Unveiling the Macroeconomic Drivers of Sharia Stock Returns in Indonesia

Abstract

This study aims to examine the effect of macroeconomic variables—namely inflation (X₁), rupiah exchange rate (X₂), and domestic interest rate (X₃)—on the returns of Sharia stocks in Indonesia (Y). The Islamic capital market plays a vital role in the growth of Indonesia’s Islamic economy, and understanding the influence of macroeconomic factors is crucial for investors, policymakers, and portfolio managers. The research employs a quantitative approach with multiple linear regression analysis using monthly data of the Indonesia Sharia Stock Index (ISSI) and relevant macroeconomic indicators. The results indicate that all three variables—inflation, exchange rate, and domestic interest rate—negatively and significantly affect Sharia stock returns. Specifically, high inflation reduces purchasing power and corporate profits, depreciation of the rupiah diminishes investor confidence and increases production costs, and rising domestic interest rates encourage portfolio shifts toward safer fixed-income instruments. The simultaneous test confirms that these macroeconomic variables jointly affect Sharia stock returns, explaining a substantial portion of the variation in the ISSI. These findings suggest that macroeconomic stability is critical for sustaining Sharia stock performance in Indonesia. Policymakers should maintain stable inflation, exchange rate, and interest rate policies, while investors should consider these factors when making investment decisions to optimize portfolio returns and minimize risks. This study contributes to the literature on Islamic finance by providing updated empirical evidence on the responsiveness of Sharia stocks to macroeconomic conditions.