Forecasting index and stock returns by considering the effect of Indonesia pre-presidential election 2019 using ARIMAX and VARX approches

Abstract

Election is a national event that can create significant impact on many sectors in a country. One of the affected sectors is finance. The upcoming Presidential election in Indonesia has two strong candidates who are rival since the late presidential election in 2014. The effect of this election is expected to have a big influence in the capital market, especially for Indonesian Index (IDX composite). Moreover, the stock owned by the candidate or the candidate relative is also expected to behave unusual. Therefore, this study aims to predict the return of those stock and index with the influence of Indonesia Pre-Presidential Election 2019. The stock of interest is the stock of PT. Saratoga Investama Sedaya Tbk (SRTG). The method used in study is defined into two categories. The index and stock are analyzed individually by univariate method-Autoregressive Integrated Moving Average with Exogenous variable. Multivariate method is also conducted to examine the relation among these stock and index. The used approach is Vector Autoregressive with Exogenous variable. The exogenous variable in this study is the dummy variable of Indonesia pre-Presidential Election. The results show that pre-election vibe does not significantly affect the return of the index and stock.