Testing the efficient market hypothesis with Indonesian Islamic Stocks during the Covid-19 pandemic

https://doi.org/10.35912/amor.v4i3.1621
Published: Aug 21, 2023

Abstract:

Purpose: This study aims to identify the phenomenon of overreaction in Islamic stocks during the COVID-19 pandemic and understand how various pieces of information during the pandemic influenced investors to overreact, leading to market inefficiency.

Research Methodology: This study employs two main methods: an event study focusing on the overreaction phenomenon in the Islamic stock market, and cross-sectional regression to analyze the factors that influence it.

Results: Overreaction was observed in the winner's stock portfolio during the announcement of Indonesia's first COVID-19 case. However, during other significant events, such as the National Economic Recovery program issuance, the arrival of the vaccine, and the highest increase in daily positive cases, overreaction was seen in both the winner and loser stock portfolios. Factors such as abnormal returns, information leakage, and company ownership are identified as significant influencers of this overreaction. These factors were found to be negatively related to cumulative abnormal returns post-event, indicating their role in the overreaction phenomenon.

Limitation: This study focuses on the overreaction phenomenon of Shariah stocks in the Jakarta Islamic Index (JII) during the COVID-19 pandemic in 10 selected events from October 1, 2019, to July 23, 2021.

Contribution: This study offers insights into the behavior of Islamic stocks in Indonesia during the pandemic, helping stakeholders understand market inefficiencies during crises.

Keywords:
1. Islamic stock
2. efficient market hypothesis
3. overreaction
4. event study
5. cross-sectional regression
Authors:
1 . Tiara Early Afifah
Faculty of Economics and Management, IPB University, Indonesia
2 . Neneng Hasanah
Faculty of Economics and Management, IPB University, Indonesia
3 . Mohammad Iqbal Irfany
Faculty of Economics and Management, IPB University, Indonesia
View PDF
How to Cite
Afifah, T. E., Hasanah, N., & Irfany, M. I. (2023). Testing the efficient market hypothesis with Indonesian Islamic Stocks during the Covid-19 pandemic. Annals of Management and Organization Research, 4(3), 175–191. https://doi.org/10.35912/amor.v4i3.1621
Download Citation
  1. Endnote/Zotero/Mendeley (RIS)
  2. BibTeX

Downloads

Download data is not yet available.
Issue & Section
Vol. 4 No. 3 (2023): February
Articles
Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

References

    Ali, R., Ahmad, Z., & Anusakumar, S. V. (2011). STOCK MARKET OVERREACTION AND TRADING VOLUME: EVIDENCE FROM MALAYSIA. Asian Academy of Management Journal of Accounting & Finance, 7(2).

    BI. (2021). Pertumbuhan Ekonomi Indonesia Triwulan IV 2020 Melanjutkan Perbaikan. Retrieved from https://www.bi.go.id/id/publikasi/ruang-media/news-release/Pages/sp_233321.aspx

    Boubaker, S., Farag, H., & Nguyen, D. K. (2015). Short-term overreaction to specific events: Evidence from an emerging market. Research in International Business and Finance, 35, 153-165.

    Cooper, M. (1999). Filter rules based on price and volume in individual security overreaction. The review of financial studies, 12(4), 901-935.

    De Bondt, W. F., & Thaler, R. (1985). Does the stock market overreact? The Journal of Finance, 40(3), 793-805.

    Dilla, S., Sari, L. K., & Achsani, N. A. (2020). Estimating the effect of the covid-19 outbreak events on the indonesia sectoral stock return. Jurnal Aplikasi Bisnis dan Manajemen (JABM), 6(3), 662-662.

    Dinawan, M. R. (2007). Analisis Overreaction Hyphothesis, dan Pengaruh Firm Size, Likuiditas dan Bid-Ask Spread terhadap Fenomena Price Reversal di Bursa Efek Jakarta. Universitas Diponegoro.

    Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417.

    Farag, H. (2014). Investor overreaction and unobservable portfolios: evidence from an emerging market. Applied Financial Economics, 24(20), 1313-1322.

    Farag, H., & Cressy, R. (2010). Do unobservable factors explain the disposition effect in emerging stock markets? Applied Financial Economics, 20(15), 1173-1183.

    Fatima, A., Rashid, A., & Khan, A.-u.-Z. (2019). Asymmetric impact of shocks on Islamic stock indices: a cross country analysis. Journal of Islamic Marketing, 10(1), 2-86.

    Gumanti, T. A., & Utami, E. S. (2002). Bentuk pasar efisiensi dan pengujiannya. Jurnal Akuntansi Dan Keuangan, 4(1), 54-68.

    Hartono, J. (2003). Teori Portofolio dan Analisis Investasi: BPFE.

    Hartono, J. (2017). Teori portofolio dan analisis investasi edisi kesebelas. Yogyakarta: BPFE, 762.

    Huo, X., & Qiu, Z. (2020). How does China’s stock market react to the announcement of the COVID-19 pandemic lockdown? Economic and Political Studies, 8(4), 436-461.

    Iihara, Y., Kato, H. K., & Tokunaga, T. (2004). The winner–loser effect in Japanese stock returns. Japan and the world economy, 16(4), 471-485.

    Indarti, I., & Purba, D. M. B. (2011). Analisis perbandingan harga saham dan volume perdagangan saham sebelum dan sesudah stock split. Jurnal Ilmiah Aset, 13(1), 57-63.

    Justina, D. (2017). Pengaruh Firm Size dan Market to Book Ratio terhadap Return Portofolio. Jurnal Manajemen dan Bisnis Sriwijaya, 15(2), 138-145.

    Khoidah, I., & Wijayanto, A. (2017). Fenomena Anomali Pasar di Bursa Efek Indonesia dan Bursa Efek Singapura. Management Analysis Journal, 6(1), 112-122.

    Kiky, A. (2018). Kajian empiris teori pasar efisien (efficient market hypothesis) pada Bursa Efek Indonesia. Jurnal Bina Manajemen, 6(2), 139-156.

    Kritzman, M. P. (1994). What practitioners need to know… about event studies. Financial Analysts Journal, 50(6), 17-20.

    Lam, H. Y., Lam, T. S., Wong, C. H., Lam, W. H., Leung, C. M. E., Au, K. W. A., . . . Wong, K. H. (2020). The epidemiology of COVID-19 cases and the successful containment strategy in Hong Kong–January to May 2020. International Journal of Infectious Diseases, 98, 51-58.

    Larson, S. J., & Madura, J. (2003). What drives stock price behavior following extreme one?day returns. Journal of financial Research, 26(1), 113-127.

    Maneenop, S., & Kotcharin, S. (2020). The impacts of COVID-19 on the global airline industry: An event study approach. Journal of Air Transport Management, 89, 101920.

    Mujadiddah, S., Achsani, N. A., & Irfany, M. I. (2020). Short-term overreaction of Islamic stocks to specific events in Indonesia. Journal of Islamic Monetary Economics and Finance, 6(1), 117-134.

    Musnadi, S., & Majid, M. S. A. (2018). Overreaction and underreaction anomalies in the Indonesian stock market: A sectoral analysis. International Journal of Ethics and Systems, 34(4), 442-457.

    Nidar, S. R., & Ulfa, N. (2017). Overreaction Market Analysis, Dividend Policy, Firm Size, and Seasonality to Price Reversal Phenomena. Accounting and Finance Review (AFR), 2(2), 73-77.

    Rachmad, A. A. (2013). Pengaruh Penerapan Corporate Governance Berbasis Karakteristik Manajerial Pada Kinerja Perusahaan Manufaktur. E-Jurnal Akuntansi, 2(3), 678-696.

    Randolph, H. E., & Barreiro, L. B. (2020). Herd immunity: understanding COVID-19. Immunity, 52(5), 737-741.

    Samsul, M. (2015). Pasar Modal dan Manajemen Portofolio Edisi 2. Jakarta: Erlangga.

    Silviyani, N. L. N. T., Edy Sujana, S., Msi, A., ADIPUTRA, I. M. P., SE, S., & Si, M. (2014). Pengaruh likuiditas perdagangan saham dan kapitalisasi pasar terhadap return saham perusahaan yang berada pada indeks LQ45 di Bursa Efek Indonesia periode tahun 2009-2013 (Studi empiris pada perusahaan LQ45 di Bursa Efek Indonesia). JIMAT (Jurnal Ilmiah Mahasiswa Akuntansi) Undiksha, 2(1).

    Sumiyana, S. (2007). Noise Atau Kedatangan Informasi: Sebuah Fenomena Spesifik Perilaku Harga Saham Di Pasar Modal Indonesia Studi Empiris Berbasis Data Intraday, Bursa Efek Jakarta 1999-2006. Journal of Indonesian Economy and Business (JIEB), 22(3), 192-218.

    Tecualu, M., & Megge, R. (2010). Reaksi Pasar Modal Indonesia Terhadap Peristiwa Bom Kuningan Tahun 2009. Jurnal Ilmiah Manajemen Bisnis Ukrida, 10(1), 97087.

    Utama, S. (2021). Islamic Stock Overreaction Phenomenon on Financial Statement: An Event Study. EkBis: Jurnal Ekonomi dan Bisnis, 5(1), 24-42.

    Van Horne, J. C., & Wachowicz, J. M. (2005). Fundamentals of financial management: Pearson education.

    Wistawan, A., & Widanaputra, A. (2013). Dampak Pengumuman Pemecahan Saham Pada Perbedaan Abnormal Return. E-Jurnal Akuntansi Universitas Udayana, 5(1), 1-16.

    Yadav, P. K. (1992). Event studies based on volatility of returns and trading volume: A review. The British accounting review, 24(2), 157-184.

    Zouaoui, M., Nouyrigat, G., & Beer, F. (2011). How does investor sentiment affect stock market crises? Evidence from panel data. Financial review, 46(4), 723-747.

  1. Ali, R., Ahmad, Z., & Anusakumar, S. V. (2011). STOCK MARKET OVERREACTION AND TRADING VOLUME: EVIDENCE FROM MALAYSIA. Asian Academy of Management Journal of Accounting & Finance, 7(2).
  2. BI. (2021). Pertumbuhan Ekonomi Indonesia Triwulan IV 2020 Melanjutkan Perbaikan. Retrieved from https://www.bi.go.id/id/publikasi/ruang-media/news-release/Pages/sp_233321.aspx
  3. Boubaker, S., Farag, H., & Nguyen, D. K. (2015). Short-term overreaction to specific events: Evidence from an emerging market. Research in International Business and Finance, 35, 153-165.
  4. Cooper, M. (1999). Filter rules based on price and volume in individual security overreaction. The review of financial studies, 12(4), 901-935.
  5. De Bondt, W. F., & Thaler, R. (1985). Does the stock market overreact? The Journal of Finance, 40(3), 793-805.
  6. Dilla, S., Sari, L. K., & Achsani, N. A. (2020). Estimating the effect of the covid-19 outbreak events on the indonesia sectoral stock return. Jurnal Aplikasi Bisnis dan Manajemen (JABM), 6(3), 662-662.
  7. Dinawan, M. R. (2007). Analisis Overreaction Hyphothesis, dan Pengaruh Firm Size, Likuiditas dan Bid-Ask Spread terhadap Fenomena Price Reversal di Bursa Efek Jakarta. Universitas Diponegoro.
  8. Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417.
  9. Farag, H. (2014). Investor overreaction and unobservable portfolios: evidence from an emerging market. Applied Financial Economics, 24(20), 1313-1322.
  10. Farag, H., & Cressy, R. (2010). Do unobservable factors explain the disposition effect in emerging stock markets? Applied Financial Economics, 20(15), 1173-1183.
  11. Fatima, A., Rashid, A., & Khan, A.-u.-Z. (2019). Asymmetric impact of shocks on Islamic stock indices: a cross country analysis. Journal of Islamic Marketing, 10(1), 2-86.
  12. Gumanti, T. A., & Utami, E. S. (2002). Bentuk pasar efisiensi dan pengujiannya. Jurnal Akuntansi Dan Keuangan, 4(1), 54-68.
  13. Hartono, J. (2003). Teori Portofolio dan Analisis Investasi: BPFE.
  14. Hartono, J. (2017). Teori portofolio dan analisis investasi edisi kesebelas. Yogyakarta: BPFE, 762.
  15. Huo, X., & Qiu, Z. (2020). How does China’s stock market react to the announcement of the COVID-19 pandemic lockdown? Economic and Political Studies, 8(4), 436-461.
  16. Iihara, Y., Kato, H. K., & Tokunaga, T. (2004). The winner–loser effect in Japanese stock returns. Japan and the world economy, 16(4), 471-485.
  17. Indarti, I., & Purba, D. M. B. (2011). Analisis perbandingan harga saham dan volume perdagangan saham sebelum dan sesudah stock split. Jurnal Ilmiah Aset, 13(1), 57-63.
  18. Justina, D. (2017). Pengaruh Firm Size dan Market to Book Ratio terhadap Return Portofolio. Jurnal Manajemen dan Bisnis Sriwijaya, 15(2), 138-145.
  19. Khoidah, I., & Wijayanto, A. (2017). Fenomena Anomali Pasar di Bursa Efek Indonesia dan Bursa Efek Singapura. Management Analysis Journal, 6(1), 112-122.
  20. Kiky, A. (2018). Kajian empiris teori pasar efisien (efficient market hypothesis) pada Bursa Efek Indonesia. Jurnal Bina Manajemen, 6(2), 139-156.
  21. Kritzman, M. P. (1994). What practitioners need to know… about event studies. Financial Analysts Journal, 50(6), 17-20.
  22. Lam, H. Y., Lam, T. S., Wong, C. H., Lam, W. H., Leung, C. M. E., Au, K. W. A., . . . Wong, K. H. (2020). The epidemiology of COVID-19 cases and the successful containment strategy in Hong Kong–January to May 2020. International Journal of Infectious Diseases, 98, 51-58.
  23. Larson, S. J., & Madura, J. (2003). What drives stock price behavior following extreme one?day returns. Journal of financial Research, 26(1), 113-127.
  24. Maneenop, S., & Kotcharin, S. (2020). The impacts of COVID-19 on the global airline industry: An event study approach. Journal of Air Transport Management, 89, 101920.
  25. Mujadiddah, S., Achsani, N. A., & Irfany, M. I. (2020). Short-term overreaction of Islamic stocks to specific events in Indonesia. Journal of Islamic Monetary Economics and Finance, 6(1), 117-134.
  26. Musnadi, S., & Majid, M. S. A. (2018). Overreaction and underreaction anomalies in the Indonesian stock market: A sectoral analysis. International Journal of Ethics and Systems, 34(4), 442-457.
  27. Nidar, S. R., & Ulfa, N. (2017). Overreaction Market Analysis, Dividend Policy, Firm Size, and Seasonality to Price Reversal Phenomena. Accounting and Finance Review (AFR), 2(2), 73-77.
  28. Rachmad, A. A. (2013). Pengaruh Penerapan Corporate Governance Berbasis Karakteristik Manajerial Pada Kinerja Perusahaan Manufaktur. E-Jurnal Akuntansi, 2(3), 678-696.
  29. Randolph, H. E., & Barreiro, L. B. (2020). Herd immunity: understanding COVID-19. Immunity, 52(5), 737-741.
  30. Samsul, M. (2015). Pasar Modal dan Manajemen Portofolio Edisi 2. Jakarta: Erlangga.
  31. Silviyani, N. L. N. T., Edy Sujana, S., Msi, A., ADIPUTRA, I. M. P., SE, S., & Si, M. (2014). Pengaruh likuiditas perdagangan saham dan kapitalisasi pasar terhadap return saham perusahaan yang berada pada indeks LQ45 di Bursa Efek Indonesia periode tahun 2009-2013 (Studi empiris pada perusahaan LQ45 di Bursa Efek Indonesia). JIMAT (Jurnal Ilmiah Mahasiswa Akuntansi) Undiksha, 2(1).
  32. Sumiyana, S. (2007). Noise Atau Kedatangan Informasi: Sebuah Fenomena Spesifik Perilaku Harga Saham Di Pasar Modal Indonesia Studi Empiris Berbasis Data Intraday, Bursa Efek Jakarta 1999-2006. Journal of Indonesian Economy and Business (JIEB), 22(3), 192-218.
  33. Tecualu, M., & Megge, R. (2010). Reaksi Pasar Modal Indonesia Terhadap Peristiwa Bom Kuningan Tahun 2009. Jurnal Ilmiah Manajemen Bisnis Ukrida, 10(1), 97087.
  34. Utama, S. (2021). Islamic Stock Overreaction Phenomenon on Financial Statement: An Event Study. EkBis: Jurnal Ekonomi dan Bisnis, 5(1), 24-42.
  35. Van Horne, J. C., & Wachowicz, J. M. (2005). Fundamentals of financial management: Pearson education.
  36. Wistawan, A., & Widanaputra, A. (2013). Dampak Pengumuman Pemecahan Saham Pada Perbedaan Abnormal Return. E-Jurnal Akuntansi Universitas Udayana, 5(1), 1-16.
  37. Yadav, P. K. (1992). Event studies based on volatility of returns and trading volume: A review. The British accounting review, 24(2), 157-184.
  38. Zouaoui, M., Nouyrigat, G., & Beer, F. (2011). How does investor sentiment affect stock market crises? Evidence from panel data. Financial review, 46(4), 723-747.