THE IMPACT OF INFLATION RATES AND US DOLLAR EXCHANGE RATES ON INDONESIAN STOCK MARKET INDEX RETURN VOLATILITY
School of Economics and Business Telkom University Bandung
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This paper studied the impact of inflation rates and US Dollar exchange rates in Indonesian stock market return volatility in the period of 2002-2012. Daily data of stock market return, inflation rates and US Dollar exchange rates were used to estimate the daily volatility of the stock return. The data of stock market price, inflation rates and US Dollar exchange rates were taken from Yahoo Finance, Indonesia statistics bureau and central bank of Indonesia, respectively. The result showed that both inflation rates and US Dollar exchange rates did not have a significant impact on the Indonesian stock market return volatility. Inflation rates contributed 0.03% change in daily stock market return volatility whereas a 1% appreciation of Rupiah contributed to a 0.0000001% change in daily stock market return volatility. This research finding was different from the result in Nigeria where Yaya’s & Shittu’s (2010) research had the same variables. Inflation rates and US Dollar exchange rates were to examine the impact on Nigeria stock market index return volatility.
Key words: GARCH, inflation rates, investment, stock market return, US Dollar exchange rates