Political Risk and Stock Returns in Indonesia

Abstract

Objective - The research aims to find the relationship between the political risk with stock returns. Methodology/Technique - Using the purposive sampling, secondary data on 30 companies listed in Indonesia Stock Exchange (BEI) of the year 2007-2015. Analysis technique used is weighted least square regression Findings - The results of study Political risks significantly positively associated with stock returns. These results imply a change from the shock of political risk will affect cost of capital of the company increased, causing the company's stock price will go up which in the end impact on improving the company's stock returns obtained. Novelty - The study implies Shock due to the change of political risk has a direct impact on the company's financial condition primarily of the cost of capital companies because it involves policy and investment decisions are made in Indonesia. Type of Paper - Empirical Keywords: BEI; Market Capitalization; Market Returns; Political Risk; Stock Returns. JEL Classification: G30, G32.