The Energy Commodities Price and The Energy Sector Index: Evidence from Indonesia Stock Exchange

Abstract

Purpose: This study aims to determine the effect and correlation of daily and weekly returns on commodity prices on the IDX Energi index on the Indonesia Stock Exchange.   Theoretical  Framework: Commodities are goods in the form of raw materials or raw materials that have a selling value. Energy commodities are mining products in the form of extracted fossils which can be used as energy sources. Stock price indices can be divided into several categories, namely stock market indices, sectoral stock price indices and individual stock prices. The stock market index is a representation of the total listed stock prices based on certain criteria and methods and is evaluated periodically.   Method: The research period used was January 25 2021 to July 30 2023. The analysis technique used was multiple regression and Dynamic Conditional Correlation Generalized AutoRegressive Conditional Heteroskedasticity.   Results: The results showed that the daily and weekly returns from energy commodities had a significant positive effect on the return on the IDX Energy index. Weekly returns on commodity prices can predict returns on the IDX Energi index better than daily returns. Energy commodities are also correlated with the IDX Energi index, but the dynamic correlation pattern of natural gas price returns to the IDX Energi index is different from the dynamic correlation pattern between world oil and coal prices. In general, returns on oil, natural gas and coal prices have an effect and are correlated with returns on the IDX Energi index.   Conclusions: The research results can be used as a decision making in investing, especially investing in companies that are included in the IDX Energi sector. The weekly return of the IDX Energi index can be predicted through returns on energy commodity prices, but the contribution is still small. Subsequent research can add new variables that can affect the movement or return of the IDX Energi index, besides that it can examine with a longer sample period.