macroeconomy and stock prices (Koh, 2017). Petroleum is a commodity that has an important role in the Indonesian economy. The rise in oil prices led to an increase in fuel oil (BBM) prices in Indonesia (Kwanda et al in Fadah et al., 2018). In the economic cycle, almost all aspects of economic activity require energy or fuel oil to operate production machines, produce electrical energy, and transportation vehicles to allocate goods and services. • Brent Oil Futures Price (x34) Brent crude oil futures price is the main trading classification price of crude oil, which is the primary benchmark for oil purchase prices worldwide (Kwanda et al in Fadah et al., 2018). When there are fluctuations in world crude oil prices, it will impact changes in fuel prices in Indonesia because they follow world crude oil prices. • Commodity Prices (x35 to x36) Commodity prices are the prices of goods or materials that have economic value offered or provided by producers to meet consumer demand (Alfred Pakasi in Martono, 2010). One important commodity that is considered to influence stock prices is gold. Currently, many investors choose to invest in the mining sector, especially gold (Hung, 2021; Nath et al., 2019). Gold is a global currency with universally recognized value. • Gross Domestic Product (GDP) (x37) Gross Domestic Product (GDP) is the total income generated by own citizens and foreign citizens from all goods and services in a country (Hasyim in Saputri et al., 2020). The average income of a country's people can be seen from the total GDP. Therefore, GDP is an indicator to determine the level of economic prosperity of a country (Kanjilal & Ghosh, 2021). A higher GDP value can affect the prosperity of its citizens. When people are more prosper-ous, there is more money circulating in society which causes the level of con-sumption to increase. Increased consumption will cause investment to decline, leading to a decrease in the level of investment. This condition will reduce stock prices which in turn will reduce stock returns. • M1 (x38) M1 is a more restrictive meaning of JUB held by the public and consists of banknotes and currency plus demand deposits (Zunaitin et al., 2017). The money supply (M1) provides a measure of the level of liquidity of economic activity and provides an indicator that any changes in the money supply will affect investors' investment decisions. • M2 (x39) M2 is the amount of money in circulation in the broad meaning of M1 and quasi-money (savings and time deposits) in commercial banks (Zunaitin et al., 2017). An increase in the demand for money will cause interest rates to increase. Investment in www.ce.vizja.pl 305 The Impact of the Last Two Presidential Periods on the Performance of the Indonesia Stock Exchanges: An Approach of Arbitrage Pricing Theory This work is licensed under a Creative Commons Attribution 4.0 International License. securities when interest rates increase will affect the loss of capital gains which will also have an impact on the decline in stock returns. • Inflation (x40) Inflation is a condition of increasing prices in general. Inflation is also a condition of continuous decrease in the value of money because the increase in the amount of money in circulation is not balanced by the increase in the amount of goods offered (Setyaningrum and Muljono in Saputri et al., 2020) . The inflation rate can have a positive or negative impact depending on the inflation rate itself. Excessive inflation can harm the economy in general, which means that many companies will become bankrupt. This means that high inflation will drop stock prices in the market. Very low inflation will result in very slow economic growth, which will cause stock prices to move slowly as well (Pétursson, 2022). • Corruption Perception Index (x41) The corruption perceptions index (CPI) is calculated based on expert assessments and opinion surveys. The corruption perceptions index ranks 180 countries worldwide based on their perceived level of public sector corruption in public and political positions. The Corruption Perception Index uses a scale of 0 (high corruption) to 100 (low corruption). Therefore, a higher corruption perception score of a country can lead to lower corruption (Corruption Education Center, 2022). Due to the extent of corruption, investors have become afraid to invest and save less in the capital market, which is indicated by the inefficiency of the capital market. 2.2. Previous Research Various studies on the application of APT show different results in influencing stock performance. Table 1 shows the research results on the influence of macro factors on stock performance. The results of this study indicate that the inconsistency of macro factors that affect stock performance. 2.3. Hypothesis Development Based on the framework and previous empirical studies, the hypotheses proposed in this study are as follows: Hypothesis 1: Economic and non-economic macro factors affect the performance of the Indonesia Stock Exchange during the last two presidential periods using the Arbitrage Pricing Theory approach. Hypothesis 2: There are differences in the influence of economic and non-economic macro factors on the performance of the Indonesia Stock Exchange during the last two presidential periods. 2.4. Research Model Based on the theory and previous empirical studies, the effect of each independent variable on the dependent variable can be described in a paradigm model, as shown in Figure 1. 3. Methodology 3. Methodology 3.1. Type of Research This research design uses an explanatory study method that aims to explain and test hypotheses about the causal relationship between variables (Sugiyono, 2018). 3.2. Population and Research Sample 3.2.1. Population The target population in this study are all public companies listed on the Indonesia Stock Exchange since the October 2004 period, consisting of 299 companies out of a total of 753 companies listed on the Indonesia Stock Exchange as of 2021. 3.2.2. Research Sample The research sample is 157 public companies listed on the Indonesia Stock Exchange during the observation period that have complete data. The observed period is October 2004 - October 2021 (205 months), which is divided into the period October 2004 - September 2014 (120 months) for the Susilo Bambang Yudhoyono (SBY) presidency and the period October 2014 - October 2021 (85 months) for the Joko Widodo (JKW) presidency. The sampling method used is convenience sampling by the availability of the required research data. The data used in measuring research variables is secondary data in the form of panel data (pooled data), which is a combination of cross-sectional (between companies) and time series (between months). 306 Erna Garnia , Deden Rizal Riadi , T Tahmat , Ida Margareta Nainggolan 10.5709/ce.1897-9254.539DOI: CONTEMPORARY ECONOMICS Vol. 18 Issue 3 301-3202024 3.2.3. Method of Collecting Data The data collection technique used is secondary data documentation (Sugiyono, 2018). Documentation of this studies were conducted on the Indonesia Stock Exchange, the Central Statistics Agency (BPS), Bank Indonesia (BI), Web Investing, and the Ministry of Trade website. 3.2.3. Research Method Framework The framework method in this study can be seen in Figure 2. The relationship between the variables is as follows: • PC1 (Global Index) vs Stock Index Return (Y) For companies that carry out international trade or export and import activities, the economic conditions of counterpart countries (export destination countries or import origin countries) significantly affect issuers' performance in the future (Samsul, 2015). The relationship between market index returns and stock index return is positive. • PC2 (Macroeconomics) vs Stock Index Return (Y) (a) Exchange Rate vs Stock Index Return When the foreign exchange rate becomes higher against the domestic currency, the value of the domestic currency will depreciate or decrease. This condition causes the forex market to be more profitable than the stock market. For investors, the forex market will be more attractive and result in a decrease in stock returns. Therefore, it can be concluded that there is an influence between exchange rates on stock returns (Husnan, 2015). The relationship between exchange rate and stock index return is negative. (b) Reference Interest Rate vs Stock Index Return The financial sector interest rate commonly used as a guide for investors is the risk-free interest rate, which includes the central bank interest rate and the deposit interest rate. In addition, high-interest rates will impact the allocation of investors' investment funds. Investing in bank products such as deposits or savings is less risky than investing in stocks. Therefore, investors will sell their shares and deposit their funds in the bank. Simultaneous stock sales will significantly decrease in prices (Samsul, 2015). The relationship between reference interest rate and stock index return is negative. (c) Gross Domestic Product (GDP) vs Stock Index Return The increasing value of GDP indicates that people are increasingly prosperous. When people are more prosperous, there tends to be more money in the distribution of society, leading to an increase in consumption. Increased consumption will cause investment to decrease, which will reduce stock prices and reduce stock returns (Chasanah, 2018). The relationship between GDP and stock index return is negative. (d) M1 vs Stock Index Return The variable money supply (M1) provides a measure of the level of economic activity liquidity. Money supply indicates that any change in the money supply will affect investors' investment decisions (Heriyanto & Chen, 2014). The relationship between M1 and stock index return is negative. (e) M2 vs Stock Index Return Increased demand for money will increase interest rates. When interest rates increase, investment in securities causes capital gain losses and lower stock returns (Awaludin & Khairunnisa, 2020). The relationship between M2 and stock index returns is negative. (f) Corruption Perception Index vs Stock Index Return The government, civil society, and business people work together to prevent and eradicate corruption and increase investor confidence with existing company data. This cooperation is supported by the research of Budiman (2015). In this study, the illiquidity of the stock market in Nigeria caused by the amount of corruption makes investors afraid to invest and save little in the stock market, which is shown through capital market inefficiency (Budiman, 2015). The relationship between CPI and stock index return is negative. g) Commodity Prices vs Stock Index Return The most important commodity that is widely considered to influence stock prices. Many investors choose to invest in the mining sector, especially gold. Gold is a global currency with universally recognized value. Gold has a stable and standardized intrinsic value, which allows it to be purchased and liquefied anywhere. Gold is not affected by inflation (zero inflation). Therefore, the price of gold always follows the movement of inflation. The increase in gold prices will cause investors to be more interested in investing in gold rather than stocks. This situation makes the www.ce.vizja.pl 307 The Impact of the Last Two Presidential Periods on the Performance of the Indonesia Stock Exchanges: An Approach of Arbitrage Pricing Theory This work is licensed under a Creative Commons Attribution 4.0 International License. JCI decrease because investors will sell their shares and switch to gold investments (Sartika, 2017). Therefore, the price of gold will negatively affect the stock price index (Mahendra et al., 2022). The relationship between commodity prices and stock index return is negative. • PC3 (World Oil Prices) vs Stock Index Return (Y) (a) Crude Oil Prices vs Stock Index Return When crude oil production becomes excessive while the oil demand reduces, this leads to a price decline. This condition is explained by the large availability of oil supplies in the market and conversely (Tinambunan, 2019). The relationship between crude oil price and stock index return is positive. (b) Brent Oil Futures Prices vs Stock Index Return Generally, an increase in oil prices will lead to an increase in the share price of the mining sector. This condition caused by the increase in oil prices will encourage the increase of mining materials in general. Therefore, it could lead to an increase in the profits of mining sector companies. An increase in the share price of these mining companies would have a direct impact on the JCI. The relationship between brent oil futures price and stock index return is positive. • PC4 (China Index) vs Stock Index Return (Y) China is the second developing country with excellent capital market progress. The economic system that has changed from a closed (communist economic system) to an open economic system (Free Market) has brought China to the golden gate to prosperity. The combination of the communist political and market economy systems has made China a very low-price producer. China is ready to compete in international trade in the era of globalization. The progress of China is also influenced by political stability, the implementation of regional autonomy, and the implementation of the national trading system on its stock exchange (Samsul, 2015). The relationship between the China Index and the stock index return is positive. • PC5 (Arabia Index) vs Stock Index Return (Y) Several countries with majority muslim populations have been using capital markets to develop their economies for a long time. The implementation of trading in several Islamic countries is regulated in different ways. Iran organizes trading hours only between 09:00 and 12:00 on Saturdays through Wednesdays. Kuwait organizes trading from 07:00 to 14:30 on Saturday, Wednesday, Thursday, and Friday. Trading hours and days are regulated to reduce investor tension in the face of price fluctuations. In addition, this regulation also reduces the risk faced by investors, which is common in countries that do not follow Islamic rules. Examples of several Islamic countries are Bahrain, Bangladesh, Egypt, Indonesia, Iran, Malaysia, Pakistan, Saudi Arabia, Kuwait, Oman, Lebanon and Turkey (Samsul, 2015). The relationship between the Arabia index and stock index return is positive. • PC6 (Inflation) vs Stock Index Return (Y) The inflation rate can have a positive or negative effect depending on the actual inflation rate. Excessive inflation can damage the entire economy because many companies will go bankrupt. This means that high inflation will bring down stock prices in the market. Meager inflation will result in prolonged economic growth, which causes stock prices to move slowly (Samsul, 2015). The relationship between inflation and stock index return is positive or negative. • .PC7 (Competitive Resources) vs Stock Index Return (Y) Nickel is one of the most important mining materials because it is necessary for many industries, such as the stainless-steel industry, batteries, alloys, and metal plating. Indonesia is the world's largest producer of nickel. According to data from the United States Geological Survey (USGS), Indonesia's nickel production reached 1 million metric tons in 2021, or 37.04% of the world's nickel is in Indonesia. The relationship between competitive resources and stock index return is positive. 4. Results4. Results 4.1. Principle Component Analysis (PCA) Based on the Principal Component Analysis (PCA) results, the 41 macro factors that will be investigated for their influence on Stock Returns as a proxy for IDX performance are reduced to 7 principal components (as an aggregate of macro factors). Referring to the Rotated Component Matrix results, the seven principal components were identified as Global Return Index (PC1 as X1), Macroeconomics (PC2 as X2), World Oil Price (PC3 as X3), China Return Index (PC4 as X4), Saudi Re- 308 Erna Garnia , Deden Rizal Riadi , T Tahmat , Ida Margareta Nainggolan 10.5709/ce.1897-9254.539DOI: CONTEMPORARY ECONOMICS Vol. 18 Issue 3 301-3202024 turn Index (PC5 as X5), Inflation (PC6 as X6), and Competitiveness (PC7 as X7). The characteristics of each main component on which the identification is based can be seen in Table 2. 4.2. Data Regression Selection Panel Based on the results of the regression analysis, the regression coefficients for the model of the influence of macro factors on stock returns in the SBY period, as well as in the JKW period (both in the random effect model), can be seen in Table 3 parts (a) and (b). In SBY's model, the direction of influence of the global index, world oil prices, China's index, Arab index, inflation, and competitive resources are positive; whereas in macroeconomics it is negative. Stock returns increased in line with increases in global indices, world oil prices, China indexes, Arab indices, inflation, and competitive resources; and in line with the macroeconomic downturn. Meanwhile, in the JKW model, the direction of influence of the global index, China index, Arab index, inflation, and competitiveness is positive; while macroeconomically and world oil prices are negative. Stock returns increased in line with the increase in global indices, Chinese index, Arab index, inflation, and competitiveness; and in line with the decline in the macroeconomic and world oil prices. The magnitude of the influence of macro factors simultaneously on stock returns for the SBY period is 6.51% (Adjusted R2) with an F-statistic value = 188.52 (p < 0.001), while for the JKW period it is 3.92% with F = 78.83 (p < 0.001). Referring to the multiple correlation coefficients, namely R = 0.255 and 0.200 for each model (obtained from the root of Adjusted R2), it shows that the simultaneous effect of all the factors studied is relatively weak, while R is between 0.20 - 0.40 (Machali, 2018), both for the SBY and JKW periods. The p < 0.001 for each model shows that the global index, macroeconomics, world oil prices, China index, Arab index, inflation, and competitiveness simultaneously have a significant effect on stock returns, both for the SBY and JKW periods. In the SBY model, Table 3 part (a) shows that the global index (X1), macro economy (X2), world oil prices (X3), China index (X4), Arab index (X5), and inflation (X6) partially significant effect on stock returns (Y1); but resource competitiveness (X7) has no significant effect. While in the JKW model, Table 3 part (b) shows that the global index (X1), China index (X4), Arab index (X5) and inflation (X6) partially have a significant effect on stock returns (Y2); while macroeconomics (X2), world oil prices (X3), and competitive resources (X7) have no significant effect. The results of the regression analysis on the different effects of macro factors on stock performance in the last two presidencies (in the random effects model) can be seen in Table 3 part (c). The magnitude of the effect of macro factors simultaneously on stock returns during the SBY and JKW periods was 5.84% (Adjusted R2) with F = 134.01 (p < 0.001). Referring to the value of R = 0.242, it shows that the simultaneous effect of all the factors studied is relatively weak. It was found that macro factors had a significant simultaneous effect on stock returns. It was found that there was no partial significant difference between the JKW and SBY periods (D.X1). Overall, the table shows that there is no difference in the effect of the global index (D.X1), macro economy (D.X2), China index (D.X4), Arab index (D.X5), and competitiveness (D.X4), (D.X7); however, there is a significant difference in the effect of world oil prices (D.X3) and inflation (D.X6). The difference in the effect of world oil prices in the SBY and JKW periods, the increase in world oil prices in the JKW period tends not to affect changes in stock returns, in contrast to the SBY period, which is followed by an increase in stock returns. While the difference in the effect of inflation in the SBY and JKW periods, the increase in inflation in the JKW period tends to be followed by an increase in stock returns, but with a smaller increase in stock returns compared to the SBY period. 5. Discussion5. Discussion 5.1. The Effect of Macro Factors on Stock Returns in the Last Two Presidencies The findings of this study prove that the Arbitrage Pricing Theory approach can be used to explain differences in stock performance based on differences in the factors that influence it, as also stated by Samuel (2015). The research findings also www.ce.vizja.pl 315 The Impact of the Last Two Presidential Periods on the Performance of the Indonesia Stock Exchanges: An Approach of Arbitrage Pricing Theory This work is licensed under a Creative Commons Attribution 4.0 International License. Syarif, M. M., & Asandimitra, N. (2015). The influence of macroeconomic indicators and global factors on the composite stock price index (JCI). 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Effect of BI rate, FED rate, and Rupiah exchange rate on the composite stock price index (JCI) (Study on the Indonesia Stock Exchange Period 2008-2015). Journal of Business Administration S1 Universitas Brawijaya, 33(2), 69–75. Wiradharma, M. S., & Sudjarni, L. K. (2016). The effect of interest rates, inflation rates, Rupiah exchange rates and GDP on stock returns. EJournal of Management UNUD, 5(6), 3392–3420. Zikri, M., Derriawan, & Salim, F. (2020). The influence of several global stock indices and the dollar exchange rate (USD) on the JCI on the IDX and their impact on the return on shares of companies in the consumer goods industry sector. Ecobisman Journal, 4(3), 210–228. Zunaitin, E., W, R. N., & P, F. W. (2017). The effect of e-money on inflation in Indonesia. Journal of Equilibrium, II(1), 18–23. 316 Erna Garnia , Deden Rizal Riadi , T Tahmat , Ida Margareta Nainggolan 10.5709/ce.1897-9254.539DOI: CONTEMPORARY ECONOMICS Vol. 18 Issue 3 301-3202024 Table 1 Comparison of Research Results Related to Stock Performance Researcher Other Market Indices vs JCI Researcher Other Market Indices Vs Returnshare Anwar et al. (2018) Inconsistent Riantani & Tambunan (2013) inconsistent Mie & Agustina (2014) Not significant Utama & Arti (2015) Inconsistent Sunarto (2020) Inconsistent Mutakif & Nurwulandari (2014) Positive Hartantio & Yusbardini (2020) Inconsistent Heriyanto & Chen (2014) Positive Astuti et al. (2013) Positive Nangoi et al. (2022) Inconsistent Aditya et al. (2018) Inconsistent Wicaksono & Yasa (2017) Inconsistent Budiman (2015) Positive Oktarina (2016) Inconsistent Zikri et al. (2020) Inconsistent Researcher Reference Interest Rate vs JCI Researcher Reference Interest Rate Vs Returnshare Syarif & Asandimitra (2015 Not significant Riantani & Tambunan (2013) Negative Poetra & Cahyono Negative Desitania (2021) Positive Astuti et al. (2013) Negative Wiradharma & Sudjarni (2016) Positive Aditya et al. (2018) Negative Miyanti & Wiagustini, (2018) Positive Gojali et al. (2021) Not significant Martiningsih et al. (2019) Negative Wicaksono & Yasa (2017) Not significant Chasanah (2018) Negative Wijayaningsih et al. (2016) Inconsistent Jabar & Cahyadi (2020) Negative Mawarni & Widiasmara (2018) Not significant Awaludin & Khairunnisa (2020) Not significant Kalengkongan & Rate (2016) Not significant Augustina (2020) Not significant Mahendra et al. (2022) Not significant Hanivah & Wijaya (2018) Negative Oktarina (2016) Not significant Lubis et al. (2020) Positive Mustafa (2017) Negative Mubarok et al. (2014) Negative Ali (2014) Negative Djamaluddin & Hosea (2021) Negative Hidayah (2018) Not significant Susan & Winarto (2021) Negative Saputri et al. (2020) Not significant Habib & Islam (2017) Negative Appendix www.ce.vizja.pl 317 The Impact of the Last Two Presidential Periods on the Performance of the Indonesia Stock Exchanges: An Approach of Arbitrage Pricing Theory This work is licensed under a Creative Commons Attribution 4.0 International License. Table 1 Comparison of Research Results Related to Stock Performance (Continued) Researcher Exchange Rate vs JCI Researcher Exchange Rate Vs Returnshare Syarif & Asandimitra (2015) Negative Riantani & Tambunan (2013) Negative Hidayah (2018) Not significant Hutapea et al.(2014) Negative Poetra & Cahyono (2016) Not significant Desitania (2021) Negative Mutakif & Nurwulandari (2014) Negative Wiradharma & Sudjarni (2016) Not significant Heriyanto & Chen (2014) Negative Chasanah (2018) Negative Astuti et al. (2013) Negative Awaludin & Khairunni (2020) Not significant Nangoi et al. (2022) Not significant Augustina (2020) Negative Aditya et al. (2018) Negative Jabar & Cahyadi (2020) Negative Gojali et al. (2021) Negative Lubis et al. (2020) Negative Mawarni & Widiasmara (2018) Negative Mubarok et al. (2014) Not significant Wijayaningsih et al. (2016) Negative Djamaluddin & Hosea (2021) Negative Kalengkongan & Rate (2016) Not significant Susan & Winarto (2021) Negative Oktarina (2016) Negative Saputri et al. (2020) Negative Zikri et al. (2020) Negative Habib & Islam (2017) Negative Mustafa (2017) Negative Ali (2014) Positive Hidayah (2018) Negative Researcher Commodity Price vs JCI Researcher Commodity Price Vs Returnshare Nugraha & Putera (2021) Inconsistent Hutapea et al. (2014) Inconsistent Prastyo & Sertiartiti (2018) Inconsistent Desitania (2021) Not significant Syarif & Asandimitra (2015) Inconsistent Miyanti & Wiagustini (2018) Alianty (2016) Not significant Augustina (2020) Not significant Poetra & Cahyono (2016) Not significant Mubarok et al. (2014) Aditya et al. (2018) No effect Mawarni & Widiasmara (2018) Not significant Kalengkongan & Rate (2016) Positive Oktarina (2016) Inconsistent Budiman (2015) Positive Mahendra et al. (2022) Positive Fadah et al. (2018) Inconsistent Prastyo & Sertiartiti (2018) Inconsistent 318 Erna Garnia , Deden Rizal Riadi , T Tahmat , Ida Margareta Nainggolan 10.5709/ce.1897-9254.539DOI: CONTEMPORARY ECONOMICS Vol. 18 Issue 3 301-3202024 Table 1 Comparison of Research Results Related to Stock Performance (Continued) Researcher JUB vs JCI Researcher JUB Vs Returnshare Heriyanto & Chen(2014) Not significant Awaludin & Khairunnisa (2020) Negative Gojali et al. (2021) Positive Augustina (2020) Positive Habib & Islam (2017) Not significant Researcher Inflation vs JCI Researcher Inflation Vs Returnshare Oktarina (2016) Not significant Mubarok et al. (2014) Negative Mustafa (2017) Negative Djamaluddin & Hosea (2021) Negative Ali (2014) Positive Susan & Winarto (2021) Negative Hidayah (2018) Not significant Saputri et al. (2020) Negative Habib & Islam (2017) Not significant Researcher Non-Economy vs JCI Researcher Non-Economy Vs Returnshare Budiman (2015) Not significant Masulili & Sinaga (2017) N/A Hidayah (2018) Positive Mubarok et al. (2014) Negative Wibowo (2017) Positive Ernawati et al. (2019) Inconsistent Note: *Junior Chamber International (JCI) Source: Data processed Figure 1 Research Model www.ce.vizja.pl 319 The Impact of the Last Two Presidential Periods on the Performance of the Indonesia Stock Exchanges: An Approach of Arbitrage Pricing Theory This work is licensed under a Creative Commons Attribution 4.0 International License. Figure 2 Framework Method Table 2 Main Components of Macro Aggregate Factors Affecting Stock Returns Agregate Macro Factors Factors PCI: Global Index (17 factors) Dow Jones, S&P 500, Nasdaq, Nasdaq 100, NYSE, Composite (US Index); Hangseng (Hongkong Index); Kospi 50, Kospi (Korean Index); FTSE Malaysia KLCI (Malaysia Index); FTSE Singapore, MSCI Singapore (Singapore Index); SET (Thailand Index); Nikkei 225 (Japan Index); DAX, Euro Stoxx 50 (Germany Index); CAC 40 (France Index); FTSE England 100 (England Index) PC2: Macroeconomics (14 factors) Bank Indonesia (BI) Rate, FED Rate,Indonesia’s Gross Domestic Product (GDP), MI, M2, Corruption Perception Index (CPI), Bond Yield, Gold Prices, US Exchange Rate (US XR), Hongkong XR, Singapore XR, Japan XR, China XR, Malaysia XR PC3: World Oil Prices (2 factors) Crude Oil Prices, Brent Oil Futures PC4: China Index (3 factors) SZSE Composite, Shanghai, Composite, FTSE China 50 (China Index) PC5: Arabia Index (3 factors) UAE ADX, AUE DFM (United Arab Emirates Index); Tasi (Saudi Arabia Index) PC6: Inflation (1 factors) Inflation PC7: Competive Resources (1 factors) Nickel Prices 320 Erna Garnia , Deden Rizal Riadi , T Tahmat , Ida Margareta Nainggolan 10.5709/ce.1897-9254.539DOI: CONTEMPORARY ECONOMICS Vol. 18 Issue 3 301-3202024 Table 3 The Effect of Macro Factors on Stock Returns During the SBY and JKW Periods Coefficient SBY presidency JKW presidency SBY_ JKW presidency Variable (a) (b) (c) C 0.0107(3.27)** 0.0184 (2.58)** 0.0107(3.48)*** Global Index - X1 0.0315(26.12)*** 0.0287(20.67)*** 0.0315(27.75)*** Macro Economics - X2 -0.0144(-4.18)*** -0.0105(-1.34) -0.0144(-4.44)*** World Oil Prices - X3 0.0067(3.22)** -0.0040(-0.99) 0.0067(3.42)*** China Index - X4 0.0122(10.23)*** 0.0128(7.14)*** 0.0122(10.87)*** Arabia Index - X5 0.0102(9.66)*** 0.0078(3.72)*** 0.0102(10.26)*** Inflation - X6 0.0202(18.30)*** 0.0130(5.78)*** 0.0202(19.45)*** Competitive Resources - X7 0.0025(1.75) 0.0059(1.61) 0.0025(1.86) Presidential Term – D 0.0077(0.91) D.X1 -0.0028(-1.49) D.X2 0.0040(0.43) D.X3 -0.0106(-2.20)* D.X4 0.0006(0.28) D.X5 -0.0024(-0.93) D.X6 -0.0071(-2.65)** D.X7 0.0034(0.80) Adjusted R2 6.51%[188.52]*** 3.92%[78.83]*** 5.84%[134.01]*** ( ) : T-value; [ ] : F-value; * p < 0.05; ** p < 0.01; *** p < 0.001