The Direct and Indirect Influence of Company Performance, Investors’ Expectation and Investment Risk on Individual Stock Price Index at Indonesia Stock Exchange

Abstract

The objective of this research is to find out whether the company performance, investors’ expectation and investment risk empirically have direct or indirect influence on Individual Stock Price Index (ISPI) with stock market price and transactions volume as intermediaries.This research applied  quantitative, ex post facto, associative, and positivistic method by analyzing the Individual Stock Price Index difference among companies, such as examining the factors that affecting the changes, analyzing the causal relationship among the factors, and testing the differences. The existing influences are studied simultaneously using Structural Equation Model (SEM). Stationary test, descriptive analysis, SEM analysis, Goodness of Fit Test, and Effect Size analysis are also used in this study.The company performance factors (especially financial performance), investor’s expectation on stock price and return, and investment risk are set as exogenous variables; market price and transaction volume as mediator variables; and ISPI as endogenous variable. The three exogenous variables are latent variables where their values are represented on their each indicators. Company performance indicators are Earning per Share, Price-Earnings Ratio, Book Value, Price-Book Value Ratio, Debt-Equity Ratio, Return on Assets, Return on Equity and Net Profit Margin. Investors’ expectation indicators are Price Trend, Latest Return, Average Return, Return Trend, Latest Return Percentage, Average Return Percentage, and Return Trend Percentage. Investment risk indicators are Standard Deviation of return (Total Risk), Coefficient of Variation (Total Risk Relative), and Coefficient Beta of stock (Systematic Risk). This study confirms that: First, company performance, investors’ expectation and investment risk influence transactions volume and market price, and have impact on Individual Stock Price Index. Second, market price have important role as mediator, but not with transaction volume. Third, investors’ expectation and investment risk have direct influnce on Individual Stock Price Index, while company performances have indirect influence through market price.

Keywords: company performance, investors’ expectation, investment risk, transaction volume, market price, and stock price index.