STOCK MARKET HISTORY

Here, we are revealing a brief history about Indonesia Stock Exchange from the beginning. First period is from 1912 until 1942, 1952 until 1977, 1977 until 1988, 1988 until 1997, 1997 until 2007 and the last periode between 2007 and now.

a. 1912 - 1942
Vereniging voor Effectenhandel build on December 14, 1912. After World War I, stock market in Surabaya, Indonesia start at January 1925 and in Semarang at August 1925. Almost company that sell their stock are from Dutch that member of Dutch East Indies Trading Agencies. The trading was close in 1942 when Japanese conquer Indonesia.

b. 1952 -1977
After Japanese left Indonesia, at September 1, 1951 Indonesian Government declare Undang-undang Darurat number 12 that become Undang-Undang Nr. 15/1952 about stock market. Finnaly, Bursa Efek Jakarta/BEJ (Jakarta Stock Exchange/JSX) launc at June 3, 1952.
JSX have purpose to facilitate government obligation that release before. Another purpose are prevent capital flight from Dutch company that traded in JSX before. The effect of conflict between Indonesia and Dutch about Irian Barat, all of Dutch company no longer trade in JSX after 1960.

c. 1977 – 1988
By Keputusan Presiden Nr. 52/1976, Badan Pembina Pasar Modal had build and become starting point new period. Presiden Soeharto acknolegde Bursa Efek Jakarta (Jakarta Stock Exchange) at August 10, 1977 and the first company that listing their share is PT Semen Cibinong at June 6, 1977. There were no much company that interest to trade their share, and until 1988 only 24 companies that listed their share.

d. 1988 – 1997
Only in three years, between 1988 – 1990 there were many company began listed their share. In the end on 1990 there were 127 companies that listed their share ant in 1996 become 238 companies. In this period, Initial Public Offering (IPO) are national event. This event caused by: request from foreign investor, regulation to increase export in Indonesia except mining and generation change from family business to profesional business.
In this periode Surabaya Stock Exchange (Surabaya Stock Exchage/SSX) build at June 16, 1989. SSX trade only obligation and after 1989 there were 340 obligation that trade in SSX. In 1995, JSX and SSX use high technology so all of transaction use automated namely Jakarta Automated Trading System (JATS)

e. 1997 – 2007
Indonesia have crisis global in 1997 and many company were collapse. Until ten years then, there are many change in JSX.

f. 2007 -
In 2007, Jakarta Stock Exchange and Surabaya Stock Exchange are merge become Indonesia Stock Exchange (IDX) or Bursa Efek Indonesia (BEI).

ABNORMAL RETURN USING EXCEL

Here, we show you how to count abnormal return by market-adjusted model using Microsoft Excel. By simply, market adjusted model assumes that the best estimator to estimate return expectation is composite index return in current period. If you receive return less that average return in market, actually you gain negative return, or you don’t get profit.

So, we can to count abnormal return by three steps, first, we count return actual, second we count actual expectation by composite index and the third step is count difference between return actual and actual expectation. Or,

AR = Ract – Rexp

AR (Abnormal return), Ract (Return actual), Rexp (Return Expectation).

Return actual and return expectation that count by formula:

R = (Pt - Pt-t1)/(Pt-1)

R (Return, actual or expectation), P (Price, actual or expectation), t (period)

We can see, that formula can be solve using Microsoft Excel like we have explain before in how to count actual return using Microsoft Excel.

Stock Market Basics

A company that need capital can be sell share di stock market. Share stock that issued by company are trade in primary market. Share stock offer to public by initial public offering (IPO) or share addition if the company being go public. Then, these share that be trade can be sell in secondary market. Another type in stock markets is third market and fourth market. Third market is share market when secondary market closes. Third market operates by brokers who facilitate buyer and seller to meet when secondary market is closed. Fourth market is share market between big institutions to ignore commission for broker. Fourth market generally use communication channel to trade share stock in big volume

STOCK MARKET FOR BEGINNER

We can define stock market simply as a place where buyers and seller met. You can imagine a super market or a shop that there are transaction between buyer and seller. The buyer need some goods for themselves, and the seller provider goods with little profit, and cause there are many buyer, so become big profit. Actually, the buyer also have profit when they lost their money and change with goods that needed for them.
Stock market just like the same. Imagine, you want to build the company that very you desire all your life. You believe that you can manage this company with your skill and you trust that you can make earnings. But there a little problem that barrier, is, you do not have money to build your company. Or you have a company and want to expand your market share, but you have not enough money. So what do you want to do?? In many case, you can borrow money, from your friends, your family, or if you were lucky, you get lottery.
Fortunately, there are another way to solve your problems. You can get money from people, even you don’t know before from stock market. Stock market can be bridge from the company and the people who have a more money but, maybe, have no time to manage the company, or the others reason, so they just put their money to one company. Of course, the company have agreement, to give their earnings to them.
The mechanism and the rule stock market are different from one country to the others country. But actually, stock market become mediator between people who have a lot of money with the company that need money to maintain their operational or expand.

Abnormal Return

Abnormal return is surplus from actual return to normal return, or difference between normal return with actual return. Abnormal return respect how many profit that received by investor. For illustration, if actual return is 10% but normal return is 15%, the abnormal return is minus 5% (10%-15%). Means, that share do not give profit to investor. On the other hand, when actual return is -5% and normal return is -10%, the investor have earning 5% ((-5%) - (-10%)) because have more little lost that lost of normal return.

The most important thing that we concern in how to count normal return because approach to count market return have significant effect to abnormal return. There are three method to count normal return: mean-adjusted model, market model and market-adjusted model.

1. Mean-adjusted model
This method assume that expectation return have constant value that equal with average of previous actual return in estimation period. Estimation period is period before event period, and event periode is observation periode or event window, period that around the event. We just count return actual in each period in estimation period than count the average. So, abnormal return count by: return actual minus return expectation.

2. Market model
This model have two step: (1) make expectation model by realization data in estimation period; (2) use expectation model to estimate expectation return in window event. Expectation model can be construct by ordinary least square (OLS). The dependence variable is realization return, and the independence variable is market return (from composite index). By OLS we can find intercept and slope that used to count abnormal return with the same equation that construct in expectation model.

3. Market-adjusted model
This method assume that the best estimator to estimate return is composite index return in current period. By this model, we needn’t use estimation period to construct model because return that estimate is equal to composite index return.

Suspend in Indonesia Stock Exchange

Indonesia stock exchange (Bursa Efek Indonesia/BEI) suspend by government at October 10, 2008. This policy has taken cause composite index (IHSG) drop more 20%. Based on theory, we can see that return extreme just more 5% in a day. Investor were panic when heard negative issue about American Economic and sell their stock at any cost. By suspend trading in IDX, we hope stock trading in Indonesia can be stable.

In this recent years, performance IDX are very impressive. Is Asia, performance IDX are include the big five and composite stock index increase very-very good. But, the performance did not match with economic growth in Indonesia. The government should be study it, and refers to history economic in Indonesia. In 1995, some of expert economy in Indonesia, i.e. Kwik Kian Gie, Rizal Ramli and Syahrir, ever said that economic growth in Indonesia (about 1990s) are very risky because did not balancing with growth economic in base level. That growth is likely to die in a minute, and we see, in 1997 Indonesian economic were collapse.

And now, is happen again. In this time, performance in IDX, that very impressive, actually did not reflect to Indonesia economic. Maybe, just there a money that drop in for a while in IDX. So, that money just take a holiday in IDX, not invested by investor. Now the investor need more money to saving their assets in America, so, the take their money from IDX and stock composite index become drop down.

In China, that a regulation to control ownership of the company. Foreign investor forbid to have ownership more than 50%. So, they put and take their money controllable. In Indonesia, there are not regulation like this, so foreign investor have access to ownership more 50% (majority). In fact, they can to put or take their money uncontrollable, and the result, we can to see now in IDX.