Title:
The Influence of Foreign Investment Funds on Stock Volatility and Returns on the Indonesia Stock Exchange: The Moderating Role of Bullish and Bearish Market Conditions

Authors:
Reva Yuliani, Vincentia Wahju Widajatun, Oliver Hasan Padmanegara, Indonesia

Abstract:

This study examines the influence of foreign investment flow and stock volatility on stock returns of companies included in the LQ45 Index listed on the Indonesia Stock Exchange (IDX) during 2024, with market conditions (bullish–bearish) as a moderating variable. Using a quantitative approach, this research applies Partial Least Squares–Structural Equation Modeling (PLS-SEM). The results indicate that foreign investment flow has a positive and significant effect on stock return (β = 0.468; p < 0.05), while stock volatility also shows a positive and significant effect on stock return (β = 0.479; p < 0.05). The structural model demonstrates strong explanatory power, with an R² value of 0.895, indicating that 89.5% of stock return variation can be explained by the model. The predictive relevance test further confirms the robustness of the model, with a Q² value of 0.921. Furthermore, market condition significantly moderates the relationship between foreign investment flow and stock return, with a negative interaction coefficient (β = −0.228; p < 0.05), suggesting that the positive impact of foreign capital weakens during bearish market conditions. Market condition also significantly moderates the effect of stock volatility on stock return (β = 0.139; p < 0.05). These findings highlight the importance of considering market regimes when analyzing foreign investor behavior and stock performance in emerging markets. The study provides empirical evidence that foreign capital flows and volatility play a crucial role in shaping stock returns, particularly under different market conditions, offering valuable insights for investors, portfolio managers, and policymakers.

DOI: https://doi.org/10.51505/IJEBMR.2026.10709