International Journal of Advance Study and Research Work (2581-5997)/ Volume 4/Issue 3/March 2021

The Effect of Macroeconomic Indicators on Stock

Return through Return on Asset (RoA) in Banking
Companies Listed in Lq45 from 2008-2018
Isti Hadisti Oktaviani, Se & Dr. Herry Sussanto, Se., Mm
Banking Department, Faculty of Economics, Gunadarma University
Email Id: Istihadisti10@gmail.com & herry@staff.gunadarma.ac.id

DOI: 10.5281/zenodo.4664495
Abstract
Stock return is the result for an investor for their ownership of a company. In investing, an investor aims to maximize the
return by considering the investment risk factors. There are six banks listed in LQ 45 from 2008-2018, selected using the
purposive sampling method. Secondary data used were financial statements of sample banks obtained from the IDX and
company websites. Meanwhile, data on inflation, Rupiah exchange rate, and GDP were obtained from the Statistics
Indonesia and Bank of Indonesia. The path analysis was applied to test the study hypotheses. From the analysis results, it
can be concluded that simultaneously and partially, interest rate, inflation, exchange rate, and GPD significantly affect stock
return through financial performance. Partially, financial performance (return on asset) positively affects the stock return.

Keywords: Macroeconomic indicators (interest rate, inflation, Rupiah exchange rate, and GDP); return on asset (ROA);
stock return

Introduction
The capital market is a market for various long-term financial instruments to be traded, such as bonds, equity (stocks), mutual
funds, derivative instruments, and other instruments. The capital market’s existence is vital for a nation’s economy. The capital
market runs two functions. First, it is a means to fund companies or a means for companies to obtain investors’ funds. Funds
obtained from the capital market can develop business, expansion, working capital addition, and others. Second, the capital
market is a means for the community to invest in financial instruments, such as stocks, bonds, mutual funds, and others.
Therefore, the community can place their funds according to each instrument’s profit and risk characteristics.
The capital market is related to general offers and security trading, public company-issued securities, and institutions and
professions related to securities. Meanwhile, the stock exchange is the party executing and providing the system or means to
unite selling and purchasing offers from other parties to trade securities between them. In the stock exchange, many companies
go public, consist of ten sectors, i.e., Agriculture, Mining, Basic Industry, Various Industries, Consumption Goods, Property,
Infrastructure, Financial, Trade and Service, and Manufacturing. The financial sector consists of banks, financing institutions,
securities companies, insurances, and other sub-sectors.

Problem Formulation
The problems discussed in the study are as follow.
1. Does interest rate, inflation, exchange rate, and GDP simultaneously and partially affect stock return through financial
performance?
2. Does ROA partially affect stock return?
3. Which variable is the most dominant in financial performance?

Study Objectives
Based on the problem formulation and limitation above, the study objectives are as follow.
1. The study aimed to analyze the effect of interest rate, inflation, exchange rate, and GDP on the stock return through
financial performance both simultaneously and partially.
2. The study aimed to analyze the effect of ROA on stock return.
3. The study aimed to identify the most dominant variable in financial performance.

Literature Review
Capital Market Definition

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 International Journal of Advance Study and Research Work (2581-5997)/ Volume 4/Issue 3/March 2021

In general, a capital market is where sellers and buyers meet to have transactions to obtain capital for their investments.
The capital market benefit is encouraging efficient fund allocation because, within the capital market, the party with more funds
(investors) can select investment alternatives that give an optimal return.

Stock Return
Return is the reward obtained from an investment, while stock is the asset ownership evidence of companies issuing stocks
(Eduardus Tandelilin, 2001). Therefore, the stock return is the result received by an investor of their ownership rights of a
company. This study used the realized return, i.e., return happened or the actual occurring return. According to market theory,
the return measurement can be formulized (Jogiyanto Hartono, 2003: 110) as follows.
𝑅𝑖𝑡 = 𝑃𝑖𝑡−𝑃𝑖𝑡−1
𝑃𝑖𝑡−1
Note:
Rit: stock I profit rate in period t
Pit: stock I closing price in period t (closing/final period)
Pit-1: stock I closing price in the previous period

In stock trading, fluctuation cycles always occur for each stock price. This cycle is influenced by various company external and
internal factors. External factors affecting the stock price reduction are GDP growth rates, inflation rate, banking interest rate,
currency exchange rate, and commodity price, particularly for commodity-based stocks such as mining and agricultural
companies. Meanwhile, internal factors affecting the stock price reduction are company performance, new stock issuance plan,
and legal problems, causing implications for its business development (Gregorius Sihombing, 2008).

Study Method
Study Object
The study objects were banking companies listed in LQ 45 from 2008-2018. These study objects were selected because the
banking sub-sector has an essential role in helping increasing economic growth. Bank roles are the economic heart, providing
various banking services, and conducting monetary policies (Herman Darmawi, 2011).
The Method in this research uses Quantitative Methods by means of data collection (Library Research). In social science studies,
latent variables are present. In the Structural Equation Model (SEM), these latent variables can be termed construct variables.
The study's latent variables were categorized into two, i.e., exogenous and endogenous variables. The exogenous variables are
variables unpredicted by other variables in the model, known as independent variables. Endogenous variables are variables
predicted by one or more other variables in the model, known as dependent variables. The study consisted of exogenous and
endogenous variables as follow:
1. The study exogenous variable was Lifestyle as variable (X), with derivatives of:
a. Interest Rate (X₁ )
b. Inflation (X2)
c. Exchange Rate (X3)
d. GPD (X₄ )
2. The study endogenous variables were:
a. Return of Asset (Y1)
b. Stock Return (Y2)

Discussion
In the F-test results, there was a significant simultaneous relationship between interest rate, inflation, exchange rate, and GDP
with stock return through financial performance (ROA). It is observed from the significance and probability value (p) of 0.000
< 0.005. Simultaneously, inflation, exchange rate, and GDP affected stock return through financial performance.
Estimate S.E. C.R. P Label
X1 11.348 2.380 4.767 ***
X2 13.021 2.764 4.710 ***
X3 6.246 1.331 4.694 ***
X4 7.458 1.585 4.705 ***
e1 1.687 .360 4.690 ***
e2 3.181 .678 4.690 ***
When the interest rate increases, most investors allocate their funds to low-risk assets because they provide high returns with
low risk. This condition causes investment funds entering the banking sector to increase, significantly and positively affect the
industry performance.

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 International Journal of Advance Study and Research Work (2581-5997)/ Volume 4/Issue 3/March 2021

Inflation is when goods and service prices increase that goes continuously. Inflation is highly related to purchasing power ability
reduction from individuals and companies. There is a positive relationship between inflation and return on asset, where inflation
leads investors to invest. Therefore, stock prices increase, affecting stock return on investors. High inflation decreases the
company's profitability rate. When a nation experiences a high inflation rate, the investment risk in financial assets increases,
and the domestic currency credibility weakens against global currencies.
Exchange rate strengthening indicates a developing economy and attracts investment measures. If Rupiah experiences elevation,
investor interests to invest in the capital market also increase. It increases stock prices, meaning that when a person invests their
funds in the capital market, they will receive high returns on the stock.
Economic growth increase causes stock demands to increase, eventually leading to stock return increase received by investors.
Economic growth increase will change a nation’s investment pattern.

Conclusion
Either simultaneously and partially, interest rate, inflation, currency, and GDP have a significant effect on the stock return
through financial performance. Partially, financial performance (Return On Asset) is positively influencing stock return. Interest
rate, inflation, exchange rate, and GDP are significantly influencing the financial performance (ROA), in which interest rate has
the most dominant effect in return on asset between the four variables.

References
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Bandung. (2015).
[4]. Kurniadi dan N Azam. “Kinerja Keuangan Berbasis Penciptaan Nilai, Faktor Makroekonomi dan Pengaruhnya Terhadap Return
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