Capital Resilience: Dynamics Movements of Large Cap and Small-Mid Cap Stock in Global Macroeconomic Uncertainty

This research was conducted to examine how large and small-medium cap stocks in Indonesia respond to movements in global macroeconomic variables (Federal funds rate, M2 of Dollar, S&P 500, CBOE Volatility Index) and to determine the extent of the contribution of each variable in influencing both of stock prices. The study period spans from January 2022 to July 2023, during a period of global economic instability due to excessive quantitative easing post-Covid-19 pandemic. This research is quantitative, and the Vector Error Correction Model (VECM) was chosen as the method for analysis. The findings of the study, analysed using Impulse Response Functions (IRF), indicate that small-medium cap stocks represented by DBX are more significantly impacted than large-cap stocks represented by IDX30 when there is a shock at a particular moment; it can be seen from standard deviation values in the IRF output, suggesting a higher level of volatility in small-medium cap stocks. Further analysis using Forecast Error Variance Decomposition (FEVD) reveals that the movements of both IDX30 and DBX in the short run are predominantly influenced by their past values at t-1, indicating inefficient market conditions based on the Efficient Market Hypothesi. However, these conditions are expected to shift gradually towards more efficiency in the long run. Regarding the examined macroeconomic variables, it was found that the Federal funds rate and S&P 500 have a more significant impact on large-cap stocks than small-medium-cap stocks. Conversely, the M2 of Dollar and CBOE Volatility Index is more dominant in small-medium-cap stocks than large-cap stocks. This study offers valuable insights and considerations for investors seeking to diversify their stock portfolios according to their objectives and risk profiles.