Factors Affecting the Volatility of the Jakarta Composite Index before and after the Merger of Two Stock and Bond Markets in Indonesia

Abstract

Relations in economies and finance are often simplified in the form of models. The Jakarta Composite Index (JCI) has relations to some variables of gold price, SBI (The Central Bank’s Interest Rate), inflation, and GDP. The capital market in Indonesia has been growing to be a financial institution with strategic role in national economic development. Indonesia had ever had two capital markets: JSX (Jakarta Stock Exchange) and SSX (Surabaya Stock Exchange). Moreover, the two capital markets were merged to be BEI or IDX (Indonesia Stock Exchange) in 2008. With the merger, thus, there is only one capital market in Indonesia, i.e. BEI. The merger has implication to the management of capital market to stock trading liquidity and factors influencing the Indonesia Stock Exchange (IDX) Compose Price Index (IHSG). From the consideration, the research problem is how the impact of capital market merger to factors influencing the Indonesia Stock Exchange (IDX) Compose Price Index. The dissertation research has goal of analyzing effects of the gold price, SBI, inflation and GDP on JCI before and after the merger and formulating the consequences of the impact of the merger policy. The data of the variables used in this research are monthly time series for the period 2004(1) to 2012(12). Autocorrelation and heteroscedasticity problem persist in the initial model. To overcome these problems, the model was developed by using the ARCH/GARCH method. This model is expected to be useful to predict and make decisions related to volatility of the JCI and the affecting factors.