Stock Market Volatility in Indonesia : Comparative Study between Islamic and Composite Stock Indices

Stock Market Volatility in Indonesia:

Comparative Study between Islamic

and Composite Stock Indices

By Rininta Nurrachmi

www.rininta-nurrachmi.blogspot.com

Presented at

CEFI (Conference Economic

and Finance on Indonesia

On 30 Nov – 1 Dec 2015

Organized by

Asian Development Bank

and

LPEM Universitas Indonesia www.rininta-nurrachmi.blogspot.com

Background

The Establishment of JII in 3 July 2000

2007-2008 Global

Financial Crisis

Islamic stock index received the negative impact from the crisis

Most of Previous

Studies Done During the

Crisis

Massive Promotion on

Islamic Economic and Finance


To compare the volatility level and character for Islamic and conventional stock indices prior, during and after financial global crisis.

To identify the existence of Islamic stock index in Indonesia

Research Objective


Islamic and Composite Stock

Indices in Indonesia

Stock market Index in

Indonesia

Jakarta Islamic Index

Shariah Screening Process

The Listed Companies are subset from Composite Stock

Index

Jakarta Composite Index

No Shariah Screening Process

Contain interest


Previous Studies No Author Observation and tool Duration of

study Results

1 Sukmana and Kholid (2009) ; Akhtar et al (2012) ; Chiadmi and Ghaiti (2012)

Indonesia, 9 Islamic and 37 non - Islamic countries, using GARCH (1.1)

During Crisis Islamic stock index is less volatile compare to conventional stock index

2 Motameni and Abounoori (2009)

Iran, using Parametric GARCH-M

1997-2002 (whole data, pre crisis and post crisis)

The relationship between stock return and volatility was significant before crisis and insignificant after crisis

3 Amanina and Safiih (2010) ; Romli et al (2012) ; Nurrachmi (2013)

Malaysia, using GARCH (1.1) 2007 to 2010 Higher volatility for Islamic stock index

4 Abbes (2012) Indonesia, Malaysia, Turkey, Egypt, Bahrain Marocco, Oman and Qatar, using CAPM Model

June 2002 to April 2012

Shariah stock indices to have higher volatility for Muslim countries

5 Nazlioglu, et al (2013) Dow Jones Islamic stock index and three conventional stock markets for the U.S., Europe, and Asia , using GARCH (1.1)

pre- and the in- and post-2008 crisis periods

Islamic index has higher volatility level during pre-crisis ; during in and post crisis Islamic index is less volatile

6 Miniaoui and Chaibi (2014) Gulf CC, using Augmented GARCH

During the wake of financial crisis of 2008

Islamic index has similar risk profile as conventional www.rininta-nurrachmi.blogspot.com

Data and Methodology

Data

Daily Stock Price Index from Bloomberg

Islamic Stock Index : JII (Jakarta Stock Index)

Composite Index : (Jakarta Composite Index)

Pre crisis : 4 January 2000 -2 September 2007

During crisis : 3 September 2007 – 14 January 2010

Post crisis : 18 January 2010 – 28 August 2015

Methodology

GARCH (1.1)

Generalized Autoregressive

Conditional Heteroskedasticity

if the value of α+β is approaching to 1 or

more than 1, the frequency of stock is volatile or has high

volatility. www.rininta-nurrachmi.blogspot.com

Results - 1

Data Prelimineries

Descriptive Analysis

Mean descriptive

statistic

Islamic stock

index (JII) has

higher average

daily return

Pre Crisis

JCI : -0.0613%

JII : -0.0596%

During Crisis

JCI : -0.0314%

JII : -0.0285%

Post Crisis

JCI : -0.0385%

JII : -0.0218%

Standard Deviation

Conventional stock index

(JCI) was less volatile

Pre Crisis

JCI : 1.382%

JII : 1.752%

During Crisis

JCI : 1.999%

JII : 2.284%

Post Crisis

JCI : 1.173%

JII : 1.391%


Results - 2

Volatility Measurement

GARCH (1.1)

Pre Crisis

JCI : 0.938317

JII : 0.984537

During Crisis

JCI : 0.994808

JII : 0.994052

Post Crisis

JCI : 0.941699

JII : 0.977723

In the mean equation the return of Jakarta Islamic Index (JII) was significant prior and after crisis compare to the return of Jakarta Composite Index (JCI). The returns of Islamic and composite stock index have similar risk because both stock indices illustrate high volatility prior, during and after financial crisis. www.rininta-nurrachmi.blogspot.com

Conclusion and Recommendation

Conclusion

• JCI and JII were active during period of study

• JII and JCI present high volatility level which approaching to 1

• Islamic stock index hold the high value before and after crisis

• composite stock index was more volatile during the financial crisis.

Recommendation

• Support from Muslim investors

• Support from the government

• Islamic stock index should serve as a platform for investors to help companies traded their stocks to get money.

• Speculative money or investing in short period will not give benefit to develop proper stock market. (Romli, et al , 2012)


Stock Market Volatility in Indonesia : Comparative Study between Islamic and Composite Stock Indices

Data & Analytics

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