The Correlation Of Gold, Exchange Rate, And Stock Market On Covid-19 .

The correlation of gold, exchange rate, and stock market on Covid-19 pandemic periodAlfi Syahri, Robiyanto Robiyantotactic against inflation and as a long-term strategicasset. Therefore, gold price fluctuations become aconcern for policymakers, investors, financial institutions, central banks, and the wider community(Kumar, 2014).The price of gold which increases from yearto year and tends to be minimal risk can affect themovement of the CSPI. It caused by the market investor that will consider for moving their investment into gold commodities (Gumilang et al., 2014),the risk is relatively lower and gives better results(Gulo, Subiyantoro, & Tubing, 2017). Previous research conducted by Gumilang et al. (2014);Robiyanto et al. (2017); Gulo et al. (2017); Robiyanto(2018b); Shabbir, Kousar, & Batool, (2020) stated thatgold price has positive effects on CSPI returns. Therefore, it can be concluded as the following hypothesis.H1 :gold price changes have positive effects on theCSPI returns.Choosing gold for investment is believed tobe profitable because the price tends to increase.Gold is also included as a very liquid investmentform because it can be accepted in many countries(Surbakti, Achsani, & Maulana, 2016). Baur & Lucey(2010) stated that gold can be used as a hedge fundon stock and a safe haven from the extreme stockmarket condition because of the negative correlation with stock movement.Previous studies by Kumar (2014); Choudhry,Hassan, & Shabi, (2015); Surbakti et al. (2016); Chkili(2016); Robiyanto et al. (2017) stated that there is anegative correlation between gold price changeswith stock volatility. Based on the explanationabove, the hypothesis can be formulated as follows.H2 :gold price changes have negative effects onstock volatility prices.The exchange rate is the price of a particularforeign currency in the domestic currency unit(Yuswandy, 2013). Exchange rates can change frequently due to changes in supply and demand onthe foreign exchange market. According to Faraga,Chabachib, & Muharam, (2012), the exchange ratechanges of the domestic currency against foreigncurrency (USD/IDR) will harm the capital market.The reason is if the foreign currency exchange ratesincreased or appreciated, the exchange value of thedomestic currency will depreciate. Hence, the priceof imported raw materials and all imported products will increase and the company’s productioncosts will also increase. Therefore, changes in exchange rates will affect the competitiveness of companies that will have an impact on the stock priceand the product produced by the company (Yunita& Robiyanto, 2018).The exchange rate is one of the macroeconomic factors that can affect stock returns. The reason is that the depreciation of the domestic currencyon foreign currencies will increase the amount ofRupiah which is used to pay the foreign debt and itwill also increase the price of imported raw materials (Robiyanto et al., 2019). Further, it will affectthe reduction of the company’s stock price and stockreturns.Changes in exchange rates are predicted toinfluence the stock returns. Previously, some research that had been conducted by Yogaswari,Nugroho, & Astuti, (2012); Patel (2012); Husnul etal. (2017); Wahyudi, Asdar, & Nohong, (2017);Aditya et al. (2018); Yunita & Robiyanto (2018) statedthat exchange rate changes have negative impactson CSPI returns. Therefore, it can be concluded asthe following hypothesis.H3 :exchange rate changes have negative impactson CSPI returns.The exchange rate can also affect the stockvolatility. Changes in exchange rates will have animpact on price stability, corporate profitability, andstability of a country (Olweny & Omondi, 2011).Asih & Akbar (2016) asserted that the attractive- 353

Jurnal Keuangan dan PerbankanVolume 24, Issue 3, July 2020: 350–362ness of the stock market will decrease due to thenegative effects of the depreciation of Rupiah toDollar. It is caused by the movement of the investors to the money market. Finally, it will providegreater profits and ultimately will reduce the stockprice index.Previous studies by Katti (2014); Asih & Akbar(2016); Arfaoui & Ben Rejeb (2017); Fadhyla &Rikumahu (2018) found that there is a negative correlation between exchange rates with stock volatility. According to the explanation above, the hypothesis can be formulated as follows.H4 :3.the changes in the exchange rate have negative impacts on stock volatility.Method, Data, and AnalysisThis research conducted using secondary datacollected from www.finance.yahoo.com. The dataconsisted of IHSG daily data from Indonesia StockExchange, the price of the gold, and exchange ratefrom dollar to rupiah (USD/IDR) during COVID19 between January 1st and June 30th, 2020. The dependent variable in this research is CSPI stock returns and stock volatility, while the independentvariable is the changes of gold price and exchangerate from dollar to rupiah.The calculation of CSPI Returns can be calculated using Eq. (1). 1(1) 1Where, GOLDUSDt the changes of goldprice within dollar currency on the day t;GOLDUSDt gold price on the day t; GOLDUSDt-1 gold price on the day t-1The changes of exchange rate from dollar torupiah (USD/IDR) can be calculated using Eq. (3). 1(3) 1Where, USDIDR the changes of USD/IDR exchange rate on tWhere, USDIDRt the changes of USD/IDRexchange rate on the day t; USDIDRt USD/IDRexchange rate on the day t; USDIDRt-1 USD/IDRexchange rate on the day t-1Stock volatility means the ups and downs ofstock rate. Stock volatility in this study was proxiedusing Conditional Variance which can be calculatedusing Generalized Autoregressive ConditionalHeteroskedasticity (GARCH). In order to analyzethe dynamic relationship, this study used DynamicConditional Correlation-Generalized AutoregressiveConditional Heteroscedasticity (DCC-GARCH) approach. Moreover, this research also used GARCHmodel approach to find out the effect of gold pricechanges and (USD/IDR) exchange rate toward stockand stock volatility returns. GARCH model can bewritten as Eq. (4) and (5). 2 Where, IHSG CSPI returns 10 1 12 2 2 2 1(4) (5)2 12 1Where, IHSGt CSPI returns on the day t; Where, R stock returns/stocWhere, Rt stock returns/stock volatility;IHSGt CSPI on the day t; IHSGt-1 CSPI on theGOLDt the changes of gold price;USDt theday t-1 1 change of (USD/IDR) exchange rate; error standard; 2 conditional variance; 1 2 1 previousThe changes in gold price within the period of volatility (ARCH model component);2dollar currency can be calculated using Eq. (2).1 1 previous period of volatility (GARCHmodel component) 1(2) 1Where, GOLDUSD the changes of gold price within dollar currency on the day t 354

The correlation of gold, exchange rate, and stock market on Covid-19 pandemic periodAlfi Syahri, Robiyanto Robiyanto4.Resultsdeviation standard is 0.0164. Then, the mean of USDvariable is 0.0011 and its deviation standard is 0.0147.Descriptive statisticsDescriptive statistics is used to find out themean, maximum, minimum, and deviation standardof a data. Descriptive statistics in this study can beseen on the Table 1 and Table 2.Table 1 shows that the mean of CSPI is -0.0019and the deviation standard of CSPI is 0.0213. Meanwhile, the mean of gold variable is 0.0009 and itsTable 2 illustrates the mean of stock volatilityis 1.0001 and the deviation standard of stock volatility is 0.2079. While, the mean of gold variable is0.0009 and its deviation standard is 0.0164. The meanof USD variable is 0.0011 and the deviation standard of gold variable is 0.0147. The deviation standard on the Table 1 and 2 reports that stock has thehighest risk among gold and USD.Table 1. Descriptive statistics of CSPI, gold, and USDMinimumMaximumMeanDev. Std.CSPI 10.0147Table 2. Descriptive statistics of stock volatility, gold, and USDVariableStock Dev. .03790.04680.00110.0147Table 3. The result of the Augmented Dickey-Fuller testVariableCSPI 14.21160.0000StationaryTable 4. The result of GARCH Analysis (1,1) the impact of gold and USD toward CSPIIndependent VariableCoefficientError 580.4741-0.07410.1094-0.67700.4984RESID (-1) 20.29860.10882.74380.0061GARCH csProbabilityVariance Equation 355

Jurnal Keuangan dan PerbankanVolume 24, Issue 3, July 2020: 350–362Table 5. The result of GARCH Analysis (1,1) The Impact of gold and USD toward stock volatilityIndependent VariableCoefficientCError 20.0320RESID (-1) 2-0.06970.0088-7.89280.0000GARCH (-1)1.09300.015769.49940.0000GoldUSD/IDRVariance EquationThe result of Stationary Data TestStationary test in this research used the Augmented Dickey-Fuller test with 0.01 significancevalue. The result of the test can be seen on Table 3.Table 3 reveals that CSPI variable, Gold, andUSD are stationary. Then, those variables are testedusing GARCH Analysis.the USD/IDR exchange rate bring positive effect tostock volatility. GARCH probability has significancevalue, so that the research model can follow theGARCH pattern.Dynamic correlation between CSPI and theprice of the gold to the various timeThe result of GARCH (1,1) AnalysisThe result of GARCH analysis (1,1) can be seenon Table 4 and Table 5.According to the result in the Table 4, it canbe concluded that the first hypothesis about thechanges in gold price takes positive effect on CSPIis rejected. Similarly, the third hypothesis about thechanges in the USD/IDR exchange rate brings negative impact to CSPI is also rejected. Table 4 showswhen the significance level is 10%, the changes inthe gold price and USD/IDR exchange rate do notbring any effect to CSPI returns. Based on the variance equation can be seen that GARCH probabilityshows significance value which means that the research model can follow the GARCH pattern.Based on the Table 5. the second and fourthhypotheses about the changes of gold price andUSD/IDR exchange rate brings negative impact tostock volatility is rejected. When the significancelevel is 10%, the changes of gold prices do not affect the stock volatility. Meanwhile, the changes inFigure 1. Dynamic correlation CSPI-GOLDFigure 1 shows the result of dynamic correlation analysis between CSPI and gold using DCCGARCH. The result indicates the value of DCC CSPIand gold during the research period is -0.1960 until0.9532. The highest DCC value is 0.9532 in the earlyMarch 2020. Meanwhile, the lowest DCC value is 0.1960 in the early June 2020. It can be seen in theTable 7 that the mean value of DCC is 0.0764 whichmeans that the dynamic correlation between CSPIand Gold is positive and week. 356

The correlation of gold, exchange rate, and stock market on Covid-19 pandemic periodAlfi Syahri, Robiyanto RobiyantoDynamic correlation between CSPI and USD/IDR exchange rate to the various timeFigure 2. Dynamic correlation CSPI-USD/IDRFigure 2 illustrates the result of dynamic correlation analysis between CSPI and USD/IDR exchange rate using DCC GARCH. The result revealsthat DCC value between CSPI and USD/IDR exchange rate is -0.8206 until 0.3047. The highest DCCis 0.3047 in early March 2020 while the lowest DCCvalue is at the end of March 2020. Based on Table 7,the mean value of DCC is -0.100, thus the dynamiccorrelation between CSPI and USD/IDR is negativeand weak.The chronology of important events relatedto COVID-19 can be read on Table 6. It affects thecorrelation between CSPI and gold, CSPI and USD/IDR. COVID-19 is a global pandemic which makesthe virus becomes global attention. In contrast, Stefan& Robiyanto (2019) stated that monumental eventsdo not affect dynamic correlation. The study fromPutri (2015); Billah & Hartomo (2018) did not linkthe monumental events to the dynamic correlation.This is in line with Robiyanto (2018a) and Chen etal. (2018) that dynamic correlation can be affectedby the important event which is happening.5.DiscussionAccording to the developed hypothesis, all ofthe hypotheses are rejected. The analysis indicatesthat the changes of gold price and USD/IDR exchange rate do not affect to the CSPI and stock volatility. However, there is a significant positive effectof the changes of the gold price toward stock volatility. It is the effect of the crisis period duringCOVID-19 pandemic which makes people worryabout their investment. It is supported by the findings of the stock volatility model in this study. Thegold commodity proves that the higher gold returnsthe more volatility increase on the CSPI. There is anindicator that stock investors in the Indonesia StockExchange are skeptical responding to the changesin the gold price which makes them hesitate to invest gold. Electronic and printed media which mention that gold is the safest asset during the pandemicplay an important role in the people’s confusion. Theresult of this study was supported by olehChoudhry et al. (2015); Ingalhalli & Reddy (2016);Raza et al. (2016) studies which explain that thechanges in gold price takes positive effect to stockvolatility.Dynamic correlation happens between CSPIand gold, and CSPI and USD/IDR exchange rate isweak with different correlation condition. Considering the mean value of dynamic correlation on Table7, correlation between CSPI and gold is positive yetweak. Therefore, gold cannot be categorized as asafe investment asset during the COVID-19 economic crisis. By contrast, Kumar (2014) pointed outthat there are variative, positive, even negative dynamic correlations between stock and gold in thecrisis period in India so that gold becomes a goodportfolio diversification in India. Chkili (2016) andTuna (2019) asserted that there is a low negativecorrelation between the stock market and gold sothat gold can become a safe haven and effectiveportfolio diversification when there is an extremestock movement on a crisis period. The result is inline with Choudhry et al. (2015) the disappearanceof gold as a safe haven during the global economiccrisis makes gold is not worth it to minimize therisk of the portfolio during the crisis period.The dynamic correlation of CSPI and USD/IDR exchange rate is negative and weak correlation, 357

Jurnal Keuangan dan PerbankanVolume 24, Issue 3, July 2020: 350–362it can be seen in the Table 7. The result is in linewith the study by Stefan & Robiyanto (2019) aboutthe negative correlation between the ASEAN stockmarket and the USD/IDR exchange rate. Similarly,the study by Živkov et al. (2016) in Europe and thestudy by Singh & Sharma (2018) in India discovered negative correlation between stock market andexchange rate.6.ConclusionThe study aims to find out the dynamic correlation between CSPI with gold, and CSPI withUSD. Also examines the effect of gold price changesand the changes of the USD/IDR exchange rate toward CSPI and stock volatility using GARCH andDCC GARCH analysis during COVID-19. The result of this study finds that only the changes in thegold price that affects significant positive towardstock volatility in the January until June 2020 during pandemic. It shows that people are confused determining their investment direction which is affected by COVID-19 pandemic. There is a weak positive correlation on the correlation between CSPI andgold, and a weak negative correlation on the correlation between CSPI and USD on the COVID-19Table 6. Important events related to COVID-19Events-TimeChina has identified the virus as a new virus with 2019-nCoV as the previous name.Washington confirms the first case in the US.WHO sets COVID-19 as Public Health Emergencies of International Concern (PHEIC).The first COVID-19 death case outside China mainland.Chinese tourist passes away in Paris, the first Corona death case in Europe.COVID-19 death rate in China is 908 cases, and the total of positive case is 40,171 people.The China-USA heats up after the Chinese Foreign Ministry accuses the US government of reactinginappropriately to the outbreak and spreading fear by imposing travel restrictions.Japan, Egypt, Israel, Italy, South Korea confirm COVID-19 case in their countries.A lot of countries include Indonesia confirm the first COVID-19 case in their countries.Italy reports that there are 4,825 death cases among 53,578 positive cases.USA reports 124,000 positive cases and 2,000 death cases.WHO declares the new coronavirus as a pandemic.Donald Trump signs an agreement about giving 2 trillion dollars to help workers, business, and healthworkers that affected by COVID-19.China reopens Wuhan after 76 days lockdown.Donald Trump stops the funding for WHO temporarily.USA passes one million COVID-19 cases.Trump and his government announce that federal government sends 11 billion dollars to somecountries to expand the examination potency of corona virus.The data which collected by Johns Hopkins University reports that there are 100,000 corona virus deathcases in the USA.Wuhan, China confirms that there is no new case after doing COVID-19 test to 9.9 million of its citizens.WHO plans to give 2 billion COVID-19 vaccine doses to the people around the world.USA passes 2 million COVID-19 cases.January 2020February 2020March 2020April 2020May 2020June 2020Source: Al Jazeera and News Agencies (2020); CNN Editorial Research (2020).Tabel 7. Dynamic correlation to various 61-0.8207 358 Max0.95320.3047

The correlation of gold, exchange rate, and stock market on Covid-19 pandemic periodAlfi Syahri, Robiyanto Robiyantoperiod based on DCC GARCH analysis in examining the dynamic correlation. The existing correlation is affected by the important events related toCOVID-19.This research is a multivariate study on therelationship of CSPI, gold, and exchange rate thatused the daily data during the period of COVID-19pandemic from Januar

of the capital market because it covers the move-ment of stock prices as a whole (Aditya, Sinaga, & Maulana, 2018) so that the CSPI can be used as a benchmark for investors to invest. The ups and downs of stock prices is a move-ment in stock price called volatility. Volatility is a statistical measure for changes in the price of a se-