THE ANALYSIS ON CANONICAL CORRELATION OF GLOBAL INDEX AND MACRO ECONOMY WITH INDONESIAN CAPITAL MARKET

Abstract

Capital market is one of the media which gives the opportunity for individual and
insttutional investors to invest. The Indonesia Stock Exchange and Indonesian capital market
has 11 types of stock priced index which as continously spread through printed and
electronic mass media, as one of the guidelines for investor to invest in capital market. The
development of indonesian capital market (LQ45 Index and IHSG Index) is closely related
to global index and macro economy. The objective of the reseach was to examine the
canonical correlation of global index (Dow Jones Index and EIDO Index) and macro
economy (Rupiah Exchange Rate and SBI interest rate) with indonesian capital market
(LQ45 Index and IHSG Index). The sample were limited to the period of 2011-2013
(36 months).The data were analyzed by using canonical correlation at the significant level of
5%. The result of the research showed that global index (Dow Jones Index and E10) and
macro economy (rupiah exchange rate and SBI interest rate) had significant correlation with
indonesian capital market (LQ45 and IHSG), with canonical coefficients perfect weight for
L045 (1.00) and almost perfect for JCI (0.98). This means that the Dow Jones. EIDO
exchange rate, interest rate SBI has a significant positive relationship towards LQ45 Index
and IHSG Index are listed on the Indonesia Stock Exchange in the period 2011 to 2013
Individually Dow Jones (0.67), EIDO (0.54) and Exchange Rate (0.37) has a positive
relationship with the capital market indices Indonesia (L045 Index and IHSG Index), which
means when the Dow Jones. EIDO, and Rupiah Exchange high, then LQ45 and IHSG will be
high, or vice versa when the Dow Jones, EIDO, and Exchange Rate is low, then the Index
will be lower LQ45 and IHSG. Instead SBI rate (-0.29) had a negative correlation with stock
market indices Indonesia (LQ45 Index and IHSG Index), which means if the SBI interest rate
is high, then LQ45 and IHSG will be low, or vice versa when the Indonesian interest rate is
low, then LQ45 and IHSG will be high