The Effect of Exchange Rate and Rupiah Inflation Rate on The Composite Index
Keywords:
exchange rate, inflation rate, composite indexAbstract
ABSTRACT. Every country's economy cannot be separated from various problems such as unemployment, rising prices, and unstable economic growth. Changes in rising interest rates, rising inflation, and declining rupiah exchange rates require time to be able to change production costs, company profits, and more importantly, the company's share price on the stock market. IHSG movement is an important indicator for investors to determine whether investors will sell, buy or hold their shares. IHSG movement is influenced by various factors such as inflation and the exchange rate against the IHSG.
The effect of exchange rates and inflation is based on efficient market theory and signal theory wherein inflation and exchange rates provide signals to investors' decisions respectively, resulting in changes to the Composite Index. The purpose of this study is to determine the effect of Exchange Rates and Inflation Rates on the Composite Index. In this study using a quantitative approach and the type of data used is secondary data. There is one independent variable in this study is the Composite Index and two dependent variables are the Exchange Rate and Inflation Rate.
This research was conducted using a purposive sampling method and the research sample was the closing price of shares in banking companies that met certain criteria that were listed on the Indonesia Stock Exchange for the 2020-2022 period. The data taken is the monthly closing price of each dependent and independent variable. The sample used in this study is 36 months of closing price data. Based on the results of the tests that have been carried out, it can be concluded that the first hypothesis of the Exchange Rate on the Composite Index is negative. While the results of the second hypothesis of inflation on the Composite Index are negative. Based on the results of testing the third hypothesis, the Exchange Rate and Inflation on the Composite Index are positive and simultaneous.
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