Macroeconomic Impact From 2012 to 2022 on Indonesia Composite Index Return

The objective of this study was to evaluate the influence of inflation rate and other macroeconomic factors on the return of the Indonesian Composite Stock Index. In the last three years, the world has been dealing with unexpected events such as the COVID pandemic and the Russia-Ukraine conflict, leading to a notable increase in global inflation. Indonesia, however, has been able to keep inflation under control. Over the past decade, the country has experienced remarkable economic growth with an average GDP growth of 5%. This growth has also reduced the poverty rate to less than 10%, consequently, Indonesia was included in the G20 and was appointed as the Chair of the G20 in 2022. To understand the relationship between the Indonesian Composite Stock Index and several macroeconomic variables, we used Eugene Fama's efficient market hypothesis as the underlying theory. We conducted multiple regression analysis on quarterly data from 2012-2022, obtained from various benchmark websites. We found that GDP growth and bond yield had high impact on the return of the Indonesian Composite Stock Index, indicating that the stock market acted as a leading indicator for the selected macroeconomic variables. This was contrary to the efficient market hypothesis. The findings from this study provide useful information to all parties involved in the Indonesian stock market, including participants, regulators and policymakers. Our research indicates that macroeconomic factors have a significant influence on the stock market and should be considered when making decisions related to the stock market.