Author(s): Idah Zuhroh
Covid-19 pandemic infected almost all countries globally, thereby disrupting their economic and financial sectors, especially the capital market, as indicated by the high volatility of stock returns. Therefore, this research aims to measure the effectiveness of the Covid-19 policy to arouse credit amusement capable of depreciating the volatility of stock returns in the Indonesian banking sector. This research uses an event study approach by choosing March 13, 2020, as the date for establishing banking sector policies by the Financial Services Authority during the pandemic. The event study approach was used to calculate the daily abnormal return volatility of the estimation results of the pre and post single index model policy using 15 banking stocks. Furthermore, the effectiveness of the policies in reducing the volatility of bank stock returns was analyzed using three-panel regression models on the proxy of market return on financial, LQ45, and composite indexes, namely FEM, REM, and CEM. These models were tested using the Chow and Hausman test, and the results showed that the Covid-19 policy in the banking sector was able to reduce the volatility of stock returns. It also proved that the dummy variable (policy) for all models was significantly negative and explained the minimal change in volatility or the determination coefficient of less than 5%. Furthermore, it is possible that during the event, several other policies simultaneously reduced the volatility of banking stock returns, which were not included in the model.