The Effect of Commodity Prices and Exchange Rate on the Stock Return of Agriculture and Animal Feed Companies in Indonesia

Abstract

The purpose of this study is to investigate the impact of selected commodity ratios and the exchange rate on the return on investment in agriculture and animal feed companies in Indonesia. The study employs the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) methodology, analyzing both monthly and daily data from 2014 to 2021, with a specific focus on the periods before and after the COVID-19 pandemic. The findings reveal significant relationships between commodity prices, exchange rates, and stock returns, with noticeable variations in these relationships during the COVID-19 timeline. One of the challenges encountered was the difficulty in accurately estimating parameters for error distribution using both GED and Student’s t-distribution, which impacted the selection of the best GARCH (1,1) model. The conclusions suggest that commodity prices and exchange rates are critical drivers of stock returns in these sectors. The study implies that investors should consider these variables when making investment decisions, particularly in light of the fluctuations in the USD/IDR exchange rate. This research provides a valuable reference for understanding the dynamics of returns on investment in Indonesian agriculture and animal feed companies, offering insights that can guide more informed investment strategies.