Stock Returns Response to Internal and External Shocks during the COVID-19 Pandemic in Indonesia: A Comparison Study

This study uses impulse response function and variance decomposition from the Vector Error Correction Model (VECM) and analyses the response of Jakarta Composite Index (JCI) return to the shocks of oil price, gold price, the exchange rate, interbank interest rates, COVID-19 cases, and the stock market index of Malaysia, Singapore, Thailand, Japan, and the United States. Daily secondary data were used for the analysis and our empirical strategy from the impulse response function divulges that JCI return responds positively to the shock of the Malaysia and Japan stock indices and negatively to Singapore, Thailand, and the United States stock indices. Our finding further reveals that JCI return responds positively to its shock, shocks of the gold price, exchange rates, and negatively respond to the shocks of oil price, interbank rate, and COVID-19 cases. Therefore, based on the study findings policy recommendations are made to mitigate the negative influence of the shocks variables on JCI return.