Financial Sector Stock Market: Return and Risk Analysis

Financial sector is reflection of financial issuers incorporated in financial sector. Stocks of the financial sector havea good potential in generating returns. The purpose of this study is to analyze the factors influencing the return and risk of financial sector stockmarket. After testing several models, EGARCH (2, 3) is selected as the best model to modelize return and volatility risk. Among six variables measured in mean equation, only European crisis that has an insignificant effect on the return of financial sector stock market, while other five variables have a significant effect. Subprime mortgage crisis, return of BI Rate, return of Customer Price Index (CPI), and return of Jakarta Composite Index (JCI) have a positive effect, while return of exchange rate IDR/US$ has a negative effect. Six variables are used to define the volatility risk. All variables have a significant effect at the critical value of 5 %. There is an asymmetric volatility in financial sector stock market with positive sentiment (good news) generate greater effect than negative sentiments (bad news).