THE EFFECT OF INFLATION, EXCHANGE RATE, COVID-19, PROFITABILITY, LEVERAGE, AND FIRM SIZE ON STOCK RETURN

Abstract

This study examines the impact of inflation, exchange rates, the COVID-19 pandemic, profitability, and leverage on stock returns in the manufacturing sector listed on the Indonesia Stock Exchange (IDX) from 2019 to 2022, with firm size as a control variable. Using the Random Effect Model (REM), the results show that inflation has a significant positive effect on stock returns. This suggests that manufacturing companies were able to pass on increased costs to consumers, maintaining profit margins and boosting investor confidence. However, exchange rates, COVID-19, profitability (measured by Return on Assets), and leverage were found to have no significant effect on stock returns. The insignificance of these variables may be due to companies' effective risk management strategies, adaptability to the pandemic, and investors' focus on broader economic factors rather than internal financial metrics during the study period. These findings emphasize the critical role of external macroeconomic factors, particularly inflation, in determining stock returns in the Indonesian manufacturing sector, while internal metrics such as profitability and leverage play a less significant role. The study provides insights for investors and managers to better understand the key drivers of stock performance and adapt strategies accordingly. of stock performance and adapt strategies accordingly.