Also, retail investors and foreign investors respond to the BSI index with negative and positive changes, but behave in opposite directions. It also examines the relationship, which shows that investors in equity trading are related to changes in the BSI index. The BSI index consists of a monthly questionnaire sent to medium and large companies of more than 1,010 companies listed on the Thai stock market with a registered capital of at least 200 million baht and the Ministry of Industry of Thailand.
It refers to the general economic condition used to calculate the BSI index, such as economic condition or business performance, total order books, Investments, Employment, Cost of production or cost of business and Production. However, the result of the BSI index is an indicator that represents the perceptions of the majority of investors and is used as a guide to study the behavior of investors towards investments. Even the BSI index is below 50, it does not really indicate the extent of the deterioration.
By the above theory, this paper will extend more research on the relationship between the BSI index and the stock market in detail. For better understanding and further knowledge, the paper will prove with evidence that when the actual BSI index for a particular month is publicly announced, how the stock market returns react to the announcement. First, to find the impact on stock market returns after a few days of BSI index announcements (where the event survey is +2,+3).
Finally, it is to examine the relationship between change in the BSI index to six diffusion indices in relation to two different perspectives, positive and negative.
DATA AND METHODOLOGY
Data
BSI index is considered as a main economic indicator which is very important as the GDP level. The index is announced by the Bank of Thailand website on the last business day of each month. I believe the BSI index announcement may have an impact on stock volatility which reflects on returns.
For this article, the change in the value of the BSI is more worrying and people, especially investors, should pay attention to it because when the actual index has neither positive nor negative changes since the previous month, the response behaves differently. I then split the data into positive and negative changes to see the whole picture and interpret the data more easily. In addition, the diffusion indices that are published together with the BSI index will also be used to find the relationship with the BSI index.
This paper will show once the BSI index changes positively, which diffusion index responds and which does not. The percentage of positive change has an average of 52% of the total change of the BSI index. From this number it can be seen that the positive and negative change is almost half of the half which can be assumed that the economy is quite stable from the last 11 years.
Methodology
EMPIRICAL RESULTS
- Positive & Negative Changing of Business Sentiment Index on the Announcement date
- BSI Index Announcement and Reaction to Separate Industries
- BSI Index Announcement and Reaction to Each Investor Type
- Impact to Market Return from Investor Types’ Net Trading Imbalance
Further investigation shows that table 4.1.1 below shows that the market reacts only one day before the BSI index announcement at the end of each month. There is strong evidence that the positive change in the BSI index is sending the positive signal of return to many sectors, which you can see from the significant 99% confidence level in Table 4.2.1 below. Therefore, the real estate and construction sector can rely on and correlate with positive changes in the BSI index announcement.
Furthermore, there is evidence that the positive change in the BSI index has a significant impact on the Agro & Food industry in POS events, or it can be said to have an effect on returns in the days following the announcement date. All these sectors mentioned above are the sectors that directly influence the positive changes in the BSI index announcement. As Table 4.2.2 below shows, the Consumer Products and Technology sectors influence the positive changes in the BSI index announcement on EVE day at a significant level of 95% confidence.
Here is an overview of the positive changes in BSI index announcements in different time series. Nevertheless, the market return somehow also reacts to the negative change in the BSI index announcement. From table 4.2.3 below, there are two sectors that react to the negative sign of BSI index announcements which are resources and technology sectors.
It is only the return that has been reduced compared to the positive change in the announcement of the BSI index. This paper later explains the relationship of the negative change in the announcement of the BSI index with the BSI diffusion indices, which the paper found interesting results. Two other types of investors do not react to the change in the BSI index, which are Local Institutions.
Foreign investors are likely to be impacted by negative changes in the BSI index a few days after the announcement date. To perform regression for analysis, the data is divided into positive and negative changes in the BSI index to see the real relationship. You can see that Table 5 with the positive change in the BSI index shows a significant effect of some independent variables.
The interpretation is that the positive change in the BSI index has a better relationship with market returns compared to a negative change in sign. Where X1 is a change in the BSI index between the actual months and the previous month, X2 is a net trading imbalance of retail investors.
CONCLUSION
