Short-term Overreaction of the Indonesian Islamic Stock Market to Specific Events during the Covid-19 Pandemic

Novia Rosmala; Mohammad Iqbal Irfany; Bumi  Camara; Daffa Aqomal  Haq

doi:10.58968/eii.v6i1.489

Authors

Novia Rosmala IPB University
Mohammad Iqbal Irfany IPB University
Bumi Camara African Development Bank
Daffa Aqomal Haq IPB University

DOI:

https://doi.org/10.58968/eii.v6i1.489

Keywords:

Overreaction, Islamic Stocks Market, COVID-19, Cross-sectional Regression, Indonesia

Abstract

The COVID-19 pandemic is a rare and unexpected occurrence. Everyone has felt the global economic impact of the health crisis, including the Indonesian Islamic stock market. The shock in the Islamic stock markets has created uncertainty and a shift in investor behavior, potentially leading to an overreaction abnormality. The aim of this research is to look into a phenomenon in Indonesia's Islamic stock market. Analytical methods include the event study approach and cross-sectional regression. This study discovered that Joe Biden's election as President of the United States during the COVID-19 pandemic (Event 8) and the increase in daily COVID-19 deaths (Event 11) overreacted to the winner category stocks using the Jakarta Islamic Index (JII). A component that drives such overreactions is market capitalisation, which has a substantial influence on it. Furthermore, trading volumes influenced overreaction significantly.

Downloads

Download data is not yet available.

References

Ali, S., Shahzad, S. J. H., Raza, N., & Al-Yahyaee, K. H. (2018). Stock market efficiency: A comparative analysis of Islamic and conventional stock markets. Physica A: Statistical Mechanics and Its Applications, 503, 139–153. https://doi.org/10.1016/j.physa.2018.02.169

Bash, A. (2020). International Evidence of COVID-19 and Stock Market Returns: an Event Study Analysis. International Journal of Economics and Financial Issues, 10(4), 34–38. https://doi.org/10.32479/IJEFI.9941

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. https://doi.org/10.1016/J.RIBAF.2014.10.002

Chen, D., Hu, H., & Chang, C. P. (2021). The COVID-19 shocks on the stock markets of oil exploration and production enterprises. Energy Strategy Reviews, 38, 100696. https://doi.org/10.1016/J.ESR.2021.100696

Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance, 25(2), 383. https://doi.org/10.2307/2325486

Farag, H., & Cressy, R. (2010). Do unobservable factors explain the disposition effect in emerging stock markets? Http://Dx.Doi.Org/10.1080/09603101003781463, 20(15), 1173–1183. https://doi.org/10.1080/09603101003781463

Fauzi, R., & Wahyudi, I. (2016). The effect of firm and stock characteristics on stock returns: Stock market crash analysis. The Journal of Finance and Data Science, 2(2), 112–124. https://doi.org/10.1016/J.JFDS.2016.07.001

He, P., Sun, Y., Zhang, Y., & Li, T. (2020). COVID–19’s Impact on Stock Prices Across Different Sectors—An Event Study Based on the Chinese Stock Market. Https://Doi.Org/10.1080/1540496X.2020.1785865, 56(10), 2198–2212. https://doi.org/10.1080/1540496X.2020.1785865

Irfan, M., Kassim, S., & Dhimmar, S. (2021). Impact of Covid-19 on Islamic Stock Markets: An Investigation using Threshold Volatility and Event Study Models. International Journal of Islamic Economics and Finance (IJIEF), 4(1), 121–148. https://doi.org/10.18196/IJIEF.V4I1.10480

Lerskullawat, P., & Ungphakorn, T. (2019). Does overreaction still exist in Thailand? Kasetsart Journal of Social Sciences, 40(3), 689–694. https://doi.org/10.1016/j.kjss.2018.02.001

Lobe, S., & Rieks, J. (2011). Short-term market overreaction on the Frankfurt stock exchange. The Quarterly Review of Economics and Finance, 51(2), 113–123. https://doi.org/10.1016/J.QREF.2010.12.002

M De Bondt, W. F., Thaler, R., Smidt, S., Morse, D., Bernstein, P., Black, F., Jarrow, R., Elton, E., & Watts, R. (1985). Does the Stock Market Overreact? The Journal of Finance, 40(3), 793–805. https://doi.org/10.1111/J.1540-6261.1985.TB05004.X

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. https://doi.org/10.21098/JIMF.V6I1.1121

Musnadi, S., Faisal, & 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. https://doi.org/10.1108/IJOES-12-2017-0235/FULL/XML

Sohail, A., Ur Rehman, M., at Shaheed Zulfikar Ali Bhutto, candidate, & Yasmin Javid, A. (2017). Stock Market Reactions on Returns and Trading Volume: The Impact of the Global Financial Crisis. Revista Evidenciação Contábil & Finanças, ISSN-e 2318-1001, Vol. 5, No. 1, 2017 (Issue Dedicated to: Jan./Abr.), Pages 132-151, 5(1), 132–151. https://doi.org/10.18405/recfin20170108

Syafitri, W., Effendi, J., & Irfany, M. I. (2022). Is there a short-term overreaction to pandemic COVID-19? A case study of the Indonesia Islamic Capital Market. Al-Uqud : Journal of Islamic Economics, 6(2), 177–191. https://doi.org/10.26740/ALUQUD.V6N2.P177-191