Both of these factors play an important role in the movement of international capital flows to new markets that have better returns and are supported by economic performance and improved risk (IMF, 2010). On the one hand, the entry of foreign capital showed increasing international confidence in economic fundamentals, reinforced by the increase of Indonesia's rating for investment quality. At the same time, the global economic condition, which remains vulnerable, as well as uncertain international financial markets, together with the debt crisis in Europe, may trigger fluctuations in international financial markets and lead to high risks of instability in domestic financial markets and the exchange rate in the case of repatriation of capital in the short term ( sudden reversal), especially for the short-term capital flow.
In order to reduce the potential risk in the management of international capital flows, it needs a better understanding about the patterns of capital inflow behavior in financial markets, especially in Government Bonds (SUN) market, together with increasing foreign ownership in the market. Ostry (2010) argued that the policy mix in view of capital inflows depends on the country's economic conditions, the level of foreign exchange reserves, quality of prudential rules, strengthening of exchange rate and persistence of capital inflows. The purpose of this study is to identify the foreign investors' behavior in the Government Securities (SUN) market, both long-term and short-term investors as either in aggregate or individually, especially their net transaction (purchases minus sales) in secondary market. of Government Bonds (SUN).
External or driving factors such as (1) the low level of world interest rates, especially in the US, he found that capital flows are positively influenced by two pull factors, namely domestic economic growth (production index) and interest rate changes domestic interest, and three driving factors namely the level of global risk (EMBIG), excess global liquidity (US money supply) and changes in US financial markets (stocks and government securities (GS)) have relationships positive relationship between price volatility and trading volume.
In the above case, where the homoscedasticity conditions cannot be met, one can model the variance of ε_t as a function of the layer of the error term.
Estimation Result
Unlike long-term investors, the transaction behavior of short-term investors is influenced by both push factors and pull factors (internal factor) in the government securities (GS) market. The regression result suggests that the high frequency of short-term investor transactions in the GS market is more sensitively affected by each of the changes in pull factors and push factors. This is consistent with the short-term trading nature of investors who tend to only look at short-term gains through capital gains.
A high frequency of short-term investor transactions, not accompanied by a rising position, will result in high volatility in the GS markets, which may in turn affect the stability of the overall financial markets. Therefore, considering the transaction of short-term investors is very volatile, and from the domestic point of view, the government and Bank of Indonesia must consider the factors that affect short-term investors by maintaining domestic economic conditions, such as maintaining domestic competitive interest rate and keeping the level of domestic risk at a fairly low level. The individual impulse response results in Figure 14 show that a 100 basis point increase in the Yield5 shock would lead short-term investors to a lower net transaction position (or net sale) of Rp 25.5 billion at that time (t = 0). with a cumulative effect of Rp. 31.05 billion.
On the other hand, the increase shock of 100 basis points UST-5 Year Notes index will lead the short-term investors to a net selling position of Rp 80.7 billion, with the cumulative effect of Rp 98.3 billion. Furthermore, the increasing shock on the interbank rate (PUAB ON) by 100 basis points leads the short-term investors to book a net short position of 11.07 billion. Rs. Although the results of the regression for the short-term individual investors are generally similar to the behavior of the group, the push factor is more consistent than the pull factor.
Variable of push factor (U.S. T-Notes and the VIX index) has a significant impact on all short-term individual investors tested (Figure 15 and Figure 16). Meanwhile, the return of the domestic factors proxied by Yield-5 affects only two out of four short-term individual investors (Investor F and G) and only one investor (Investor F) is significantly affected by the domestic risk that is proxed from the PUAB variable. To know the outlook for the capital flows, we run simulations using the above estimate for both the long-term and the short-term investors.
The simulation shows that the short-term investors are more sensitive to the shock of the four explanatory variables. This is because the four explanatory variables can significantly influence short-term investor decisions, while long-term investors are only affected by two pressure factors the US. This result confirms that in the case of shock that causes changes in the four explanatory variables, the short-term investors react faster.
In other words, in the event of a shock, the market became highly volatile due to the short-term reaction of investors. Foreign investors, especially short-term investors, will react to the shock by selling, which may disrupt the stability of the overall financial market and the stability of the foreign exchange market, which may affect the stability of the exchange rate.
CONCLUSION
So, amid the global financial markets that are still vulnerable due to the high uncertainty in the Euro area and the high US The high influence of the global factors in the GS market will lead to high volatility in the GS market .
IMF (2011), “Recent Experiences in Managing Capital Inflows – Cross-cutting Themes and a Possible Policy Framework”, Strategy, Policy and Review Department. Determinants of Capital Flows to Developing Countries: A Structural VAR Analysis,” Journal of Economic Studies, Vol. Bond and Bank Loan Prices in International Markets: An Empirical Analysis of Developing Countries.
