Analysis of Capital Market Reaction to the Announcement of Large-Scale Social Restrictions (PSBB) Volume II in Jakarta 2020: Case Study of LQ45 Index Companies Listed on IDX for
the Period from August 2020 - January 2021
Muhamad Fajar Satria Alamsyah1*, Irni Yunita, S.T., M.M.1
1 Management of Business in Telecommunication and Informatics, Telkom University, Bandung, Indonesia
*Corresponding Author: [email protected] Accepted: 15 April 2021 | Published: 1 May 2021
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Abstract: The COVID-19 pandemic, which occurred around the world, including Indonesia, has hampered economic activity. The high case of COVID-19 in Jakarta led to the enactment of Large-Scale Social Restrictions (hereinafter referred to as PSBB) volume II. This study aims to test the capital market reaction to the announcement of Large-Scale Social Restrictions (PSBB) volume II in Jakarta on the Indonesia Stock Exchange. This type of research uses an event study approach to study market reactions to an event. The reaction is measured using abnormal return and trading volume activity. The observation period is 5 days before and after the announcement of PSBB volume II in Jakarta. This research is quantitative research obtained from the daily stock price data of companies listed in the LQ45 index. The research population is all companies that are in the LQ45 index in the period August 2020 to January 2021. Sampling techniques using purposive sampling with a total of 45 shares of companies that meet the criteria in this study. The analysis data uses the Shapiro-Wilk normality test, then the hypothetical test using the wilcoxon signed-rank test. The results showed no significant difference in abnormal returns before and after the announcement of Large-Scale Social Restrictions (PSBB) volume II in Jakarta, while there were significant differences in trading volume activity before and after the announcement of Large-Scale Social Restrictions (PSBB) volume II in Jakarta.
Keywords: Abnormal Return, Trading Volume Activity, Event Study, and Large-Scale Social Restrictions
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1. Introduction
The COVID-19 outbreak that has spread throughout Indonesia has hampered much economic activity. In DKI Jakarta area as many as 1,026 positive cases as of September 9, 2020, and confirmed in total in Indonesia, namely 49,837 cases (corona.jakarta.go.id, 2020). The growth of COVID-19 in the DKI Jakarta area in early September has increased above 1000 cases, this makes the Provincial Government of DKI Jakarta on September 9, 2020, make an announcement on the implementation of Large-Scale Social Restrictions (PSBB) again after previously conducting PSBB transition Phase I. Implementation of PSBB implemented on September 14, 2020, based on Governor Regulation Number 88 the Year 2020 which is a change in the governor's regulation number 33 of 2020 concerning the implementation of Large-Scale Social Restrictions in the handling of coronavirus disease 2019 (COVID-19) in the special capital province of Jakarta as stipulated on September 13, 2020 (Governor Regulation No. 88 of 2020).
Figure 1: JCI movement diagram Sumber: www.finance.yahoo.com (2021)
As a result, one day after announcing the implementation of Large-Scale Social Restrictions (PSBB), on September 10, 2020, the Composite Stock Price Index (JCI) fell 5% to 4,891.88 or down 257.59 points, resulting in a 30-minute safe halt trading in the first session of trading, and closed at 4,891.46. While the capitalization value decreased to Rp 297.26 trillion from a capitalization value of Rp 5,978.17 trillion on Wednesday, September 9, 2020, to Rp 5,680.91 (Putri, 2020).
The announcement of Large-Scale Social Restrictions (PSBB) in Jakarta not only affected the share price but on the trading activities on the stock exchange, in the period t+1 (September 10, 2020) there was a decrease in trading volume to 82.38M compared to the trading volume the day before, namely September 9, 2020, by 101.22M which is the day of the announcement of the implementation of PSBB in Jakarta. However, trading volume increased in the period t+2 (September 12, 2020) by 125.81M and continued until t+3 (September 13, 2020) by 109.87M. On the day of PSBB implementation in Jakarta experienced a decrease in trading volume in the period t+4 (September 14, 2020) amounting to 113.65M, t+5 (September 15, 2020) 88.75M (Yahoo Finance, 2020).
The re-enactment of Large-Scale Social Restrictions (PSBB) volume II in Jakarta can affect investors who will trade in the capital market, thus causing investor behavior in the purchase of shares in the capital market and causing a market reaction. In the testing of large-scale social restriction events (PSBB) volume II in Jakarta using event study to study the market reaction to an event. After testing the content of information, then for the market reaction is determined by the change in the price of the security in question. Can use return as price change value or use abnormal returns to measure market response. If using abnormal return then it can be said that an announcement that has information content will give an abnormal return to the market.
On the other hand, if it does not contain information, it will not give an abnormal return to the market (Hartono, J., 2016: 624). This study used abnormal return variables to see if there was an abnormal return received by the market at the time of the announcement of Large-Scale Social Restrictions (PSBB) volume II in Jakarta.
To test whether information can influence price changes in the capital market. Not only by looking at the abnormal return that occurred but can also be seen from the activity of stock trading volume or trading volume activity (TVA) (Alhakim et al., 2017).
2. Literature Review Investment
According to Tandelilin (2017: 2) investment is a commitment to a number of funds or other sources of funds conducted today, with the aim of obtaining a number of profits in the future.
Investment terms can relate to a variety of activities.
Capital Markets
The capital market is a meeting between parties that have too much capital and parties that need funds through securities trading. Therefore, the capital market can also be interpreted as a market where securities trading usually has a trading period of more than one year, such as stocks, bonds, and mutual funds. The capital market can also act as an intermediary (Tandelilin, 2017: 25).
Stocks
According to Sutrisno (2012:3), Shares are shares owned by limited liability companies or issuers. Shareholders are part of the owner of the company. So it can be concluded that the shares are certificates of ownership of a limited liability company in the form of paper, the size of the shares depends on the ownership of the company.
Market Efficiency
An efficient market is how a market responds to information to achieve a new equilibrium price is important. If the market acts quickly and accurately to achieve a new equilibrium price that can fully reflect the information available (Hartono, J., 2016: 587). There are three main forms of market efficiency:
1) Market efficiency of weak form, if the price of the security fully reflects past information, the market is said to be in a weak condition.
2) Market efficiency form half strong, if the price of marketable security fully reflects all published information, including information in the financial statements of the issuing company, the market is considered effective and half strong.
3) Market efficiency of the form is strong, if the price of the security fully reflects all available information, including personal information, then the market is said to be effective in its strong form.
Event Study
Event studies are events that study the market's reaction to an event, and information about those events is released in the form of announcements. Event study can be used to test the content of announcement information. Information content testing is intended to see the reaction of an announcement (Hartono, J., 2016: 623).
Abnormal Return
Abnormal return or excess return is an excess of return that actually occurs against abnormal returns. Therefore, abnormal return is the difference between the actual return and the expected return (Hartono, J., 2016: 647). The formula is as follows:
ARi,t = Ri,t - E[Ri,t]
The realisation return is actually a return that occurs at the t-time which is the difference in the current price relative to the previous price or can be calculated by the formula:
Ri,t = (Pi,t – Pi,t-1)/Pi,t-1 Description:
Ri,t = actual return that occurs for the i security in the event period t.
Pi,t = the daily share price of the security i in the period to t.
Pi,t-1 = the daily share price of the security i in the period of the day before the period.
In this study using return expectations using market-adjusted model estimation model. The market adjustment model assumes that the best predictor for estimating a security's outcome is the current market index result. By using this model, because the estimated return of the security is the same as the return of the market index, the estimated time does not need to be used to form an estimated model.
ARi,t = Ri,t – E[Ri,tI]
Expected return is equal to the market return at that time so that it can be modeled as follows:
E[Ri,t] = RMit
Description:
ARi,t = abnormal return rate of security i in the period of event t.
Ri,t = actual return of security i in the period of event t.
E[Ri,t] = expected return of securities i in the t period using the balance model.
RMit = market return of the security i period event t.
Trading Volume Activity
Trading volume activity is an indicator used to measure the liquidity of stocks. When calculated from the days after the event, the trading volume of shares increased compared to the days before the event, then it can be said that the liquidity of stock trading after the event increased (Akbar et al., 2019). The formula is as follows:
TVA = 𝜮 𝒄𝒐𝒎𝒑𝒂𝒏𝒚 𝒔𝒉𝒂𝒓𝒆𝒔 𝒕𝒓𝒂𝒅𝒆𝒅 𝒐𝒏 𝒅𝒂𝒚 𝒕 𝜮 𝒕𝒉𝒆 𝒄𝒐𝒎𝒑𝒂𝒏𝒚′𝒔 𝒔𝒉𝒂𝒓𝒆𝒔 𝒊𝒏 𝒄𝒊𝒓𝒄𝒖𝒍𝒂𝒕𝒊𝒐𝒏 𝒐𝒏 𝒅𝒂𝒚 𝒕
3. Methodology
This study uses quantitative methods, with descriptive purposes that describe what happens to the object of the event studied. The analysis unit in this study is the organization because the population chosen is companies that belong to the LQ45 index group. Using time-series data conducted on the test data of one time period only, namely at the time of the phenomenon of large-scale social restrictions (PSBB) announcement volume II in Jakarta on the shares of companies listed in the LQ45 index for the period August 2020 - January 2021. The data used in this study is secondary data obtained from www.idx.co.id website and www.finance.yahoo.com.
3.1 Shapiro-Wilk Normality Test
Normality tests were conducted to determine whether the samples taken came from the same population or normal distribution on abnormal return and trading volume activity variable of LQ45 group shares before and after the announcement of the enactment of Large-Scale Social Restrictions (PSBB) volume II in Jakarta in 2020. The method used to perform the data normality test in this study uses the Shapiro-wilk test technique. Normality test using Shapiro- wilk method because the number of small samples is less than 50 samples (Hartono, 2008). In the early stages of testing determine in advance the research hypothesis, as follows:
H0 : Normally distributed data Ha : Data is not distributed normally
With the decision-making criteria on the Shapiro-Wilk test technique, if the probability value
> of significance < 0.05 then h0 is rejected and ha and is declared abnormally distributed data.
The following are the results of normality testing on abnormal return variable and trading volume activity on LQ45 shares before and after the announcement of Large-Scale Social Restrictions (PSBB) volume II in Jakarta in 2020.
Table 1: Abnormal Return Normality Test Results
Events
Kolmogorov-Smirnov Shapiro-Wilk Statistic df Sig. Statistic df Sig.
Result Abnormal return Before 0,107 45 0.200* 0,948 45 0,044 Abnormal return After 0,072 45 0.200* 0,985 45 0,812
Sources: Data processed, 2021
In table 1. indicates that the abnormal average return of LQ45 shares in the period before the announcement of the enactment of Large-Scale Social Restrictions (PSBB) volume II in Jakarta in 2020 has a probability of significance of 0.044. Whereas in the period after the event, it has a probability of significance of 0.812. In the period before the event, the probability value of significance was less than 0.05. Therefore, based on this explanation, the abnormal average return of LQ45 shares at the announcement of the implementation of Large-Scale Social Restrictions (PSBB) volume II in Jakarta in 2020 is not distributed normally, so hypothesis testing using non-parametric Wilcoxon signed-rank test.
Table 1: Trading Volume Activity Normality Test Results
Events
Kolmogrov-Smirnov Shapiro-Wilk Statistic df Sig. Statistic df Sig Results Trading Volume Activity Before 0,176 45 0,001 0,805 45 0,000 Trading Volume Activity After 0,168 45 0,003 0,805 45 0,000
Sources: Data processed, 2021
Based on table 2. indicates that the average trading volume activity of LQ45 shares in the period before the announcement of the enactment of Large-Scale Social Restrictions (PSBB) volume II in Jakarta in 2020 has a probability of significance of 0.000. Whereas in the period after the event, it has a significance probability of 0.000. In both probability values, the significance is less than 0.05. Therefore, based on this explanation, the average trading volume activity of LQ45 shares at the announcement of the implementation of Large-Scale Social Restrictions (PSBB) volume II in Jakarta in 2020 is not distributed normally, so hypothesis testing using non-parametric wilcoxon signed rank test.
3.2 Wilcoxon Signed Rank Test
Table 3: Wilcoxon Signed Rank Test Abnormal Return Test Statisticsa
Before - After
Z -0.593b
Asymp. Sig. (2-
tailed) 0,553
Sources: Data processed, 2021
In table 3. showing output test statistic, Wilcoxon signed rank test result on abnormal variable return obtained Z count of -0.593 with a probability of 0.553. So that the value of p = 0.553 >
0.05, then H0 is accepted and it can be concluded that there is no significant difference in the
average abnormal return before and after the announcement of Large-Scale Social Restrictions (PSBB) volume II in Jakarta in 2020 period August 2020 – January 2021.
Table 2: Wilcoxon Signed Rank Test Trading Volume Activity Test Statisticsa
Before - After
Z -4.476b
Asymp. Sig. (2-
tailed) 0,000
Sources: Data processed, 2021
In table 4. wilcoxon signed rank test result on trading variable volume activity obtained Z count of -4,476 with a probability of 0.000. So the value of p = 0,000 < 0.05, then H0 is rejected and it can be concluded that there is a significant difference in the average trading volume of activity before and after the announcement of Large-Scale Social Restrictions (PSBB) volume II in Jakarta in 2020 period August 2020 – January 2021.
4. Conclusion
Statistical test results using the wilcoxon signed-rank test on abnormal return variables showed that there was no difference in the average abnormal return at the announcement of Large-Scale Social Restrictions (PSBB) volume II in Jakarta in 2020.
This is because the market responded to the announcement of Large-Scale Social Restrictions (PSBB) volume II in Jakarta by looking first at the government policy that will be carried out because the market has understood how PSBB was first implemented in Jakarta. Therefore, when it was announced that PSBB was re-enacted, there was not much difference because the market had absorbed information before it occurred so as not to occur asymmetry of information. Thus it can be said that the price of Indonesian capital market securities fully reflects the information published, therefore the Indonesian capital market is in a condition of market efficiency form half strong.
While the results of statistical test on variable trading volume activity using wilcoxon signed- rank test showed that there was a difference in the average trading volume activity of LQ45 shares at the announcement of Large-Scale Social Restrictions (PSBB) volume II in Jakarta in 2020 period August 2020 – January 2021.
The announcement of Large-Scale Social Restrictions (PSBB) volume II in Jakarta in 2020 gave a positive reaction, resulting in an increase in the number of LQ45 stock trading volumes after the event, where the positive sentiment was caused by investors who were careful about information. The first factor that influenced the increase in trading in the capital market after the event because the government managed to calm the market at the time of the implementation of PSBB volume II by loosening the rules for some sectors that are considered important. It is disclosed to reduce the asymmetry of information in the capital market between investors.
The second factor is a significant increase in the excess liquidity of the market. This is because a large number of Indonesians keep large amounts of money and do not use it for consumption, when foreigners give up their shareholding, domestic investors then crowded to buy falling stocks. This is evidenced by the volume of transactions recorded in IDX reached 934,733 times,
the figure is the highest trade transaction in the history of exchange trading in Indonesia. So the market sees that the implementation of PSBB in Jakarta has been running in accordance with market expectations.
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