Long-Run and Short-Run Dynamics of Financial Market Share Prices in Indonesia: An ARDL Investigation of Global and Domestic Macroeconomic Determinants

Abstract

Financial markets in emerging economies are increasingly exposed to global monetary and commodity-market shocks. However, empirical evidence on the effects of the Federal Funds Rate (FFR), oil prices, exchange rates, and domestic interest rates on Indonesia's financial market remains inconclusive, with previous studies reporting conflicting findings. This study investigates the effects of the FFR, Brent crude oil prices, the Real Effective Exchange Rate (REER), and the Domestic Policy Rate on Indonesia's Financial Market Share Price (FMSP) during 2010Q1-2025Q4. Unlike conventional stock market indices, FMSP is derived from OECD share price data compiled using a standardized methodology, facilitating international comparison. Using the Autoregressive Distributed Lag (ARDL) approach, the study examines long-run and short-run dynamics. The results confirm long-run cointegration. In the long run, the FFR and Brent crude oil prices positively and significantly affect FMSP, whereas REER appreciation and increases in the Domestic Policy Rate exert negative effects. In the short run, among the macroeconomic variables, only lagged REER remains statistically significant. The error-correction coefficient (-0.5613) indicates that 56.13 percent of short-run disequilibrium is corrected within one quarter. These findings provide updated evidence on macroeconomic shock transmission and demonstrate the usefulness of FMSP as an internationally comparable indicator.