The Analysis of Profitability and Macroeconomic Variables Affecting to the Stock Prices in Indonesia: An Approach of Error Correction Models (ECM) (A Case Study in the Retail Trade Subsector Listed on the Indonesia Stock Exchange for the 2010-2019 Period)

Abstract

This study aims to analyze the effect, both in the short and long term, of profitability and
macroeconomic variables on stock prices in the retail trade subsector in Indonesia. Return on
equity (ROA) and earning per share (EPS) are proxies for profitability, while exchange rate
(ER) and inflation (IFL) are proxies for macroeconomic variables. The data is only stationary in
the first difference and has a cointegration relationship between variables so that the short-run
balance is seen using Error Correction Model (ECM) analysis. This research uses panel data
from 1999 to 2019. The results of the data test show that both in the long term and in the short
term the effect on stock prices is earnings per share (EPS). Meanwhile, return on assets (ROA),
exchange rate (ER), and inflation (IFL) have no effect on stock prices.