The Correlation Between Inflation and Stock Price in Relation to Macro Economic Variables; Interest Rate, Money Growth, GDP, Oil Price, Financial Deregulation, and Financial Deficit on the Manufacturing Company 1996-2004


This research has an objective to examine the correlation between Inflation and stock price in Indonesia, whether it is negative, positive or flat, in relation to the following macroeconomic variables: interest rate, money growth, oil price, gross domestic product, financial deregulation, and financial deficits. The research selects the populations and samples based on the purposive sampling. The test was conducted  using a regression with stock price as a dependent variable, inflation as an independent variable, and interest rate, money growth, oil price, gross domestic product, financial deregulation, and financial deficits as control variables that were also included as independent variables.

The results support the hypothesis that inflation has a negative correlation with stock price. However, the control variables result is not consistent with the prediction. Although the control variables are not consistent, they do not disturb the researcher’s examination since it is not what the researcher focused on. An important implication of these findings is that since most of the factors unrelated to market fundamentals are found to exert insignificant effect on stock prices, the Indonesian stock market can be described as likely to be an efficient.

 

Keyword: inflation, stock price, stock market, supply shock, demand sock

One comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s