Impact of Macroeconomic Variables, American Stock Market Index and COVID-19 Pandemic on Indonesia Capital Market Development (Time Series Study 1990-2020)

The purpose of this study is 1.) To analyze the influence of foreign investment on the development of the Indonesian capital market. 2).To analyze the influence of the Exchange Rate on the Development of the Indonesian Capital Market. 3).To analyze the influence of the Interest Rate on the Development of the Indonesian Capital Market. 4).To analyze the influence of the Dow Jones Stock Market Index on the Development of the Indonesian Capital Market. 5).To analyze the influence of the COVID-19 Pandemic (dummy variable) on the Development of the Indonesian Capital Market.6). In this study, secondary data and library research were used as a technique for collecting data, using semi-annual data for the period 1990-2020. The research was processed using the EViews 11 program with the multiple linear regression method. The results of the research are known if 1.) Foreign Direct Investment has a significant and positive effect on Capital Market Development. 2.) Exchange Rates have a significant and positive influence on the Development of the Indonesian Capital Market. 3.) Interest Rates have a significant and negative effect on the Development of the Indonesian Capital Market. 4.) The Dow Jones Stock Market Index has a significant and positive effect on the Development of the Indonesian Capital Market. 5.) The COVID-19 pandemic had a significant and negative effect on the Development of the Indonesian Capital Market in the period 1990 to 2020. The results of this study are expected to contribute to policy holders regarding the role of macroeconomic variables on the development of the capital market, so that in the future it can be one of the references in conducting the policy mix so as to improve the development of the Indonesian capital market.


Introduction
Lately, the development of the capital market in Indonesia has been so fast, making capital market players aware that this trade can provide good returns and contribute greatly to economic development in Indonesia. The number of companies that go public and register their shares in the capital market is evidence of this condition. This, either directly or indirectly, can support the growth of the national capital market industry to an encouraging level. Based on Article No. UUPM. 8 of 1995, it is explained that the capital market is activities related to public offerings and securities trading, public companies related to issued securities, as well as institutions and professions related to securities and securities or securities, which include debt acknowledgments, commercial securities, stocks, bonds, proof of debt, participation units in collective investment contracts, futures contracts on securities, and each derivative of securities.
The capital market for companies does not only offer benefits. The capital market is also an investment venue for investors, those who have excess funds, to be able to invest capital hoping to get a return. Investors can determine which company to invest in in order to get optimal profit. The development of the capital market as an investment tool institution has economic and financial functions that are increasingly needed by the community as the preferred medium and fundraiser. Investors who carry out transactions on the stock exchange to decide in determining a portfolio that can reap profits, investors need information. Announcement of stock split or stock split is part of the information provided. A Go Public company that carries out activities with the aim of increasing the total outstanding shares is called a stock split.
Based on the Capital Market Law no. 8 of 1995 concerning the Capital Market, namely that the capital market is "Activities related to Public Offering and trading of Securities, Public Companies relating to issued Securities, as well as institutions and professions related to Securities." According to this definition, the capital market is a place to facilitate funding for companies with parties who want to invest, therefore the capital market requires investors both from within and outside the country. The following is a graph of the share of ownership of local investors and foreign investors listed at the Indonesian Central Securities Depository. Based on the graph, as of the end of July 2020 the total asset value of foreign investors' shares was IDR 3,111 trillion or 51.9% of the total market capitalization of the IDX at the end of July 2020. Where, local investors only contributed 45% of share ownership, and especially if withdrawn up to 13 years ago, the ownership ratio of domestic investors was only 31%. In addition, foreign investors are more focused on large market cap stocks or blue chips, which in terms of their movements are not so aggressive.
According to research from (Ratnaningtyas, 2020) it was found that foreign capital directly affected significantly the composite stock price index (JCI), in line with this research from (Almfraji & Almsafir, 2014) found that foreign investment had a significant positive influence on the capital market. and the money market in Malaysia which in turn has an influence on economic growth in Malaysia. Including supporting the research above, research from (Hailemariam & Guotai, 2014) results in that Foreign Direct Investment (FDI) has a positive and significant impact on economic growth and capital markets in China. However, not in line with previous research, research from (Idenyi et al., 2016) regarding the impact of foreign investment in the Nigerian stock

Local Investor
Foreign Ownership market, the results show that foreign investment does not significantly affect the growth of the stock market in Nigeria.
Indications for the developing capital market use the Indonesia Composite Index (JCI) indicator, while the JCI is strongly influenced by national and global economic conditions, including the COVID-19 pandemic which raises positive sentiments such as the vaccination program or negative sentiment or uncertainty due to the emergence of the covid variant. The following is a graph of the JCI for the last few years in Indonesia: The research of (Lee et al., 2012) examines how closely the relationship between the Taiwan capital market and other international capital markets in Asia is, and it is found that there is a relationship between the Taiwan capital market and the Hong Kong capital market. The resilience of the capital market itself can be shown by various indicators such as the stock index of the corporation concerned, transaction volume, transaction frequency, transaction value, investment amount and various other indicators. Several previous studies have shown that there is an influence of several macroeconomic indicators on capital market developments such as GDP, capital market liquidity, foreign direct capital, inflation rates, savings rates (Azeez & Obalade, 2018). The effect of foreign exchange rates on capital market developments (Mukupo, 2019), (Adebowale & Akosile, 2018) and (Obura & Anyango, 2016).
In line with foreign investment entering the Indonesian capital market, of course, fluctuations in the exchange rate greatly affect foreign investment entering the country. The most important thing about the rupiah exchange rate is the volatility of the rupiah exchange rate concerned. The volatility of the currency exchange rate will result in the financing of business activities, especially companies that focus on exports and imports. The movement of the rupiah exchange rate tends to be influenced by basic factors and the strengthening of the rupiah exchange rate as a reaction to global economic conditions.
The Covid-19 pandemic has caused economic uncertainty and has led to a global economic recession, as is the case for Indonesia. In 2020, during the first and second semesters, there was negative economic growth in various countries, such as the US, Japan, South Korea, the European Union, Hong Kong and Singapore. Indonesia's economic growth performance in 2020 slowed down due to the Covid-19 pandemic. Business actors who will really feel the impact of the domino effect because the pandemic has an impact on the health sector to social and economic problems. Based on BPS data, the economic growth rate in 2020 from January to March (first quarter) reached 2.97%. When compared to 2019 in the fourth quarter, this figure slowed from 4.97%. Moreover, compared to 2019 in the first quarter, it was still much lower at 5.07%. Furthermore, in 2020, precisely in the second quarter, there was minus 5.32% in Indonesia's economic growth rate. This figure is the opposite of what happened in 2019 to be precise in the second quarter of 5.05%.
From the relevant background, the formulation of this research is:

Indonesian Capital Market Development
The financial market in transacting long-term funds as well as being a concrete market is the understanding of the capital market. A place used for marketing stocks and bonds whose sales proceeds can be used as additional funds or in strengthening the company's capital (Fahmi, 2012). While in Law no. 8 of 1995 there is also an explanation of the capital market which is explained as activities related to public offerings and securities trading, companies related to securities issuance, and agencies and professions related to issued securities, and agencies and professions related to securities.

Foreign Direct Investment
Is part of foreign investment which foreign investment is divided into Foreign Direct Investment and Foreign Portfolio Investment. Foreign Direct Investment is capital owned and managed by foreign parties while Foreign Portfolio Investment is investment funded with foreign money but managed by domestic parties (Mankiw, 2011). Meanwhile, according to Jhingan (Jhingan, 2012) foreign investment (PMA) means companies from the country of origin of capital with de facto or de jure supervision of assets invested in the recipient country; creation of a company using majority shareholding; the creation of a company funded by the investment company or placing fixed assets in the recipient country.

Currency Exchange Rates
According to (Adiningsih, 2011), the rupiah exchange rate is the price of the rupiah in other countries' currencies. so that the rupiah exchange rate is the value of one rupiah currency which is translated into another country's currency. For example, the exchange rate of the Rupiah to the US Dollar, the exchange rate of the Rupiah to the Yen, and so on. The exchange rate is one of the parameters that affect activities in the stock market or money market because investors usually become more careful in investing.

Interest Rate
Interest rates are divided into nominal and real interest rates. Interest rates that do not pay attention to the inflation rate (showing the amount of money that is increasing in savings) are the meaning of nominal interest rates. While the interest rate that has taken into account the inflation rate (reflecting the increase or decrease in the purchasing power of savings) is called the real interest rate. The real interest rate is the nominal interest rate minus the inflation rate (Mankiw, 2011). The risk free rate minus inflation is usually used as a reference for real interest rates.

Dow Jones Stock Market Index (USA)
The

Hypothesis
Moving on from the background that has been described, the following hypotheses can be formulated:

Methods
The data used in this study is secondary data where the collection uses time series data for 30 years, namely from 1990-2020 with data divided per semester. The data collected by the researchers came from various sources related to the research theme, namely the Central Statistics Agency, Bank Indonesia, the World Bank and the Indonesia Stock Exchange.
Variable measurement method and operational definition used is a causal relationship model between the independent variable and the dependent variable. A statement explaining the Agreement method "When two or more cases of a given phenomenon have one and only one condition in common then that condition may be regarded as the cause of the phenomenon" is the opinion of John Stuart Mill in (Yuyun, 2013)The theorem of agreement in this study can be formulated by: Multicollinearity test using matrix correlation test (Gujarati, 2013), Normality test using Jarques-Berra (Gujarati, 2013), Autocorrelation using Langrange Multiplier or Breusch Gordfrey test (Gujarati, 2013), detecting heteroscedasticity using White Heteroskedasticity Test (Gujarati, 2013). To find out whether the time series data used is stationary or not, the stationary test (unit root test) is used. In research, basically time series data often experience non-stationary at the series level. So it is necessary to do differentiation once or twice to produce stationary data. The unit root test was carried out using the Augmented Dicky Fuller (ADF) method. Simultaneously test the hypothesis using the F statistical test with a 95% confidence level, so that the alpha precision level is 0.05. Partial hypothesis test using t-test with alpha 0.005. The coefficient of determination (R2) is used to measure the model's ability to explain the independent variables (Gujarati, 2013) 4. Result

Unit Root Test and Classical Assumptions
Testing the unit root group at the 1st difference level for all variables using the ADF (Augmented Dickey-Fuller) method produces the ADF value for the Foreign Direct

Discussion
As of the end of July 2020, the total asset value of foreign investors' shares was IDR 3,111 trillion or 51.9% of the total market capitalization of the IDX at the end of July 2020. Where, local investors only contributed 45% of share ownership, and especially if withdrawn until 13 years ago the ratio domestic investors' ownership is only 31%. In addition, foreign investors are more focused on large market cap stocks or blue chips, which in terms of their movements are not so aggressive. Supporting foreign capital directly has a significant positive effect on capital market development, including (Ratnaningtyas, 2020), (Almfraji & Almsafir, 2014) and (Hailemariam & Guotai, 2014).
The exchange rate itself is able to affect the stock market through several channels, currency depreciation causes a decrease in stock prices, creating an opportunity for investors to buy shares so that by itself it will increase the stock price itself. In addition, currency depreciation can also cause a lot of foreign capital inflows into Indonesia and invest through the Capital Market which can eventually increase the composite stock price index in Indonesia. The results of this study are supported by previous research, including research by (Narayan, P. K., Devpura, N., & Wang, 2020), (Adebowale & Akosile, 2018), (Obura & Anyango, 2016) The effect of interest rates and investment is evident from the situation when interest rates are low, the total investment will increase. On the other hand, if the interest rate is high, the total investment will fall. In line with this, it can be seen in the graph of the Indonesian JCI which has increased every year, meaning that there is an increase in investment in line with the decline in Bank Indonesia interest rates. The results of the study are supported by (Hwa et al., 2016) , (Poudel et al., 2020) and (Gao et al., 2021) The Dow Jones Index (DJIA) is one of the 3 major indices in the United States. The other indexes are the Nasdaq Composite and the Standard & Poor's 500. These indexes represent the economic activity in the United States. This index can describe how the American economy is performing. According to (Sunariyah, 2013), with the increase in the Dow Jones Index, this means that the United States' economic performance has also improved. The movement of the Dow Jones index will also affect the movement of the JCI. Because as one of Indonesia's export destinations, the United States' economic growth can encourage Indonesia's economic growth through export activities and capital inflows, both direct investment and through the capital market. Previous studies that support the relationship between the stock market index and other stock indices include research by (Lee et al., 2012) and (Josphat & Kipkirong, 2012).
The performance of the JCI (Joint Stock Price Index) itself was affected by the Covid-19 pandemic, so that in 2020 it experienced negative returns of minus 5.09% and reached its lowest position in March 2020 at 3,911.72. Previous studies that support include ( ; (Junaedi & Salistia, 2020); (Zhao et al., 2020))

Conclusions
Based on the results of statistical tests obtained the following results:

Suggestions
The suggestions that can be submitted are: 1. Due to the importance of the flow of foreign investment into Indonesia in order to increase the development of the capital market which in the future can have implications for economic growth in the form of employment and income per capita, it is therefore recommended that the government is expected to conduct a review and analysis of investment development domestic investors to foreign investors, unifying various policies that affect the investment climate, making increasing investment contributions to productivity growth and sustainable inclusiveness and presenting the efforts and results of investment in Indonesia so far to the international arena. All of that is in order to attract more foreign investment from foreign countries. 2. There are several things that can be considered by policy makers in dealing with the weakening of the rupiah exchange rate and economic instability due to the pandemic, namely the government must be aware of the increase in the prices of the basic needs of the community, among others by promoting the use of local or domestic production in meeting the basic needs of the community. Start limiting imports of consumer goods, importing oil and increasing exports so that there is a balance. However, there is a positive side to a weak exchange rate, among others, investment in Indonesia becomes cheaper in the eyes of foreign countries, which in turn can trigger foreign investment. In addition, the weakening rupiah made the prices of local products more competitive (cheaper) in the global market. When compared to other countries, Indonesia is not the only country whose currency exchange rate has weakened against the Dollar. Some developed countries such as Canada, Japan, Europe also experienced it. 3. The Covid-19 pandemic has had a significant impact on the Indonesian economy, the government is advised to take a mix of economic policies, both fiscal and monetary policies, to restore stability to the Indonesian economy, which can have implications for the development of the Indonesian capital market, which in turn can increase employment and increase income. per capita. Things that can be taken include firstly accelerating treatment and wider transmission, secondly maintaining people's purchasing power by reducing the burden of costs that are directly under the government's control, including reducing electricity, telecommunications, fuel, gas and clean water tariffs, third the need for supervision and equitable distribution of social assistance distribution for people in need.