ANALYSIS THE EFFECT OF PRESIDENTIAL ELECTION EVENT TO THE CAPITAL MARKET REACTION IN INDONESIA

Abstract

Information is investors’ main requirement in capital market. Social-politic events in Indonesia have relevant information for investors would cause market reaction reflected through changes in stock price. This reaction can be measured with Abnormal Return as indicator. This research is the event study that aims to find empirical evidence of the existence of reaction in capital market from presidential election event in Indonesia, researcher take two samples of events which are quick count of presidential election 2014 and official result of presidential election 2014. The population in this research is all shares that are included in LQ45 during research period. While the sample taken through purposive sampling technique to obtain companies that provide adequate information regarding the data that are needed by the researcher. Paired t-Test is used to analyze whether the abnormal return from the presidential election event have significant reaction between the day before and after the events period that prove the existence of a market reaction. Significant abnormal return in the events period indicates that the market react to the events. It shows from the result of quick count of Presidential Election 2014 and official result of Presidential Election 2014 which have significant abnormal returns between before and after the events period. If we look at the average of abnormal returns between before and after quick count of Presidential Election 2014, the average of AAR before event has quite same result with average after event, it means the market participants have anticipate before the event occurs and after the event, they obtain information that is still ambiguous. Then, on the official result of Presidential Election 2014, the average AAR before event is smaller than AAR after event, which mean the average of AAR on official result of Presidential Election 2014 give positive reaction after the event occurred. On CAAR diagram, on quick count of Presidential Election 2014 looks fluctuation, whereas on official result of Presidential Election 2014 looks rising.