Islamic Stock Return Sensitivity to Exchange Rate and Inflation: Evidence from the Jakarta Islamic Index (2014 – 2023)

Abstrak

Abstract. Islamic capital markets have grown globally with rising demand for sharia-compliant instruments. In Indonesia, this growth is reflected in the Jakarta Islamic Index (JII). However, studies on how macroeconomic variables affect Islamic stock returns remain limited, particularly during recent global volatility and the COVID-19 pandemic.This study investigates the impact of exchange rate and inflation on JII stock returns using panel data regression. The sample covers 30 JII-listed companies with monthly data from 2014–2023. The Hausman test indicates that the Random Effect Model (REM) is appropriate.The results show that the exchange rate positively and significantly affects returns (coefficient = 0.012701, p = 0.0064), suggesting that IDR depreciation enhances export competitiveness. Inflation has a negative and significant effect (coefficient = -0.009921, p = 0.0112), reflecting reduced returns due to weaker purchasing power. The model explains 78.83% of return variation (R² = 0.788).These findings confirm that Islamic stocks are sensitive to macroeconomic shocks. The study contributes to Islamic finance literature and provides practical implications for investors and policymakers in strengthening Indonesia’s Islamic capital market.Acknowledgment: This paper is derived from a broader study previously published in DIALEKTIKA Journal of Social Sciences (2025), focusing specifically on exchange rate and inflation. Keywords: Islamic stock return, exchange rate, inflation, Jakarta Islamic Index, macroeconomic variables, panel data.