Capital Market Reaction to The Announcement of Demonstration Action Rejection of The Job Creation Bill: Case Study Of LQ-45 Index Companies Listed on Indonesia Stock Exchange

Capital Market Reaction to The Announcement of Demonstration Action Rejection of The Job Creation Bill: Case Study Of LQ-45

Index Companies Listed on Indonesia Stock Exchange

Naufal Farras Maulana^1*, Irni Yunita¹

1 Management Business Telecommunication and Informatics, Telkom Univesrsity, Bandung, Indonesia

*Corresponding Author: anaufaal@student.telkomuniversity.ac.id Accepted: 15 March 2021 | Published: 1 April 2021

_________________________________________________________________________________________

Abstract: Political events can be a factor that is considered to influence market reactions on the stock exchange, because political events are closely related to the stability of a country's economy. One of them is the announcement of a demonstration against the Job Creation Bill, which is a type of published information or event. The purpose of this study was to determine whether there were differences in abnormal returns and trading volume activity before and after the announcement of the demonstration against the Job Creation Bill. The study population was 45 companies listed on the Indonesia Stock Exchange (BEI) in the LQ45 index for the period August 2020 - January 2021 by purposive sampling. The results showed that there was no difference in abnormal returns on the LQ-45 stock index before and after the announcement of the demonstration against the Job Creation Bill. The results are the same as the trading volume activity, which shows that there is no difference in trading volume activity before and after the announcement of the demonstration against the Job Creation Bill.

Keywords: Capital Market, Demonstration Action, Abnormal Return, Trading Volume Activity, Event Study

___________________________________________________________________________

1. Introduction

Political events can be a factor that is considered to influence market reactions on the stock exchange, because political events are closely related to the stability of a country's economy.

One of them is the announcement of a demonstration against the Job Creation Bill, which is a type of published information or event. The purpose of this study was to determine whether there were differences in abnormal returns and trading volume activity before and after the announcement of the demonstration against the Job Creation Bill. The study population was 45 companies listed on the Indonesia Stock Exchange (BEI) in the LQ45 index for the period August 2020 - January 2021 by purposive sampling. The results showed that there was no difference in abnormal returns on the LQ-45 stock index before and after the announcement of the demonstration against the Job Creation Bill. The results are the same as the trading volume activity, which shows that there is no difference in trading volume activity before and after the announcement of the demonstration against the Job Creation Bill.

Information can be said to be relevant if this information can influence investors' decisions to conduct transactions in the capital market. The information required by investors can come from an event (event) internal company and also external company. Later, the information needed by investors is linked to events that occur at that time, such as political, economic and other influences.

Political events can be a factor that is considered to affect market reactions on the stock exchange, because political events are closely related to the stability of a country's economy (Verawaty et al, 2018). Although not directly related to the dynamics that occur in the capital market, non-economic environmental influences cannot be separated from capital market activities. Issues regarding concern for the environment, human rights, political events, and the state as well as riots that cause political and security uncertainty, are often the main factors triggering fluctuations in stock prices on the stock exchange (Mulya & Ritonga, 2017).

One of the political events that has occurred in Indonesia is the demonstration against the Work Creation Bill or the Omnibus Law. On October 5, the President of the Confederation of Indonesian Workers Unions (KSPI), Said Iqbal, also announced that there would be a demonstration as well as a strike by workers being held simultaneously in the context of rejecting the Job Creation Bill (Kompas, 2020). The demonstration will be held on 6, 7 and 8 October 2020 in various regions or other cities in Indonesia. In this action workers and students voiced their rejection of the Omnibus Law on the Job Creation Law.

The existence of political events or demonstrations of rejection of the Job Creation Bill in Indonesia carried out by the Indonesian people, has an influence on the capital market reaction in the form of stock price fluctuations from falling to rising of the Jakarta Composite Index (JCI).

Based on this, if the announcement contains information, the market will react when the announcement is received by the market. This is because an efficient market will react quickly to information related to phenomena. This market reaction can be measured using abnormal returns (Hartono, 2017: 644). In addition to observing abnormal returns, market reactions can also be observed through stock trading volume activity as seen from the value of stock trading volume or trading volume activity.

2. Literature Review

2.1 Capital Market Efficiency

An efficient market emphasizes more on the information aspect, meaning that an efficient market is a market where the prices of all traded securities reflect all available information.

The concept of an efficient market implies a process of adjusting the price of a security to a new equilibrium price, both in response to new information entering the market. Although the price adjustment process does not have to run perfectly, what is important is that the price formed is not biased (Tandelilin, 2017:224).

2.2 LQ-45 Index

The LQ45 index consists of 45 stocks on the IDX with high liquidity and large market capitalization and has passed the selection according to several selection criteria. If there are stocks that do not meet the selection criteria, these shares will be removed from the index calculation and replaced with other stocks that meet the criteria. Share replacement is carried out every 6 (six) months, namely at the beginning of February and August (Tandelilin, 2017:95).

2.3 Event Study

Event studies are studies that examine the impact of information announcements on the price of securities. Event study research is generally concerned with how quickly information that enters the market can be reflected in stock prices. The event study is a form of study to test the efficiency of the semi-strong form market (Tandelilin, 2017:569).

2.3.1 Abnormal Return

Event studies analyze the abnormal returns (abnormal returns) of securities that may occur around the announcement of an event. Abnormal return or excess return is the excess of return that actually occurs against normal return. Normal return is the expected return (the return expected by investors). Thus, abnormal return is the difference between actual return and expected return (Hartono, 2017:667). Actual return or return is actually the return that occurs at time t which is the difference between the current price and the previous price or it can be calculated using the formula

𝑅_𝑖,𝑡=(𝑃_𝑖,𝑡− 𝑃_{𝑖,𝑡−1}) 𝑃𝑖,𝑡−1

2.3.2 Mean Adjusted Return

This mean-adjusted return model assumes that the expected return is constant, which is the same as the previous average realized return during the estimation period, as follows

E[Ri,j] = ^ERi,t

𝑡

2.3.3 Market Model

The calculation of expected returns with a market model is carried out in two stages, the first is to form an expected model using the realization data during the estimation period and the second one uses this expected model to estimate the expected return in the window period.

Ri,j = αi + βi . RMj + Ԑi,j

RMj is the market index return in the jth estimation period which can be calculated by the formula:

RMj = (IHSGj – IHSGj-1)

2.3.4 Market Adjusted Model

The market-adjusted model assumes that the best predictor for estimating the return of a security is the current market index return. By using this model, it is not necessary to use the estimation period to form an estimation model, because the estimated security return is the same as the market index return. The market model is described by the following equation:

ARi,t = Ri,t – E[Ri,t]

The expected return is the same as the market return at that time, so it can be modeled as follows:

E[Ri,t] = RMit

2.4. Trading Volume Activity

Trading volume activity is the ratio between the number of shares traded at a certain time to the number of shares outstanding at a certain time (Husnan. 2009:283). Trading Volume Activity (TVA) can be used to see the capital market's reaction to information through a parameter of the movement of stock trading volume activity in the capital market (Mulya &

Ritonga, 2017).

3. Methodology

In this research, the approach used is an event study. Event studies analyze the abnormal returns (abnormal returns) of securities that may occur around the announcement of an event. Thus, testing market efficiency is basically testing abnormal returns. Apart from the abnormal return variable, another variable examined in this study is the trading volume activity.

There are calculation steps prior to the data processing and data analysis stages. The calculation steps in this study are as follows:

1) Calculating Actual Return. The calculation of the actual return requires data on the stock price or closing price for each company during the study period. With the formula:

𝑅_𝑖,𝑡 = (𝑃_𝑖,𝑡− 𝑃_{𝑖,𝑡−1}) 𝑃_{𝑖,𝑡−1}

𝑅_𝑖,𝑡 = the actual return that occurs on securities i on day t 𝑃_𝑖,𝑡 = the daily share price of security i on day t

𝑃_{𝑖,𝑡−1} = daily share price of securities I on the day before day t

2) Calculating the Expected Return. The calculation of expected return in this study uses the market adjusted model. To calculate the expected return, daily stock index data are needed.

3) Calculating the Abnormal Return. The method of calculating abnormal returns in this study is a market-adjusted model, this method is used to calculate abnormal returns by eliminating the market's influence on the daily return of securities so that in this technique the estimated return of securities is the same as the current stock index return.

The calculation of the abnormal return requires the actual return and expected return of the security on the same day to be the same as the market index return. With the formula:

𝐴𝑅_𝑖,𝑡 = 𝑅_𝑖,𝑡− 𝑅_𝑀,𝑡

𝐴𝑅_𝑖,𝑡 = Abnormal return security i on day t 𝑅_𝑖,𝑡 = Actual return security i on day t 𝑅_𝑀,𝑡 = Market return on day t

4) Calculating Trading Volume Activity. Trading volume activity or share trading volume is the ratio between the number of shares traded at a certain time to the number of shares circulating at a certain time (Husnan, 2009: 283). This calculation aims to see the sales volume of shares on that day. With the formula:

𝑇𝑉𝐴 = ∑ Company j shares traded at the time

∑ Company j shares outstanding at the time t

After calculating the data, the next step is data processing and data analysis. The level of significance (α) used in the study was 5% (α = 0.05) or with a confidence level of 95%. Next is the data normality test, the normality test in this study uses the Kolomogorov-Smirnov non- parametric statistical test, with this decision making is if Asymp.sig> a significance value of

0.05 then the data can be concluded to be normally distributed. Meanwhile, if Asymp.sig <a significance value of 0.05, it can be concluded that the data is not normally distributed.

Next is the statistical test stage, if the data is normally distributed, the statistical test used is the parametric statistical test, namely one sample t-test, correlation and regression, analysis of variance and paired sample t-test. Meanwhile, if the data is not normally distributed, the statistical test used is non-parametric, namely the Wilcoxon test.

4. Conclusion

The period used in this study was 5 days before the event and 5 days after the event. The event of the announcement of the demonstration against the Work Creation Bill which took place on October 5, 2020.

The samples in this study were companies in the LQ-45 index listed on the Indonesia Stock Exchange with the criteria of having complete and consistent company data in the LQ-45 index and not carrying out corporate actions during the study period.

Table 1: Comparative Test

Paired Samples Statistics for Abnormal Return

Mean N Std. Deviation Std. Error Mean Pair 1 Before .00055418 5 .005299557 .002370034

After .00265960 5 .003870005 .001730719

Paired Samples Test for Abnormal Return Paired Differences

t df

Sig. (2-tailed)

Mean

Std.

Deviatio n

Std. Error Mean

95% Confidence Interval of the

Difference Lower Upper Pair 1 Before -

After

-.002105419 .0053582 32

.0023962 74

- .0087585 43

.0045477 06

-.879 4 .429

Paired Samples Statistics for Trading Volume Activity

Mean N Std. Deviation Std. Error Mean Pair 1 Before .00151261 5 .000107529 .000048089

After .00171557 5 .000265746 .000118845

Paired Samples Test for Trading Volume Activity

Paired Differences

t df

Sig. (2- tailed)

Mean

Std.

Deviati on

Std.

Error Mean

95% Confidence Interval of the

Difference Lower Upper Pair 1 Before -

After

- .00020295 8

.000222 1943

.000099 256

- .000478 537

.000072 621

- 2.045

4 .110

The results of statistical tests using the paired sample t-test method show that there is no significant difference in abnormal returns before and after the announcement of the demonstration against the Job Creation Bill. Based on the test results which produce a significance value of 0.564 greater than 0.05. This proves that the announcement of the demonstration against the Job Creation Bill did not have a significant effect on abnormal returns before and after the announcement. Previous studies that have similar results to this study are previous studies conducted by Verawaty et al. (2018) regarding the 212 peaceful action incidents on the abnormal return of stocks which shows that there is no significant difference between the abnormal return of stocks before and after the peaceful action 212

Based on the test results of the average trading volume activity around the announcement of the rejection of the Job Creation Bill using the paired sample t-test method, it shows that there is no significant difference in trading volume activity before and after the event. Judging from the test results, the significance value of 0.309 is greater than 0.05, it proves that the announcement of the rejection of the Job Creation Bill did not have a significant effect on the trading volume activity of stocks listed on the LQ-45 index.

References

Hartono, J. (2017). Teori Portofolio dan Analisis Investasi. Yogyakarta: BPFE.

Husnan, S. (2009). Dasar-dasar Teori Portofolio & Analisis Sekuritas. Yogyakarta: UPP STIM YKPN.

Kompas. (2020, Oktober 5). Tolak UU Cipta Kerja, KSPI: 2 Juta Buruh Mogok Nasional 6-8

Oktober. Retrieved from Nasional:

https://nasional.kompas.com/read/2020/10/05/21240331/tolak-uu-cipta-kerja-kspi-2- juta-buruh-mogok-nasional-6-8-oktober?page=all

Mulya, L. T., & Ritonga, K. (2017). Pengaruh Reaksi Pasar Modal Terhadap Peristiwa Aksi Damai 4 November 2016 (Event Studi Pada Saham Kompas 100 Yang Terdaftar Di Bursa Efek Indonesia). Jurnal Tepak Manajemen Bisnis.

Purba, T. (2017). Analisis Komparasi Abnormal Return Dan Volume Perdagangan Saham Atas Pemberlakuan Peraturan Pemerintah Nomor 1 Tahun 2014. Jurnal Riset Bisnis dan Manajemen.

Sugiyono. (2017). Metode Penelitian Kuantitatif, Kualitatif, dan R&D. Bandung: Alfabeta.

Tandelilin, E. (2017). Pasar Modal: Manajemen Portofolio dan Investasi. Yogyakarta: PT Kanisius.

Verawaty, Noviardy, A., & Salindra, M. (2018). Pengaruh Aksi Damai 212 Terhadap Abnormal Return Saham Pada Kelompok Indeks Saham LQ-45. Jurnal Ilmiah MBiA.

Wibowo, A. (2017). Reaksi Investor Pasar Modal Terhadap Paket Kebijakan Ekonomi Tahap 1 Jokow-JK (Studi pada Saham LQ45 Periode Agustus 2015-Pebruari 2016). Media Ekonomi dan Manajemen.