ANALYZED THE INTERNAL AND EXTERNAL
FUNDAMENTAL FACTORS
OF STOCK RETURN
(Empirical
study of the Financial Industry groups which were registered in
Indonesia
Stock Exchange from 2005 to 2014)
Perwito1, Rita Zulbetti2
Computerized
Accounting Programe
Piksi Ganesha Polytechnic of Bandung
1email: perwitoe@yahoo.co.uk
2email: zulbetti@yahoo.com
ABSTRACT
The objective of this research is to analyzed the internal and external
fundamental factors of Stock Returns of the Financial Industry groups
which were registered in Indonesian Stock Exchange from 2005 to 2014.
The research method used was descriptive, associative, and verificative. Variables which
were analyzed consisted of Return on Equity, Earning per Share, Inflation, Interest
Rate, Exchange Rate, Economic Growth, and stock returns. The population
in this this
research consisted of 78 companies of the financial industry groups. This research provides comprehensive analysis of internal and
external fundamental factors capable
to predict
of Stock Returns, using the Dynamic
Panel Data estimation of Arellano-Bond.
The result shows that Return on Equity, Earning per Share, and Economic
Growth have a positive and significant influence to Stock Return, on the other
hand Inflation, Interest Rate, and Exchange Rate have a negative and
significant influence to Stock Return.
Keywords: Stock Return; Fundamental Factors; Dynamic
Panel Data Estimation.
JEL classification: G11, G21, C33.
I.
RESEARCH BACKGROUND
The global financial crisis has
changed the world economic order. The global crisis in 2008 and a peak in the
day Monday, September 15, 2008 when Lehman Brothers declared bankruptcy. News
of the bankruptcy of Lehman Brothers quickly spread like a virus and spread to
parts of the world. The crisis caused by the subprime mortgage crisis in the
United States. At this time of crisis, countries that have never been exposed
to the financial crisis can not avoid the transmission, such as the Netherlands,
France, Germany, Singapore, and of course the impact is felt throughout the
world, including developing countries such as Indonesia (Indonesian Bank
Bulletin, 2010: 3).
In Indonesia, the impact of the
crisis began to be felt, especially towards the end of 2008. This was reflected
in an economic slowdown significantly mainly due to the drop in export
performance. On the external side, Indonesia's balance of payments deficit has
increased and the exchange rate weakened significantly. On September 2008 from
Rp 9,000 per US dollar, the rupiah exceeded Rp12.650 per US dollar on 24
November 2008. Skyrocketing rupiah course makes panic national companies are
still relying on export with imported raw materials, with declining exports ,
means to maintain its growth rate, the national economy should be supported by
many trade and domestic consumption.
The crisis events also occur in
the form of financial difficulties (financial distress), crisis banking panic
or a systemic banking crisis, stock market crash, the bursting of the financial
bubble (financial bubble), the fall of the currency, balance of payments
difficulties, failure of repayment of government debt, or a combination of two
or more events. The events of the crisis will certainly affect the performance
of companies listed on the Exchange, as seen in the decline of the stock
exchange and financial markets.
Performance Jakarta Composite
Stock Price Index (IHSG) in early 2008 was at the level of USD 2750 and a
decline in the lowest level at the end of 2008 stood at US $ 1111.39. The
highest and lowest ranges in width is more than two-fold, demonstrating the
presence of sharp fluctuations in IHSG in 2008. Genesis of the crisis surely
has implications for the performance of share prices of listed companies in
Bursa as well as macro-economic performance in Indonesia. The following data on
the macro-economic conditions Indonesia for ten (10) years.
Table 1
Developments Macroeconomic Indicators Indonesia
Year 2005-2014
No.
|
Indicator
|
2005
|
2006
|
2007
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013
|
2014
|
1
|
Inflation (%)
|
17:11
|
6:50
|
6:59
|
11:06
|
2.78
|
6.96
|
3.79
|
4.30
|
8.38
|
8.36
|
2
|
BI Rate (%)
|
12.75
|
9.75
|
8:00
|
9:25
|
6:50
|
6:50
|
6:00
|
4.75
|
7:50
|
7.75
|
3
|
Exchange Rate (US $)
|
9.830
|
9,020
|
9,419
|
10.950
|
9.400
|
8.991
|
9.068
|
9,670
|
12,170
|
12.385
|
4
|
Economic Growth (%)
|
5.69
|
5:50
|
6:35
|
6:01
|
4.63
|
6:20
|
6.5
|
6.2
|
5:58
|
5:02
|
5
|
IHSG (Rp)
|
1,162
|
1,805
|
2,745
|
1.355
|
2,534
|
3.703
|
3.821
|
4,316
|
4,274
|
4.768
|
Source: BPS,
BI, (data processing)
Based on Table 1 above can be explained that the inflation
rate in the year 201 3 8:38 reached 201% and in year 4 slightly decreased
to 8:36%. Bi rate in 201 3 by 7, 5 0% and in the year increased to 7 201 4
7 5%. the exchange rate in the year 201 3 by 12, 170 in the year 201 4
increased to 12, 385. While the economic rowth in 201 3 by 5, 58% and in the
year 201 4 decreased to 5. 02%. macroeconomic indicators in 2014 relative
to depreciate and inflation only relatively slightly improved.
In times of crisis in 2008, JCI has decreased significantly,
the composite share price decline also reflected in a decrease in individual
stocks. Declining stock prices will have implications on the return earned by
investors. Return an initial cost comparisons with the results. For stocks, the
cost is the initial purchase price, the result is the final price and if any
such dividend distribution. Return of investment will be proportional to the
risk borne by an investor. The higher level of expected return, the higher the
level of risk to be borne by the investor.
Measuring the value of shares the company can use three
approaches, namely; book value, market value and intrinsic value. Book value is
the value that is calculated based bookkeeping company issuing the stock. The
market value is the value of shares on the market, which is indicated by the
stock price in the market. While the intrinsic value otherwise known as the
theoretical value is the actual value of the shares or should occur
(Tandelilin, 2010: 301).
In determining the value of shares, investors need to pay
attention to dividends and earnings expected from the company in the future.
The amount of the dividend and earnings expected from a company will depend on
the company's profit outlook. In analyzing the stock valuation, investors can
do fundamental analysis and technical analysis, fundamental analysis is top
down to assess the prospects of the company include macroeconomic analysis,
industry analysis, and analysis of the company.
Fundamental analysis tries to predict stock prices in the
days to come up with; (I) estimating the values of the fundamental
factors affecting the stock price in the future, and (ii) applying the
relationship of these variables in order to obtain the estimated stock
price. This model is often referred to as share price forecasting models, internal fundamental
factors such as sales, expenses, earnings per share, dividend policy, and the
prospects for growth in the future, so this analysis focuses on financial
ratios and events directly or indirectly affect the company's financial
performance (Husnan, 2005: 307).
The concept of internal fundamental approach companies use
the approach of financial reports, financial reports are very useful for
investors to determine the best investment decisions and profitable, investors
can compare the intrinsic value of the company's shares over the stock market
price of the company concerned. Results of the financial statements which
could be the basis of such assessment; ROE (Return on Equity), EPS (Earnings per Share), PER (Price Earnings Ratio), and PBV (Price Book Value).
While the external fundamental factors affecting the
performance of the whole company is the analysis of the industry and
macro-economic conditions of the state. External fundamentals, among others;
inflation, interest rate of Bank Indonesia certificates (SBI), the exchange
rate, economic growth. Inflation rates, interest rates, and exchange rates that
are too high will affect the present value the company's cash flow, so the
opportunities to invest are no less interesting, as well as increase the
capital costs to be borne by the company. This is in line with the opinion of
the Tandelilin Siegel (2010; 341), which explains the strong correlation
between stock prices and macroeconomic performance, and found that the stock
price changes always occur before the economy changes.
Based on the phenomenon of the above problems, the goal of
this research is to analyze the internal and external factors which
fundamentally consists of ROE, EPS, inflation (INF), interest rate (IR), exchange
rate (ER), economic growth (GDP) and its influence on stock returns in the
financial sector, which is listed on the Indonesia Stock Exchange.
II.
LITERATURE REVIEW
2.1
Arbitrage Pricing Theory-Multi Factors Model
Arbitrage Pricing Theory (APT) is a theory of the
relationship between risk and return are derived from the absence of arbitrage
opportunities in the capital markets. APT was formed in the hope of closing the
weakness Capital Assets Pricing
Model (CAPM), which submits only one risk factor to take into account the
existing volatility in individual securities or a portfolio of securities.
Multi
Factors
Model are developed concerning to the concept of Arbitrage Pricing Theory (APT),
based on the assumption that various economic factors, either directly or
indirectly, effect on stock returns. According to Amenc (2003), multi-factors model can be distinguished explicitly
factor model with macroeconomic variables (Roll and Ross, 1980) and a model
with firm-specific attribute’s factor (Fama and French, 1996) (Charthart,
1997). The basic model of the APT are as follows:
……….
(1)
Where:
R i = actual return of assets during the period i, i = 1,2,3, ..., n
E (R i) = expected
return for asset i if all risk factors had probability equal to zero.
b ij = i asset return response to the movement of risk factor j.
δ i = number of factors or indices in common with the average
zero affecting return on all assets.
εi = random error
n = number of assets
Multi-factor analysis model as described above, the valuation of common
stock securities known as fundamental analysis. Darmadji and Fakhruddin (2011) suggests that fundamental analysis is one way of
doing stock research by studying or observing various indicators related to
macroeconomic conditions and industry conditions, including a company's various
financial indicators and corporate management.
2.2 Fundamental
Analysis
Fundamental analysis is an assessment of the
shares of companies based on financial data companies such as income, sales,
risk, and others. Fundamental analysis is an analytical method based on
the economic fundamentals of a company. This analysis focuses on financial
ratios and events that directly or indirectly affect the company's financial
performance. Fundamental analysis is generally conducted in stages, the
economic analysis, followed by an analysis of the industry, and finally
analysis of the company that issued the stock.
The use of this approach is based on the premise that the
condition of the company is not only influenced by internal factors, but
external factors (ie economic conditions / market and industry) also affects
the condition of the company. Sharpe, et. al (2005: 11) argues that:
Fundamental analysis starts by estimating that the real
value or intrinsic value of the financial asset equal to the present
value (present value) of all the expected cash
flow d iterima by the owner of the assets. A fundamental nalisis attempt
to predict the time and the amount of cash flow and then converts it into
present value with use appropriate discount rate, but also the flow of a
stock dividend in the future, which is tantamount to predicting earnings per
share and cash dividend payments (pay out ratio) after the actual value (true value) of the common stock of a company is
determined, the value is compared with the market price of such shares with the
goal to see whether shares valued appropriately. Stocks that have true value is higher than the
market price is called overvalued or overpriced. The shares have
a value lower than
thetrue market price called undervalued or underpriced.
Jogiyanto (209: 130) explains that the fundamental analysis
or a company analysis is an analysis to calculate the intrinsic value of the
stock by using the company's financial data, for example; earnings, dividends
paid, and sales (that is also called the analysis of the company). In
general, this fundamental analysis involves many variables data from both
internal and external company must be analyzed, where some of the internal
variables is quite important to note that; return on equity (ROE), the ratio of profit to shares
outstanding (earnings per
share -EPS), ratio of stock price to earnings per share (price earnings ratio -PER),
ratio of stock price to book value (price book
value -PBV), dividend payout ratio (DPR), the company's debt ratio (debt ratio), and the net income
margin (net profit margin).
Tandelilin (2010; 341) describes the fundamental external
factors that affect the price of the stock market is concerned the state
macro-economic conditions, the external fundamental factors include; GDP,
inflation, interest rates, the exchange rate, and balance of trade and
payments. Based on the literature, the authors theorized that the fundamentals
of the internal side of the company that affect the market price of the stock
is; return on equity (ROE), earnings per share (EPS) . While
the external factors the company is indikaor macro-economy of a country, such
as inflation, interest rate, exchange rate, and economic growth. Here's an
explanation of the factors that affect the price of the stock market.
1. Return on Equity (ROE)
Results of return on equity (ROE) profitability of own
capital or describe the extent of the company's ability to produce a net profit
that can be obtained shareholder for each share issued. Brigham and Houston
(2009: 109) describes "the ratio of net income to common stock equity,
which is measured as the rate of return on investment of ordinary
shareholders".
The shareholders make investments to get returns on their
funds, and this ratio shows how well they have done it from the point of view
of accounting. High ROE reflects the company's ability to generate profit
(return) is higher, the higher the company in generating profits for their
owners, then these stocks more attractive to investors. So will lead to
increased demand for these shares, in accordance with the law of demand, when
demand for shares is increased, it will be accompanied by an increase in stock
prices.
Hypothesis 1: Return
on Equity (ROE) has a positive influence on stock returns in the financial
industry groups listed on the Indonesian Stock Exchange.
2. Earning
Per Share (EPS)
Fabozzi and Peterson (2003: 780)
argues Earnings per share (EPS) is "is earnings available for common
shareholders, divided by the number of common shares outstanding". While
Tandelilin (2010: 364) argues that the Earning Per Share (EPS) is net income
that is ready to be distributed to shareholders divided by the number of shares
of the company. This ratio shows the part of each share acquired by the company
in a given accounting period. For investors, the EPS information is information
that is considered the most basic and useful, because it can describe the
prospect of earnings in the future. The larger the EPS, means the greater the
benefits to be obtained by investors. This course will increase the price of
shares in the market, with rising stock market prices will be more attractive
to own.
Elton and Gruber in Tendelilin
(2010: 364) explains that: There are several reasons underlying the use of
earnings per share (EPS) and price earnings ratio (PER), namely; first, because
basically these two components both EPS and PER is used to estimate the
intrinsic value of a stock. Secondly, dividends paid by the company basically
paid from earnings results. And third, there is a relationship between changes
in earnings with changes in stock prices.
Hypothesis 2: Earning per Share (EPS) has a positive
influence on stock returns in the financial industry groups listed on the Indonesia
Stock Exchange.
3. Inflation (INF)
Inflation is a factor of the macro fundamental macroeconomic
indicators that describe the economic conditions that are less healthy, because
the prices of goods in general increased thereby weakening the purchasing power
of people. Mankiw (2007) suggests inflation is the increase in the price
of goods in general or a decrease in the purchasing power of a currency unit.
The reduced purchasing power, will affect the decline in
demand of a product and consequently the company's sales volume also
declined. Reduced levels of sales of the company resulting in reduced
profitability. Declining corporate profits may affect stock prices, as
investors will choose the investments that can provide higher
returns. Consequently, if the stock price declines, the value of the
company also decreased. Stock price declines occurred in accordance with
the law of demand, the fewer the number of items requested, then the price will
decline
Hypothesis
3: Inflation (INF) has a negative influence
on stock returns in
the financial industry groups listed on the Indonesia Stock Exchange.
4. Interest Rate (IR)
In conducting fundamental analysis, an assessment of the
macro-economic conditions is very important to note. Fluctuations in the
capital market will be associated with changes in various macroeconomic
variables, such as; GDP, unemployment, inflation, interest rates, currency
exchange rates (exchange rate), the balance of trade and
payments. If economic conditions affecting market conditions, then in turn
market conditions will affect investors.
Macroeconomic conditions or the market can be reflected in
the interest rate. B Unga rate will be reflected in the BI Rate. BI Rate
is the interest rate policies that reflect the attitude or stance of monetary policy set by
the Bank Indonesia and announced to the public.
Theoretically it happens due; when interest rates rise,
then the investment return of related interest (eg deposits) will also
rise. This condition will attract investors who previously invested in
stocks will shift or move funds from stocks into the deposits.
Changes in interest rates affect the variability of return
of an investment. Changes in interest rates will affect the share price
upside down, ceteris paribus. That
is, if interest rates rise, then the stock price will go down, ceteris paribus. Likewise,
if interest rates fall, the stock price will rise.
Hypothesis
4: Interest Rate (IR) has a negative influence
on stock returns in
the financial industry groups listed on the Indonesia Stock Exchange.
5. Exchange Rate (ER)
Exchange Rate is the price of the local currency against
foreign currencies. The actors in the international market is very
concerned about the determination of foreign exchange (forex), because the
foreign exchange rate will affect the costs and benefits of trade in goods,
services and securities (Mudrajad, 2010).
Currency value of a country highly susceptible to change, a
weakening exchange rate shows that the value of the rupiah
depreciated or down against the US dollar. If the rupiah experienced
significant appreciation of the rupiah declining demand and increased demand
for the US dollar. Rupiah appreciation against the dollar would cause
investors choose to sell part or all of its shares to be transferred in foreign
currency and then invested elsewhere for savings. This will cause the
stock price down so that the impact on the return.
Hypothesis
5: the Exchange Rate (ER) has a negative
influence on stock returns in
the financial industry groups listed on the Stock Exchange.
6. Economic Growth (GDP)
Economic Growth is occurring variables come out as a result
of changes in inflation, interest rates and exchange rates. Economic
growth is often also used as a barometer to predict macroeconomic
investment. If economic growth is high or increasing, then there is an
indication that the prospects are also good investment (Mankiw, 2007).
High economic growth represents an increase of purchasing
power (Mankiw, 2007). The increasing purchasing power will spur increased
economic activity or transaction, and is a positive signal for the company to
increase its activities. Therefore, increased economic growth, directly or
indirectly, will increase investment activities in the real sector and activity
in the capital markets, resulting in increased capital market performance, so
it will have implications on stock returns
Hypothesis
6: Economic Growth (GDP) has positive influence
on stock returns in
the financial industry groups listed on the Indonesia Stock Exchange.
2.3 Stock
Return
An investor's primary concern is the flow of the expected
cash flows in the future. The cash flow includes two elements namely; dividends
are expected to be received each year, and the price is expected to be received
by investors when they sell the stock. Final stock price is expected to consist
of a return on the initial investment plus the expected capital gains (Brigham
and Houston, 2009: 408).
Jogiyanto (2009: 199) argues that "Return the result
obtained from investment activities. Return can be realisasian return that has
occurred or that the expected return has not yet occurred but is expected to
occur in the future ".
In the stock assessment is known that there are three types
of values, namely; book value, market value and intrinsic value. Book value is
the value that is calculated based bookkeeping company issuing the stock. The
market value is the value of shares on the market, which is indicated by the
stock price in the market. While the intrinsic value otherwise known as the
theoretical value is the actual value of the shares or should occur.
In investing, the investment return will be proportional to
the risk borne by an investor. The higher level of expected return, the higher
the level of risk to be borne by the investor. Return of investment can only be
estimated through estimating, return in the future is very likely expected
returns and actual returns or different with the realization that they will be
receiving.
Return realisasian (Realized return) a return that has
occurred. Return Realisation is calculated using historical data. Return
realisasian important because it is used as one measure of corporate
performance, and is useful as a basis for determining the expected return and
risk in the future. While the expected return is the expected return will be
acquired by investors in the future. Return Realisasian measurement that are
widely used include total return and relative return.
1.
Total return
Total Return is the overall return of an investment in a
particular period, the total return is also often called return only. Total
return consisting of capital gain (loss) and yield, capital gain or capital
loss is the difference of the price of investing today relative to the price of
the last period. While the yield is the percentage of cash receipts
periodically the investment price specified period of an investment. For
stocks, the dividend yield is a percentage of the stock price the previous
period.
Jogiyanto (2009: 200) describes the return calculation
formula is as follows:
…………………………………….
(2)
Capital gain or capital loss is the difference of the
relative price of investment now with the price of the last period.
………………………………………(3)
Description:
Pt = The stock price of the current period
Pt-1 = The share price the previous period
………………………………………(4)
2.
Relatif
return (return relative)
Relative
return can be used, namely by adding the value 1 to the value of total return.
Or …………………...(5)
Description:
Dt = Cash dividends paid
Pt-1 = The share price the previous period
2.4 Research Framework
The capital market is a means for increasing the value of
the company through a series of activities of value creation which is
supported by the full disclosure. The competitive
advantage held by the company (competitive
position) will improve the profitability and internal cash flow
that will have an impact on increasing the value of the company and on the
other side will me improve the stock price in the market (Fakhruddin, H, 2005:
5)
For investors or owners of capital, the capital market is
certainly as an alternative investment with the aim to get a return. Return an initial
cost comparisons with the results. For stocks, the cost is the initial
purchase price, the result is the final price and if any form of dividend
distributions. Return of
investment will be proportional to the risk borne by an investor. The
higher level of expected return, the
higher the level of risk to be borne by the investor.
The concept of efficient markets suggests the existence of a
security's price adjustment process towards a new equilibrium price, in
response to new information coming into the market. Jones in Jogiyanto (2009:
499) explains that "an efficient market is the market price of securities
fully reflect all information available to such assets".
In fundamental analysis, the author focuses on the internal
and external aspects of the company or a country's macro-economic conditions.
Internal and external aspects of the company greatly affect the stock price
changes in the market. This is in accordance with the opinion of the Tandelilin
Siegal (2010: 341) who argues that:
The existence of a strong relationship between stock prices
and macroeconomic performance, and found that the stock price changes always
occur before the economy changes. The underlying reason is; First, the stock
price formed a reflection of investors' expectations for profits, dividends,
and interest rates will occur. Results of the estimation of investors to these
three variables will determine the appropriate share price. Second, the
performance of the capital markets will react to changes in the macroeconomic
as changes in interest rates, inflation, or the money in circulation. When
investors determine the exact share price as a reflection of changes in
macro-economic variables that will happen, then it makes sense to say stock
prices occur before the macro economic changes actually occur.
III.
RESEARCH METHODOLOGY
3.1
Research Methods
Based on the purpose of this study, then this kind of
research can be categorized as an ex
post facto research and
survey explanatory, which is a study conducted to investigate
the events that have occurred. Given the type and nature of this study
is ex post facto and
explanatory survey, the research method used is descriptive
method, comparative, associative, and also verification. Descriptive study was
conducted to determine and explain the characteristics of the studied variables
in a situation. Comparative be used to compare different time
periods. While associative aims to test the causality between the
variables (Sekaran, 2006: 158; Sugiyono, 2005: 11). Operational variables of
this research as shown in the table below:
Table 2
Variable operationalization Research
Variables
|
Variable concept
|
Scale
|
Return on Equity
(X1)
|
Return on Equity describes the extent to which the company's ability
to generate profits that can be obtained shareholder for each share issued.
|
Ratios
|
Earning per share
(X2)
|
Earning per share is the net income that is ready to be distributed to
shareholders divided by the number of shares of the company lember
|
Ratios
|
Inflation
(X3)
|
Inflation
portrait of the rise in prices of goods in general or decrease in the
purchasing power of a currency unit.
|
Ratios
|
Interest
rate
(X4)
|
BI
Rate is the interest rate policies that reflect the attitude or stanceof monetary policy set by the
Bank Indonesia and announced to the public.
|
Ratios
|
Exchange
rate
(X5)
|
Exchange
rate / exchange rate is the price or exchange rate of the local currency
against foreign currencies.
|
Ratios
|
Economic
Growth
(X6)
|
Economic
growth is a variable output that occurs as a result of changes in inflation,
interest rates and exchange rates
|
Ratios
|
Stock
Return
(Y)
|
Return
the result obtained from investment activities.
|
Ratios
|
3.2
Types and Sources of Data
Relative study was conducted in a period of less than one year,
the research method used is cross sectional method. "Cross-sectional
method is a method of research that studies the object within a certain time or
are not sustainable in the long term". To obtain optimal analytical
results author combines time series data and cross-sectional or also often
called a data pooling or pooled times series (Kuncoro, 2007: 111).
The source of the data used in this research is secondary
data. To obtain the data through the publication of data published by official
and private institutions such as data from BPS, Bank Indonesia, Indonesia Stock
Exchange, ICMD (Indonesian Capital Market Directory, as well as data relevant
to the purpose of this study.
3.3
Sampling Techniques Research
The population used in this study all companies go public which has been listed
on the Indonesia Stock Exchange on the financial sector, which consists
of; Banks, financial institutions, securities companies, insurance, and
mutual funds. Adapaun kirteria population in this study is is:
1. Is a company that has gone public and its shares are
listed in the Indonesia Stock Exchange (BEI) in the period in 2014.
2. The company's financial
statements are used as the data end on December 31 and the audited financial
statements.
3. A company that has a complete
data needed by researchers.
The population in this study refers to data JSX fact book , 2014. Based on
the above criteria, the population in this study 78 issuers. For more
details, the population in this study look like Table 3 below:
Table 3
Population Research
Financial
Industry Groups
|
Total Population
|
Bank
|
36
|
Financing
institutions
|
14
|
Securities
companies
|
10
|
Insurance
|
10
|
Other
|
8
|
Total
|
78
|
Source: Fact book //
IDX.co.id.2014
3.4
Techniques Data Analysis
The model used is the author of Dynamic
Panel Data that refer to the formulation of models of Arellano and Bond
(1991).
R = f (ROE, EPS, INF, IR, ER, GDP)
Rit = a1Ri(t-1) +ß1ROEit
+ ß2EPSit + ß3INFit + ß4IRit
+ ß5 ERit + ß6GDPit +ɛit
Where:
Rit = The dependent
variable (Stock Return) every firm in period t
Ri(t-1) = Lag1 of Stock Return
ROEit = Return on Equity in
period t
EPSit = Earnings per Share in
period t
INF it = Inflation in period t
IR it = Interest Rate in
period t
ER it = Exchange Rate in
period t
GDPit = Economic Growth in
period t
i = Individual companies
t = Time of observation in the study (period 2005-2014)
α 1 = Coefficient Ri(t-1)
ß 1 ...ß 6 = Coefficient
ROE variables it ... GDP it
εit = Standard error
Draft Hypothesis Testing
a. The
first hypothesis
Ho : ρ ≥ 0 : return on equity, earnings per share,
economic growth have no positive influence on stock returns on the financial
industry groups.
Ha : ρ < 0 : return on equity, earnings per share,
economic growth have positive effect on
stock returns in the financial industry groups.
b. The
second hypothesis
Ho : ρ ≥ 0 : inflation, interest rate, and exchange rate
have no negative influence the
stock returns on the financial industry groups.
Ha : ρ < 0 : inflation,
interest rate, and exchange rate have negative influence on stock returns in
the financial industry groups.
IV.
RESULTS AND DISCUSSION
The following table shows the
estimation results using the First-Differences Generalized Method of Moments
(FD-GMM).
Tabel 4
Result Analysis FD-GMM
Variabel
|
Coefficient
|
Std. Error
|
Prob.
|
RETURN(-1)
|
0,127
|
0,030
|
0,000
|
ROE
|
0,089
|
0,022
|
0,005
|
EPS
|
0,018
|
0,032
|
0,038
|
INF
|
-0,040
|
0,042
|
0,000
|
IR
|
-0,003
|
0,005
|
0,003
|
ER
|
-0,056
|
0,064
|
0,041
|
GDP
|
0,283
|
0,056
|
0,000
|
R-squared
F-statistik
|
0,443
4,752
|
||
Prob(F-statistik)
|
0,000
|
||
Arellano
Bond Test
m1
m2
Sargan Test
|
0,022
0,698
0,988
|
||
Source: Eviews and STATA
output (processed)
The
results of the GMM estimation shows all the signs of the coefficients are
consistent with the theory. Based on the estimates used in Table 3 can be
formed estimation model Stock Return (R) as follows:
R = 0,127
R(t-1)+0,089.ROE+0,018.EPS -0,040.INF - 0,003.IR-0,056.ER+0,283.GDP+9,773
Results of the analysis indicate that the Return on Equity (ROE) effect
positive and significnat on stock returns, thus analysis Return on Equity (ROE) can be
used as a reference for an investor in predicting stock
prices. Theoretically that ROE is the result of the multiplication of ROA
and ROE leverage or a profit after tax divided by equity, in which case ROA
level of benefits from the use of assets, while showing how much debt leverage
employed by the company. The equation shows that the company will be able
to increase its ROE if ROA increased, while its leverage is
constant. Leverage means constant proportion of loan capital has not
changed. If ROA increases, meaning the company's profitability increased,
so the effect is ultimately improved profitability enjoyed by shareholders.
Results of the analysis indicate that the Earning per share (EPS) effect
positive and significnat on stock returns.
Earning per share (EPS) is information that is considered the most
fundamental and useful for investors, because it describes the prospects
for earnings in the
future. Increased Earning
per share indicate that the company is able to optimize their funds
to generate profits for the company. Increased corporate profits will
certainly be accompanied by an increase in earnings per share (EPS), with increasing earnings per share (EPS) of the
company, and will have implications on the increasing returns obtained by the
investor in the form of dividends. Seeing the growth of other investors
will be interested to buy and have it, so that there will be an increased
demand related shares, with the increase in demand will cause the stock price
to increase. The increased price of the stock, will usually diiringai
Similarly, the increase in the stock returns in the form of capital gains .
In teorits when the company announced an increase in
profits, the market will react positively to the stock price, generally a
company's stock price will rise so that stock returns will certainly increase,
and vice versa when the company made the announcement as negative as declining
corporate profits, then the price stocks also declined.
This is in accordance with the opinion of Fabozzi (2003:
777) who argues that:
We know from the wealth of empirical evidence that stock
prices react to earnings surprises, where surprises are defined as a difference
between expected and actual earnings. In general, the price of a company's
stock will jump upward at the announcement of better than expected earnings and
the price of a company's stock will fall quickly intervening at the
announcement of worse than expected earnings.
At most companies, profits are closely linked to stock
market value. Fabozzi research results (2003: 779), which conducts research on
General Electric's the time span from 1987 to 2001, which concluded that:
"Stock prices change in response to an announcement of unexpected
earnings, and Accounting earnings are correlated with stock returns, especially
returns measured over a long horizon following the release of earnings ".
Increased earnings or earnings will affect the dividend
growth, when the company experienced growth in the dividend, would be an
increase in the amount of dividends per share distributed to shareholders, with
the increase in the dividend per share would have implications for the returns
obtained by investors. This is in accordance with the opinion of Jogiyanto
(2009: 139), which explains that "the relationship between the stock price
should (intrinsic value) with dividend growth and dividend per share is
positive, the greater the dividend growth and dividend paid, the greater the
price of the shares" ,
Results of the analysis, Inflation have effect negative and
significnat on stock returns. Changes in the rate of inflation will affect the
variability of return of an investment. Inflation is an increase in the price
of goods in general or decrease in the purchasing power of a currency unit. The
reduced purchasing power, will affect a drop in demand for products as a result
the company's sales also declined. Declining sales of the company resulting in
reduced profits. Declining corporate profits may affect stock prices, as
investors will choose the investments that can provide higher returns. Consequently,
if the stock price declines, the value of the company also decreased.
Interest rates have effect negative and significnat on stock
returns. Changes in interest rates affect the share price upside down, ceteris
paribus. That is, if interest rates rise, then the stock price will go down,
ceteris paribus. Likewise, if interest rates fall, the stock price will rise.
Theoretically it happens due; when interest rates rise, then the investment
return of related interest (eg deposits) will also rise. These conditions
attract investors who previously invested in stocks will shift or move funds
from stocks into the deposits. That is, if done jointly by the investors to
sell their shares and move in the form of deposits, then in accordance with the
law of supply and demand, if many sellers of shares, ceteris paribus, then the
stock price will go down, so it will have implications for the decrease in
return.
This is in line with the opinion Husnan (2005: 314)
explains, "interest rates will increase the r, so that when other
variables are held constant, the stock price will decline, in other words, it
is expected that there is a negative correlation between the movement of
interest rates to market conditions ". Higher interest rates will affect
the present value (present value) so that the company's cash flow opportunities
that exist less attractive to invest again, as well as increasing capital costs
to be borne by the company, so the interest rates are high is a negative signal
to the stock price in market.
Exchange rate have effect negative and significnat on stock
returns. Exchange rate is the price or exchange rate of the local currency
against foreign currencies, especially those of Indonesia means the rupiah
against the US dollar. Market participants both national and especially
international market participants are very concerned about the determination of
foreign exchange (forex), due to the foreign exchange rate will affect the cost
of production of goods and services and will certainly affect the profit in the
business or trading activity.
Value of the currency of a country highly susceptible to
change, exchange rate weakened indicates that the value of the rupiah
depreciated or down against the US dollar. If the rupiah experienced
significant appreciation of the rupiah declining demand and increased demand
for the US dollar. Appreciation of the rupiah against the US dollar caused
investors choose to sell part or all of the shares to be transferred in foreign
currency and then invested elsewhere for savings. This will cause the stock
price down so that the impact on the return.
Economic growth is a variable output that occurs as a result
of changes in inflation, interest rate benchmark,
and the exchange rate or currency exchange rate of a country. Economic growth
is often also used as a barometer of a country's macroeconomic order to predict
the development of investment. If economic growth is high or increasing, then
there are indications that the outlook for investment also improved. It is
because investors are very concerned tingakat economic growth of a country.
High economic growth illustrates the increased purchasing
power of society. The increasing purchasing power of the people will spur
economic activity or transaction, and this is a positive signal that is very
positive for the company to increase business activity. Therefore, increased
economic growth, directly or indirectly, will increase investment activities in
the real sector and activity in the capital markets, resulting in increased
capital market performance, so it will have implications on stock returns.
Based on the analysis above shows that the fundamental
condition of internal and external macroeconomic or greatly affect stock
returns. This is in line with the opinion of the Tandelilin Siegel (2010; 341),
which explains the strong correlation between stock prices and macroeconomic
performance, and found that the stock price changes always occur before the
economy changes.
V.
CONCLUSION
Based on the results of data analysis and the above discussion,
the conclusion of this research is; Factor fundamentals such as Return on equity (ROE), Earning per share (EPS), and
positive economic growth on stock returns, while inflation, interest rate,
exchange rate negative effect on stock returns on the groups financial industry.
The results provide information that analyzed the
fundamental factors can make the information and references in predicting stock
returns in the future will come from several financial industry groups listed
on the Indonesia Stock Exchange.
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