COVID-19 CRISIS AND FINANCIAL MARKETS: A STUDY OF THE INDONESIAN STOCK EXCHANGE AND BANKING STOCKS

Abstract

We employ a macroeconomic and specific industry model to investigate the impact of the COVID-19 pandemic on the stock market in Indonesia and banking stock performance. The macroeconomic model analyses the effects of the exchange rate (Rp to US$), bond yield difference (Government Securities and US Treasury Bond 10 years), gold price, and dummy variable (covid =1 and non-covid = 0) on Indonesia Composite Index (ICI) applying an Error Correction Model. We collected the daily data from July 1, 2019, to November 23, 2020. The results revealed that the exchange rate, bond yield difference, and the crisis significantly impacted ICI, whereas the exchange rate and gold price were insignificant. Using a random-effect model, the specific banking industry model examined the impact of CAR, NPL, ROE, NIM, LCR, and LDR on 19 commercial banking stocks from 2019:Q1 to 2020:Q2. The estimation result concluded that only CAR has significantly impacted the commercial bank stock price, suggesting the importance of capital adequacy for the banks to function in the recent period.