The Effect of Political Contestation on Investor Reaction: Evidence from Indonesia Sharia Stock


  • Ananta Hagabean Nasution YARSI University
  • Penny Rahmah Fadhillah YARSI University
  • Alyta Shabrina Zusryn YARSI University


Sharia Stock, Abnormal Return, Political Event


Political events can cause uncertainty in the business environment and affect stock returns. This study aims to examine the reaction of sharia stock investor to political events in 2019. Some previous studies found that the influence of political events in Indonesia on investors' reactions is not yet conclusive. Therefore, this research utilized five political events during the general election they are: candidates inauguration, candidates’ final debate, quick count announcement, Election Commission (KPU) announcement, Constitutional Court (MK) announcement. This research used cumulative average abnormal return (CAAR) and average abnormal return (AAR) values as indicators in detecting investor reactions and used actively traded stocks listed on the Indonesian Sharia Stock Index (ISSI) from 2017 to 2019. The results of this study indicate that there is a negative reaction on t-1 before the debate of candidates. Furthermore, the opposite results occurred during the announcement of the presidential election results conducted by the Election Commission (KPU). This result indicates that investors quickly get information about political uncertainty. The implication is that political events are one of the relevant event studies to determine sharia stock prices to investors.


Abbes, M. B., & Trichilli, Y. (2015). Islamic stock markets and potential diversification benefits. Borsa Istanbul Review, 15(2), 93–105.

Ahmed, W. M. A. (2018). How do Islamic versus conventional equity markets react to political risk? Dynamic panel evidence. International Economics, 156(May), 284–304.

Amtiran, P. Y., & Indiastuti, R. (2017). Political Risk and Stock Returns in Indonesia. Journal of Finance and Banking Review, 2(3), 8–13.

Bash, A., & Alsaifi, K. (2019). Fear from uncertainty: An event study of Khashoggi and stock market returns. Journal of Behavioral and Experimental Finance, 23, 54–58.

Berkman, H., & Galpoththage, V. (2016). Political connections and firm value: an analysis of listed firms in Sri Lanka. Pasific Accounting Review, 28(1), 92–106.

Bodie, Z., Kane, A., & Marcus, A. J. (2014). Investments (10th ed.). Mc Graw Hill Education.

Brown, S. J., & Warner, J. B. (1980). Measuring security price performance. Journal of Financial Economics, 8(3), 205–258.

Brown, S. J., & Warner, J. B. (1985). Using daily stock returns. The case of event studies. Journal of Financial Economics, 14(1), 3–31.

Carhart, M. M. (1997). On Persistence in Mutual Fund Performance. The Journal of Finance, 52(1), 57–82.

Chau, F., Deesomsak, R., & Wang, J. (2014). Political uncertainty and stock market volatility in the Middle East and North African (MENA) countries. Int. Fin. Markets, Inst. and Money, 28, 1–19.

Elad, F. L., & Bongbee, N. S. (2017). Event Study on the Reaction of Stock Returns to Acquisition News. International Finance and Banking, 4(1), 33–43.

Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance, 25(2), 383.

Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33(1), 3–56.

Fama, E. F., & French, K. R. (2012). Size, value, and momentum in international stock returns. Journal of Financial Economics, 105(3), 457–472.

Ftiti, Z., & Hadhri, S. (2019). Can economic policy uncertainty, oil prices, and investor sentiment predict Islamic stock returns? A multi-scale perspective. Pasific-Basin Finance Journal, 53, 40–55.

Godil, D. I., Sarwat, S., Sharif, A., & Jermsittiparsert, K. (2020). How oil prices, gold prices, uncertainty and risk impact Islamic and conventional stocks? Empirical evidence from QARDL technique. Resources Policy, 66, 1–9.

Hatmanti, A., & Sudibyo, B. (2017). Pengaruh Pelantikan Kabinet Kerja Hasil Reshuffle Jilid Ii Terhadap Harga Saham Lq-45. Jurnal Economia, 13(1), 1–13.

Hasyim, Nada., & El Mosallamy, Dalia. (2020). President Election and Stock Market : A Comparative Study. Journal of Finance and Economics, 2020, Vol. 8, No. 3, 116-126.

Hillier, D., & Loncan, T. (2019). Political uncertainty and Stock returns: Evidence from the Brazilian Political Crisis. Pacific Basin Finance Journal, 54, 1–12.

Huber, J., & Kirchler, M. (2013). Corporate campaign contributions and abnormal stock returns after presidential elections. Public Choice, 156(1–2), 285–307.

Joni, J., Ahmed, K., & Hamilton, J. (2020). Politically connected boards, family and business group affiliations, and cost of capital: Evidence from Indonesia. British Accounting Review, 52(3), 100878.

Karime, S., & Sayilir, Ö. (2019). Political news and stock market reactions: evidence from Turkey over the period 2008–2017. International Journal of Management and Economics, 55(2), 83–98.

Kenourgios, D., Dadinakis, E., & Tsakalos, I. (2020). Brexit referendum and European stock markets: a sector analysis. Managerial Finance.

Khanal, A. R., & Mishra, A. K. (2017). Stock price reactions to stock dividend announcements: A case from a sluggish economic period. North American Journal of Economics and Finance, 42, 338–345.

Lee, J. S., Yen, P. H., & Lee, L. C. (2019). Political connection and stock returns: Evidence from party alternation in Taiwan. International Review of Economics and Finance, 63, 128–137.

Liew, V. K. Sen, & Rowland, R. (2016). The effect of Malaysia general election on stock market returns. SpringerPlus, 5(1).

Lin, C. Y., Ho, P. H., Shen, C. H., & Wang, Y. C. (2016). Political connection, government policy, and investor trading: Evidence from an emerging market. International Review of Economics and Finance, 42, 153–166.

Lusyana, D., & Sherif, M. (2017). Shariah-compliant investments and stock returns: evidence from the Indonesian stock market. Journal of Islamic Accounting and Business Research, 8(2), 143–160.

Markovitch, D. G., & Golder, P. N. (2008). Using stock prices to predict market events: Evidence on sales takeoff and long-term firm survival. Marketing Science, 27(4), 717–729.

Nazir, M. S., Younus, H., Kaleem, A., & Anwar, Z. (2014). Impact of political events on stock market returns: empirical evidence from Pakistan. Journal of Economic and Administrative Sciences, 30(1), 60–78.

Nurlita, V., & Naomi, P. (2019). Do Political Events Affect Stock Return Volatility On Indonesian Stock Exchange. Journal of Economics, Business & Accountancy Ventura, 22(1), 29–38.

Obradović, S., & Tomić, N. (2017). The sectoral effect of demonetization on the economy: Evidence from early reaction of the Indian stock markets. Economic Research-Ekonomska Istraživanja, 30(1), 112–124.

Pham, H. N. A., Ramiah, V., Moosa, N., Huynh, T., & Pham, N. (2018). The financial effects of Trumpism. Economic Modelling, 74(January), 264–274.

Ramesh, S., & Rajumesh, S. (2015). Stock Market Reaction to Political Events A Study of Listed Companies in Colombo Stock Exchange of Sri Lanka. Journal of Economics and Sustainable Development, 6(3), 131–139.

Rejeb, A. Ben, & Arfaoui, M. (2019). Do Islamic stock indexes outperform conventional stock indexes? A state space modeling approach. European Journal of Management and Business Economics, 28(3), 301–322.

Repousis, S. (2016). Stocks’ prices manipulation around national elections? An event study for the case of Greek banking sector. Journal of Financial Crime, 23(2), 248–256.

Santosa, P. W., & Santoso, P. W. (2019). Does Exchange Rate Volatility cause Overreaction in the Capital Market? Evidence from Indonesia. International Journal of Finance and Accounting, 8(3), 80–87.

Shen, C. H., Bui, D. G., & Lin, C. Y. (2017). Do political factors affect stock returns during presidential elections? Journal of International Money and Finance, 77, 180–198.

Sorescu, A., Warren, N. L., & Ertekin, L. (2017). Event study methodology in the marketing literature: an overview. Journal of the Academy of Marketing Science, 45(2), 186–207.

Trisnawati, F. (2011). Pengaruh Peristiwa Politik terhadap Perubahan Harga Saham. Pekbis Jurnal, 3, 528–535.

Val, F. de F., Klotzle, M. C., Pinto, A. C. F., & Barbedo, C. H. da S. (2018). Stock Market Reaction to Monetary Policy: An Event Study Analysis of the Brazilian Case. Emerging Markets Finance and Trade, 54(11), 2577–2595.

Wong, W.-Y., & Hooy, C.-W. (2020). Market response towards different types of politically connected firms during political events: evidence from Malaysia. International Journal of Managerial Finance.

Zhao, X., Liano, K., & Hardin, W. G. (2004). Presidential election cycles and the turn-of-the-month effect. Social Science Quarterly, 85(4), 958–973.




How to Cite

Nasution, A. H., Fadhillah, P. R., & Zusryn, A. S. (2023). The Effect of Political Contestation on Investor Reaction: Evidence from Indonesia Sharia Stock. Jurnal Orientasi Bisnis Dan Entrepreneurship (JOBS), 4(1), 69–80.