The Impact of Political Risk and Macro Economics on Stock Return at Indonesia Stock Exchange (An Approach of Arbritage Pricing Theory (APT))


PoliticsRiskandMacroEconomicsfactorsIndonesiahavebecomeoneoftheindicators for investors to invest in Indonesia. Generally, investors expect a higher expected return, but the desire is not in accordance with the fact that the rate of return obtained is small. This study aims to find out the effect of Politic Risk and macro factors on the return rate with the approach of Arbitrage Pricing Theory (APT). Systematic factors that became the object of this study, among others; market risks, economic growth (GDP), inflation, interest rates, rupiah exchange rate and political risks.This research uses the explanatory method, with analysis unit is the companies listed in Indonesia Stock Exchange. The data used are time-series data and cross-section data based on the company’s financial statements during the study period 2007-2017. The sampling technique used purposive sampling method in 194 companies for nine years.Data analysis is done in two stages: First-pass regression (time-series) to determine excess return asset based on the beta value of macro factor and second-pass regression (cross-section). The result of the research shows that there is difference of systematic factors influence to stock return in three observation period. Increased market risk and economic growth, increase stock returns. High inflation and interest rates cause investors to reconsider the investments they have made. The strengthening of the rupiah against the US dollar is a positive signal for market participants where they still have confidence in Indonesia’s economic condition. Political risk becomes one of the factors that need to be considered in determining stock return other than market risk and macroeconomic factors.

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