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The Relationship Between Business Confidence, Consumer Confidence, and Indexes Return: Empirical Evidence in Indonesia Stock Exchange

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The Relationship Between Business Confidence, Consumer Confidence, and Indexes Return: Empirical Evidence in Indonesia Stock Exchange International Conference on Trends in Economics, Humanities and Management (ICTEHM'14) Aug 13-14, 2014 Pattaya (Thailand) The Relationship between Business Confidence, Consumer Confidence, and Indexes Return: Empirical Evidence in Indonesia Stock Exchange Resti Ayuningtyas, and Deddy P. Koesrindartoto Abstract—The purpose of this study is to examine if business There is also economic indicator known to measure the confidence and consumer confidence can have relationship with producers’ optimism or sentiment about the economy called returns of stock market in Indonesia that are represented by some of business confidence index. When consumers have good indexes. The indexes are Jakarta Composite Index (JCI), LQ45 Index, confidence in their income or finance condition, they tend to Jakarta Islamic Index (JII), and Sector Index. Linear regression is spend more. It will have impact for producers too. Higher employed to analyze the relationship of change in business confidence and change in consumer confidence toward quarterly demand from consumers will affect producers to increase return of each index from 2000 until 2013. The findings provide production and inventory levels. Thus, beliefs have effects on empirical evidence that change in business confidence has significant how much consumption and investment that will also affect and positive relationship with quarterly return of each stock index. the aggregate demand [1]. In relation with stock market, Meanwhile, change in consumer confidence only has significant and shareholders usually expect high consumer confidence negative relationship with quarterly return of Agriculture and Trade because it will encourage more spending and create bullish Index. The results can be consideration for investors to earn return on stock market investments in Indonesia. market for stocks [2]. Previous study has examined the joint explanatory power of Keywords—business confidence, consumer confidence, stock business confidence and consumer confidence, using market index, return. generalized least square on total stock market return in 31 countries. The findings showed that business confidence and I. INTRODUCTION consumer confidence could correlate positively with stock HE rise and fall of stock market could be related with market return [3]. The causal relationship between consumer confidence and stock price indexes also has ever been many factors that investors always try to find out. One of T investigated and shows that stock returns Granger-cause the most influence factor is economic indicator. Economic changes in the Consumer Confidence Index based on Granger- indicator is an important measurement to evaluate the causality test [4]. Another study also proves that positive news economic performance in a country at certain period. There on business consumer confidence gives positive response to are various economic indicators that can be used to analyze stock returns in United Stated and Germany [5]. how well economic performance of a country in current period The authors want to test if the previous researches, and in prediction of future performance. When the economy is good, it is usually good for stock market as well, and vice especially research by [3], will get the similar result in Indonesia. This study attempts to answer the ability of versa. Investors usually use information related to economic business confidence and consumer confidence in explaining indicators as considerations to forecast the return and also to return of some stock indexes in Indonesia, which are Jakarta make decision. Composite Index (JCI), LQ45 Index, Jakarta Islamic Index One of macroeconomic indicators assessed to know the economic condition in a country and also becomes one of (JII), and Sectorial Index. The objectives of this study are: to determine whether there is significant relationship between the considerations for investment performance is sentiment. change in business confidence, change in consumer Sentiment relates to consumers’ and producers’ optimism or confidence, and Jakarta Composite Index’s quarterly return pessimism about the economy. Familiar economic indicator from 2000 until 2013, to determine whether there is significant known to measure the consumers’ optimisms or sentiment relationship between the change in business confidence, about the economy is called consumer confidence index. change in consumer confidence, and LQ45 Index’s quarterly return from 2000 until 2013, to determine whether there is significant relationship between the change in business *Resti Ayuningtyas, and Deddy P. Koesrindartoto, are with School of confidence, change in consumer confidence, and Jakarta Business and Management, Institut Teknologi Bandung, Indonesia. Islamic Index’s quarterly return from 2000 until 2013, to *(Email ID: resti.ayu@sbm-itb.ac.id) determine whether there is significant relationship between the http://dx.doi.org/10.15242/ICEHM.ED0814013 21 International Conference on Trends in Economics, Humanities and Management (ICTEHM'14) Aug 13-14, 2014 Pattaya (Thailand) change in business confidence, change in consumer Multicollinearity Test has a purpose to test whether confidence, and each sector index’s quarterly return from 2000 correlations among independent variables or predictors are until 2013. strong. No correlation between the predictors indicates good regression model. There will be no multicolllinearity between II. METHODOLOGY independent variables if maximum value of VIF is 10 [9]. The main dependent variable in this research is quarterly Besides, the minimum value of tolerance should be 0.1 [10]. return on stock market index. There are four groups of stock Reference [11] shows that autocorrelation test is needed to market index in Indonesia that will be used to analyze, which detect non-randomness in data. Runs test is one of technique are Jakarta Composite Index, LQ45 Index, Jakarta Islamic to decide if a data set is from a random process [12]. The runs Index, and Sector Index. Sector Index consists of agriculture, test should not reject the null hypothesis that states the mining, basic-industry, miscellaneous industry, consumer, sequence was produced in a random manner. property, infrastructure, finance, trade, and manufacture index. After passing classical assumption test, linear regression Therefore, there are thirteen dependent variables in total. can be done. Multiple linear regressions is employed in this Quarterly return of each index is obtained through the study since there is more than one independent variable used calculation: to predict the value of dependent variable, Y. The equation (2) (ending_ quarter _index - beginning_ quarter _index) (1) expresses the linear regression to analyze relationship between beginning_ quarter _index change in business confidence and consumer confidence and The independent variables of this research are change in quarterly return of each stock index. = + DBC + DCC + (2) consumer confidence and change in business confidence by Y i b 0 b 1 b 2 e i taking the first difference. In Indonesia, business confidence is Where: published quarterly both by Badan Pusat Statistik and Bank Yi = return on each stock market index for index i in quarter t Indonesia. Meanwhile, the consumer confidence is published β0 = Y intercept β1 = slope of Y with variable ΔBC, holding variable ΔCC monthly by Bank Indonesia and quarterly by Badan Pusat constant Statistik. Since business confidence is only based on quarterly, ΔBC = change in the index of business confidence by taking not monthly, all variables in this research are based on quarter. the first difference; that is the value of business confidence Data of all stock indexes are obtained from Indonesia index in quarter t less quarter t-1 Capital Market Electronic Library. Meanwhile, data of β2 = slope of Y with variable ΔCC, holding variable ΔBC business confidence and consumer confidence are obtained constant from official website of Badan Pusat Statistik, www.bps.go.id. ΔCC = change in the index of consumer confidence by taking All data have range from third quarter in 2000 until forth the first difference; that is the value of consumer confidence index in quarter t less quarter t-1 quarter in 2013. There are 54 data for each index as dependent variable. εi = random error in Y for observation i Linear regression is employed in this study to analyze the explanatory power of business confidence and consumer III. DATA ANALYSIS confidence on each stock market index. Through the Before analyzing through linear regression, classical regression analysis, the values of numerical variable can be assumption test is needed to be implement. Using predicted based on the value of other variables since there will Kolmogorov-Smirnov test, the results show all residual values be model resulted from the regression processing [6]. on each variable are normally distributed since the Asymp. To get the good regression model, classical assumption test Sig. (2-tailed) is more than 0.05. Thus, null hypothesis of is necessary to be implemented as a requirement. There are normality is not rejected. Breusch-Pagan and Konker test for four kinds of test on classical assumption test: normality, testing heteroscedasticity also show there is no heteroscedasticity, multicollinearity, and auto-correlation. heteroscedasticity for all models since the test is not Both classical assumption test and linear regression are statistically significant or more than 0.05. It indicates null processed through SPSS, statistic software. hypothesis of homoscedasticity
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