ANALYSIS OF INTEREST RATE. INFLATION RATE, AND EXCHANGE RATE ON STOCK PRICE VOLATILITY AND TRADING VOLUME: EVIDENCE FROM INDONESIA STOCK EXCHANGE

ABSTRACTThe capital market plays an important role in the economic development of a country. One of the main factors that motivate investors to invest their fund in the capital market is because of the expectation of a return. Besides expecting returns, investors should bear the risk of investment. Volatility can represent the risk that may be faced by the investor when conduct stock trading activity. Investors will look to the stock price volatility in determining the risk and opportunity of stock trading. Besides the volatility of stocks, trading volume is one indicator that can be used by the investors in analyzing the overall performance of the stocks. Fluctuation in the stock price is mostly related to the change in macroeconomic factors in a country. It is important for the investor to figure out how the macroeconomic variables affect the stock market to pick out the best-fit investment. Hence, this study is aimed to analyze the impact of macroeconomic variables on stock price volatility and trading volume.The sample in this study is monthly data listed in Indonesia Stock Exchange in the period of 2008 to 2018. The number of observation in this study is 132. The macroeconomic variables are measured by interest rate, inflation, and exchange rate. The data are analyzed using GARCH Model. The model selection is based on the value of R2, AIC and SC.The results show that only inflation has a significant influence on stock price volatility in Indonesia Stock Exchange. Inflation has a negative and significant relationship with stock price volatility. Other variables such as interest rate and exchange rate have an insignificant influence on stock price volatility. On the other hand, interest rate, inflation, and exchange rate have no significant influence on trading volume. 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