Analysis of the Effect of Market Ratios on LQ45 Index Stock Returns on the Indonesia Stock Exchange

Oct 13, 2025 by wbrum.org 102 views

Analysis of the Effect of Market Ratios on LQ45 Index Stock Returns on the Indonesia Stock Exchange

Introduction

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a vast array of listed companies that cater to various investment needs. Among these companies, the LQ45 index stands out as a benchmark for investors seeking to invest in the Indonesian market. The LQ45 index comprises 45 companies with the best performance, making it a crucial reference point for investors. However, understanding the factors that influence stock returns in these companies is essential for making informed investment decisions. This study aims to analyze the effect of market ratios on stock returns in companies listed in the LQ45 index on the Indonesia Stock Exchange.

Market Ratios and Stock Returns

Market ratios are essential indicators that help investors evaluate the performance of a company. These ratios provide insights into a company's financial health, profitability, and growth prospects. In this study, we focus on four key market ratios: Earning Per Share (EPS), Price Earning Ratio (PER), Price to Book Value (PBV), and Dividend Payout Ratio (DPR). These ratios are critical in determining the potential for stock returns and are widely used by investors to make informed decisions.

Earning Per Share (EPS)

EPS is a fundamental indicator that measures a company's profitability. It represents the amount of net profit earned per share in circulation. A higher EPS indicates that the company is generating more profits, which can attract more investors to buy its shares. EPS is a critical metric for investors, as it provides insights into a company's ability to generate profits and distribute them to shareholders.

Price Earning Ratio (PER)

PER is a ratio that compares the market value of a stock to its earnings per share. It is a widely used indicator that helps investors assess the valuation of a company. A high PER can indicate that the stock is overvalued, while a low PER can suggest that the stock is undervalued. Investors often use PER to determine whether a stock is a good investment opportunity.

Price to Book Value (PBV)

PBV is a ratio that compares a company's market value to its book value. It is an essential indicator that helps investors evaluate a company's financial health and growth prospects. A low PBV value can indicate that the stock is cheap compared to its asset value, which can provide a good return for investors. The findings of this study show that PBV has a significant influence on stock returns, emphasizing the importance of this ratio in investment decision-making.

Dividend Payout Ratio (DPR)

DPR is a ratio that measures the percentage of profit shared as dividends to shareholders. Although DPR is not found to have a significant influence in this study, consistent dividends often become a positive signal for investors, indicating that the company has a good cash flow. Investors often look for companies with a stable dividend payout history, as it provides a sense of security and stability.

Methodology

This study uses a descriptive approach and multiple regression analysis to analyze the effect of market ratios on stock returns in companies listed in the LQ45 index on the Indonesia Stock Exchange. The data used is secondary data originating from the company's annual financial statements in the 2006-2009 period. The population in this study consisted of companies in the LQ45 index, with samples taken as many as 13 issuers. The data analysis method is carried out with a descriptive approach and multiple regression analysis using SPSS 17.0 software for Windows.

Hypothesis Testing

Hypothesis testing was carried out through simultaneous tests (F test) and partial test (T test) with a significance level of 5%. The results of the simultaneous test (F test) show that the independent variables-namely EPS, PER, PBV, and DPR-together have a significant influence on stock returns as dependent variables. Meanwhile, the results of the partial test (T test) indicate that only Price to Book Value (PBV) has a positive and significant effect on stock returns.

Conclusion

In conclusion, this study emphasizes the importance of market ratios in evaluating stock performance, especially in the LQ45 index. The findings of this study show that investors must pay attention to these ratios when evaluating stock performance. With the right analysis, investors can make more intelligent decisions, optimize the potential for stock returns, and better manage their investment risks. The results of this study provide valuable insights for investors, policymakers, and regulators, highlighting the need for a deeper understanding of market ratios and their impact on stock returns.

Recommendations

Based on the findings of this study, we recommend that investors pay close attention to market ratios when evaluating stock performance. Specifically, we recommend that investors focus on the following:

EPS: Investors should look for companies with a high EPS, as it indicates a company's ability to generate profits and distribute them to shareholders.
PER: Investors should be cautious of high PER values, as they may indicate that the stock is overvalued.
PBV: Investors should look for companies with a low PBV value, as it can indicate that the stock is cheap compared to its asset value.
DPR: Investors should look for companies with a stable dividend payout history, as it provides a sense of security and stability.

By following these recommendations, investors can make more informed decisions and optimize their potential for stock returns.
Frequently Asked Questions (FAQs) on the Effect of Market Ratios on LQ45 Index Stock Returns

Q: What are market ratios, and why are they important in evaluating stock performance?

A: Market ratios are essential indicators that help investors evaluate the performance of a company. These ratios provide insights into a company's financial health, profitability, and growth prospects. They are critical in determining the potential for stock returns and are widely used by investors to make informed decisions.

Q: What are the four key market ratios analyzed in this study?

A: The four key market ratios analyzed in this study are:

Earning Per Share (EPS): EPS measures a company's profitability and represents the amount of net profit earned per share in circulation.
Price Earning Ratio (PER): PER compares the market value of a stock to its earnings per share and helps investors assess the valuation of a company.
Price to Book Value (PBV): PBV compares a company's market value to its book value and helps investors evaluate a company's financial health and growth prospects.
Dividend Payout Ratio (DPR): DPR measures the percentage of profit shared as dividends to shareholders and provides insights into a company's ability to distribute profits to shareholders.

Q: What is the significance of the LQ45 index in the Indonesian stock market?

A: The LQ45 index is a benchmark for investors seeking to invest in the Indonesian market. It comprises 45 companies with the best performance, making it a crucial reference point for investors. The LQ45 index provides a snapshot of the Indonesian stock market's performance and helps investors make informed decisions.

Q: What is the methodology used in this study to analyze the effect of market ratios on LQ45 index stock returns?

A: This study uses a descriptive approach and multiple regression analysis to analyze the effect of market ratios on stock returns in companies listed in the LQ45 index on the Indonesia Stock Exchange. The data used is secondary data originating from the company's annual financial statements in the 2006-2009 period.

Q: What are the findings of this study, and what do they imply for investors?

A: The findings of this study show that the independent variables-namely EPS, PER, PBV, and DPR-together have a significant influence on stock returns as dependent variables. However, only Price to Book Value (PBV) has a positive and significant effect on stock returns. This implies that investors should pay close attention to PBV when evaluating stock performance.

Q: What are the implications of this study for policymakers and regulators?

A: The findings of this study highlight the need for a deeper understanding of market ratios and their impact on stock returns. Policymakers and regulators can use this study to develop policies and regulations that promote a more efficient and transparent stock market.

Q: What are the limitations of this study, and what are the areas for future research?

A: This study has several limitations, including the use of secondary data and the limited sample size. Future research can build on this study by using primary data and a larger sample size to provide more robust findings.

Q: What are the practical implications of this study for investors, policymakers, and regulators?

A: The findings of this study have practical implications for investors, policymakers, and regulators. Investors should pay close attention to market ratios when evaluating stock performance, while policymakers and regulators can use this study to develop policies and regulations that promote a more efficient and transparent stock market.