Macroeconomic Variables and Stock Indices in Indonesia: Comparation Between Islamic and Conventional

Macroeconomics variables tend one of the determinant factors that affect the equity markets. This research is going to comprehensively investigate the influence of macroeconomic indicators to equity markets (both Islamic and conventional Indices) in Indonesia as an emerging market. The paper relies on the co-integration test, impulse response function, and variance decomposition analysis, focusing on the period from 2003:1 to 2016:12. Two indices of Jakarta Composite Index (JKSE) and Jakarta Islamic Index (JII) are adopted and Industrial Production Index (IPI), Consumer Price Index (CPI), Money Supply (M2) and Currency Exchange (EXC) are also utilized as the determinants The result suggests that both indices share their long run comovement among the variables. IPI and CPI seem to be following the theory by indicating positive effects on JKSE and JII. The result implies that equity market performance represent the economic performance as indicated by IPI. When IPI increases it will then be followed by increase in both indices. Moreover, given the existing significant amount of imported raw material in Indonesia, the behaviour of exchange rate needs to be taken into accoun