Title:
Linking Financial Leverage and Stock Price Volatility to the Jakarta Islamic Index: Insights from Indonesia’s Capital Market

Authors:
Sofyan Halim, Indonesia

Abstract:

This study aims to explore, examine, and comprehend the effects of the Composite Index on the Jakarta Islamic Index (JII), as well as the influence of Financial Leverage on the JII, and whether fluctuations in the stock prices of JII-listed companies affect the index. The Financial Services Authority stipulates a maximum debt-to-total asset ratio of 45% as a requirement for a stock to be categorized as sharia-compliant. This regulation inevitably affects the stock prices of sharia-compliant companies, including those listed in the JII. Numerous studies have investigated the relationship between the Jakarta Islamic Index (JII) and the Composite Index (JCI), producing varying findings. This variation serves as the motivation for the current research, which incorporates distinct variables: the Composite Index, Financial Leverage, and changes in stock prices of JII issuers as independent variables, with the JII as the dependent variable. Using a quantitative causal method, the research demonstrates that the Composite Index significantly influences the Jakarta Islamic Index. However, Financial Leverage and changes in stock prices of JII-listed companies do not have a significant impact on the JII.

DOI: https://doi.org/10.51505/IJEBMR.2025.9201