Ignatius Roni Setyawan

Empirical Tests for Market Timing Theory of Capital Structure on the Indonesian Stock Exchange

This study has aim to examine the validity of Market Timing Theory (MTT) from Baker and Wurgler (2002) in the Indonesian context. The essence of MTT is when the market price overvalued, the firms will take debt financing and otherwise for undervalued condition. MTT is actually the development of Pecking Order Theory (POT) and Static Trade-Off Theory (STT). The motivations of this study are to test the dispute level of pro and cons empirical studies about MTT such as Alti (2003) and Wagner (2007) and to check the consistency result of empirical studies of MTT in Indonesian from Dahlan (2004), Kusumawati and Danny (2006), Susilawati (2008) and Saad (2010).In order to realize the objective, this study will reuse the empirical model OLS from Baker and Wurgler (2002) with adaptation in Indonesian context. The empirical model OLS from Baker and Wurgler (2002) has a specific uniqueness i.e. the negative relation between leverage and market to book ratio. That negative relation is controlled by several factors such as EAT, Total Asset and Fixed Asset. The other specific uniqueness is empirical models of MTT are generally applied for IPO-firms. The result of this study supports the hypothesis of MTT from Baker and Wurgler (2002) in Indonesian Stock Exchange (IDX) with the main finding i.e. market to book ratio has the negative impact to market leverage. While the relevant factor for supporting the hypothesis of MTT is EAT. The implication is when firm achieve the earnings growth due to increasing of EAT; the stock price will be overvalued as an impact from investor positive sentiment. This situation suggests the firm in IDX should conduct the debt financing

Empirical Tests for Market Timing Theory of Capital Structure: The Case of IPOs in Indonesia Stock Exchange

This study aims to examine the validity of Market Timing Theory (MTT) in the Indonesian context. The essence of MTT is when the market price of a company’s stock is overvalued, the firms will take equity financing and debt financing for undervalued condition. The motivations of this study are to test the dispute level of pros and cons of empirical studies about MTT especially on the issue of persistency. The empirical model from MTT of previous researcher has a specific uniqueness i.e. the negative relation between leverage and market to book ratio. That negative relationship is controlled by several factors such as log total asset, earnings after taxes (EAT) and fixed asset. EAT and fixed asset are scaled by total asset. The other specific uniqueness is sample of IPO firms. With IPO firms, we can indicate the effect of overvalued or undervalued condition through market to book ratio (M/B). M/B will reflect the market respond regarding to equity issuing decision of the firm. The result of this study supports the hypothesis of MTT in Indonesia Stock Exchange (IDX) with the main finding i.e. market to book ratio has the negative impact to market leverage. While the relevant factor for supporting the hypothesis of MTT is EAT. It suggests that in the context of MTT, IPO firms will experience increasing profits so that the proportion of the use of debt will decrease.

The Effect of Level of Intra Industry Competition and the Intensity of Role of Global Investors Toward Degree of Capital Market Integration in ASEAN

By the integration of the ASEAN capital markets, global investors need to diversify among industries in the ASEAN capital markets with the consideration that there is no relevancy regarding to diversify among countries. One way to measure the degree of integration in addition to cointegration techniques are already widely used is the correlation. The use of correlation is done not only to show different degree of integration but also intended to identify the determinant of market integration which starting from theory of stock market interdependence as proposed by Pretorius (2002). The first finding of this study is the different degree of integration at the country and industry levels in the ASEAN which reflects the difference in the benefits of international diversification among industries and countries as well as supporting the concept of time-varying integration of Bekaert and Harvey (1995). The second finding as the important result for this study is the effectiveness of the entropy index of Ruefli (1990) as a proxy for the level of intra industry competition in Singapore. The implication is global investors need to consider the dynamics of competition among firms within the industry in Singapore as the industry risk for conducting their international diversification strategy. The latest finding is Malaysian bourse still protective so that global investors need to be more active penetration by networking through the local brokerages in accordance to advice of Dvorak (2005).

Herding Behavior in the Indonesian Stock Exchange: The Roles and Contributions of Foreign Investors During the Period 2006 to 2011

ABSTRACT Domestic investors in the Indonesian capital market (IDX) tend to be very dependent on the behavior of foreign investors. It is assumed that most of the domestic investors in the IDX are like this, caused by an axiom that the bargaining position of foreign investors is stronger than that of the domestic investors and those of other emerging markets. This study tries to investigate whether the herding behavior exists and whether the assumption that foreign investors have caused instability is true or just a myth during the period 2006-2011.There are three objectives of the study: 1) To prove whether the conduct of domestic investors’ herding behavior in the IDX exists, 2) To prove whether the trading of foreign investors causes the herding behavior and 3) To prove whether the interaction between foreign and domestic investors affect the stock volatility. Using the data from 2006 to 2011, it is found that herding behavior in the IDX exists; moreover, by using VAR analysis, it also indicates that the occurrence of herding behavior is caused by negative feedback trading from foreign investors. The volatility analysis using Parkinson and Garman-Klass methods found the stock volatilities in the IDX increased, caused by the interaction of foreign and domestic investors. Keywords: Herding behavior; foreign investors; domestic investors; market volatility; IDX (Indonesian Stock Exchange) ABSTRAK Pelabur tempatan dalam pasaran modal Indonesia (IDX) adalah sangat bergantung dengan gelagat pelabur asing. Adalah diandaikan, kebanyakan pelabur tempatan dalam Bursa Saham Indonesia (IDX) bersikap begini disebabkan kepercayaan bahawa kedudukan tawar-menawar pelabur asing adalah lebih kuat berbanding pelabur tempatan terutamanya di pasaran yang sedang membangun. Kajian ini cuba menyiasat sama ada gelagat “herding” wujud dan sama ada andaian bahawa gelagat pelabur asing menimbulkan ketidakstabilan adalah benar atau hanya anggapan dalam tempoh 2006 – 2011. Kajian ini mempunyai tiga objektif: 1) Untuk membuktikan bahawa gelagat “herding” di kalangan pelabur tempatan dalam IDX benar-benar wujud; 2)Untuk membuktikan sama ada urus niaga melibatkan pelabur asing menyebabkan gelagat “herding” dan 3)untuk mengenal pasti sama ada interaksi pelabur tempatan dan pelabur asing menyebabkan volatility pasaran saham. Menggunakan data dari tahun 2001 hingga 2011, adalah didapati gelagat “herding” wujud. Tambahan pula berdasarkan analisis VAR, berlakunya gelagat “herding” ini disebabkan oleh tindak balas negatif terhadap urus niaga pelabur asing. Analisis volatility menggunakan kaedah Parkinson dan Garman-Klass mendapati naik turun nilai saham dalam IDX meningkat disebabkan interaksi di antara pelabur asing dan pelabur tempatan. Kata kunci: Gelagat “herding; pelabur asing; pelabur tempatan; volatiliti pasaran; IDX (Bursa Saham Indonesia)

Assessing Financial Performance of Issuer LQ 45 in the IDX at Period 2002-2006

LQ 45 indexes is an index consisting of 45 shares of stocks that have a high liquidity and also consider the capitalization of stock market shares are. Financial performance is an illustration of achieving financial success on the company. Financial performance on the issuers of LQ 45 during the period 2002 - 2006 experienced an increase in the different areas of each issuer. This can occur because of action for investors who speculate, economic conditions in the country, conditions in the financial performance of issuers LQ 45 and the appreciation of the stock that investors of the stock issuers LQ 45 that active transactions in the Indonesian capital market. Results from this research can be concluded that there are six values of the financial ratio (QR, DER, ROE, ITO, PBV, and PER), which shows an improvement in financial performance of issuers LQ 45 during the period 2002-2006, and only the value of the ratio of the market assessment can increased the most dominant performance in the financial of issuers LQ 45.

The Comparisson of Benefit of International Diversification Among Seven Large Stocks in the Malaysian and Indonesian Stock Markets

Bai and Green (2010) argue that existing studies related to international diversification of portfolio mainly concentrated on the risk-returns tradeoffs from the developed markets perspective. Very few literatures available on the behavior on emerging markets, they are scarce in comparison to the developed market ones. This study tries to examine the benefit of international diversification toward the Indonesian and Malaysian markets; which to date there has been no study done toward these markets. As far as the empirical evidences show, these two markets yield benefits to the international investor’s portfolio with the Indonesian stock market bears the greater yield than Malaysia.

A Proposal Study on Indonesian Capital Market Integration with Cheung & Lee (1993): Asset Pricing Modification

Proposal for this study is meant to analyze a capital market phenomenon in the Indonesian Stock Exchange who shows various results. Husnan and Pudjiastuti (1994), and Roida (2004) claim that Indonesia Capital Market tend to be segmented. They both claim that due to weak correlation between stock returns in the Indonesian Stock Exchanges (formerly Jakarta Stock Exchange) with stock returns in other countries’ Stock Exchanges, Indonesian Capital Market segmentation is justified. Their claims is further strengthened by Roll’s (1995) survey that not only claims that Indonesia market is segmented but also claims that Indonesian Stock Exchange is very attractive to foreign investors since this condition will bring the benefit of international diversification. Nevertheless, if further examined, the increase in foreign investor’s activity in the IDX would cause the Indonesian Index (IHSG) to be further influenced by the international factor carried by those foreign investors. This condition that causes the segmentation of Indonesia Capital Market started to be questioned. Furthermore, studies from Murtini and Ekawati (2003), and Surjawan (2007) discover the co-integration phenomenon in the IDX post 1997 monetary crisis. Next development is the occurrence of two major groups in capital market integration study (Yusof and Madjid, 2006). The first group is Statistical Perspectives who focuses on confirming the integration of capital market segmentation; while the other on seeking the determinants of capital market integration. On the second group, the writer finds that Cheung and Lee (1993) study has found ICAPM model and in for IDX will be modified with such determinant like as Net Foreign Fund Flow, 1997 Monetary Crisis & Volatility of stock returns. Thus, the purpose of the model’s modification is to cover four objects of problem on this study, those are: Pre-requisites of integration/segmentation; Determinants Factor, that is Net Foreign Fund Flow or generally called Net Buying Selling & Cost of Equity; 1997 Monetary Crisis; Volatility of stock returns

The Comparisson of Benefit of International Diversification Among Seven Large Stocks in the Malaysian and Indonesian Stock Markets During January 2004 Until April 2010

Bai and Green (2010) argue that existing studies related to international diversification of portfolio mainly concentrated on the risk-returns tradeoffs from the developed markets perspective. Very few literatures available on the behavior on emerging markets, they are scarce in comparison to the developed market ones. This study tries to examine the benefit of international diversification toward the Indonesian and Malaysian markets; which to date there has not been many studies done toward these markets. As far as the previous empirical evidences show, these two markets yield benefits to the international investor’s portfolio with the Indonesian or Malaysia market bear the greater yield. But how this finding couldn’t be in our study? We must conduct the analysis procedure before make a final conclusion for supporting or rejecting the alternative hypothesis based on the previous empirical evidence by another researchers.