An Analysis of Overreaction in Global Commodity Markets and Its Impact on Indonesia's Financial Markets: Empirical Evidence from The JCI And The Rupiah Exchange Rate

Abstract

This study empirically examines the overreaction phenomenon in global commodity markets and its transmission to Indonesia's capital market and foreign exchange indicators, specifically the effect of crude oil and gold price overreaction—proxied through price-reversal indicators (abnormal return)—on the Abnormal Return of the Jakarta Composite Index (JCI/IHSG) and the Rupiah exchange rate. Daily time-series data over a five-year formation period (2021-2025) were analyzed using the Wilcoxon Signed-Ranks Test, Ordinary Least Squares (OLS) regression, and the Newey-West HAC Standard Errors and Covariance approach to mitigate structural heteroskedasticity. Findings demonstrate a significant overreaction phenomenon across all winner and loser portfolios for both gold and crude oil. Partial hypothesis testing shows that gold price overreaction has no significant effect on the JCI, yet exerts a negative and significant effect on the Rupiah, supporting Asset Substitution Theory and flight-to-quality behavior. Conversely, crude oil overreaction exerts a positive but marginal effect on the JCI, and a negative and significant effect on the Rupiah, validating the Balance of Payments Structure Theory given Indonesia's status as a net oil importer. Overall, global commodity overreaction transmits more responsively toward exchange-rate stability than toward domestic capital-market performance.