The Relationship Among Stock Market, “Hot Money,” and Economic Fundamental: The Case of Indonesia

Nur Fathoni, Yoichi Okita, Ph.D.

2012 | Tesis | S2 Magister Ek.Pembangunan

-

Whether the high growth of the Indonesia Stock Exchange’s index and its capitalization market, especially during the period after year 2000, is mostly driven by hot money inflows or good economic performance is still debatable. This study undertakes to provide answer to this issue using VAR analyses model. It involves three variables, namely GDP, stock market index, and hot money based on the data from the period of the first quarter of 1999 to the first quarter of 2012. This research employs three kinds of analyses commonly used in VAR model. The Granger causality/block exogeneity Wald test does not provide any single causality among the three variables. However, the impulse response analyses show the existence of a positive impact of a unit shock of stock market index on hot money and vice versa, but with a shorter period of effect. An unpredictable change in GDP does not influence the other two variables and it is not affected by a unit shock in other variables. In addition, the forecast error variance decomposition analyses imply that hot money could come for short-term profit in a stock market. These results show the existence of influence of hot money in the Indonesia Stock Exchange. The Central Bank of Indonesia (BI) and the Ministry of Finance should consider this fact while formulating their policies in order to minimize the negative effects of hot money inflows in the Indonesian economy.

Kata Kunci : stock market, hot money, economic fundamental, Granger causality, innovation accounting.