A STUDY OF INDONESIA’S STOCK MARKET: HOW PREDICTABLE IS IT?

  • Dinh Hoang Bach Phan Department of Accounting and Finance, School of Business, Monash University Malaysia
  • Thi Thao Nguyen Nguyen The University of Da Nang
  • Dat Thanh Nguyen The University of Danang, Vietnam
Keywords: Stock returns, Predictability, Macro predictors, Investor utility

Abstract

Using monthly data from January 1995 to December 2017, this paper tests whetherIndonesian stock index returns are predictable. In particular, we use eight macrovariables to predict the Indonesian composite and six sectoral index returns using thefeasible generalized least squares estimator. Our results suggest that the Indonesianstock index returns are predictable. However, the predictability depends not only onthe macro predictor used but also on the indexes examined. Second, we find that themost popular predictor is the exchange rate, followed by the interest rate. Finally, ourmain findings hold for a number of robustness tests.

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Published
2019-02-27