Determinants of Stock Price Volatility in Indonesian Digital Banks: Long- and Short-Run Evidence from an Error Correction Model

Abstract

This study examines the internal and macroeconomic determinants of stock price volatility in Indonesian digital banks and distinguishes their long-run and short-run effects. Monthly secondary data for 2019-2022 were compiled for five digital banks listed on the Indonesia Stock Exchange: Bank Jago, Allo Bank Indonesia, Bank Neo Commerce, Bank MNC Internasional, and Bank Raya Indonesia. The determinants were leverage, firm size, trading volume, earning volatility, inflation, and the policy interest rate. An Error Correction Model (ECM) was estimated in EViews 10 after Augmented Dickey-Fuller stationarity testing and Johansen cointegration testing. In the long run, firm size (beta=-2.76×10^-7; p=0.0116) and trading volume (beta=-5.92×10^-10; p=0.0282) were negatively associated with stock price volatility, while the interest rate had a positive effect (beta=2.687645; p=0.0007). Leverage, earning volatility, and inflation were not significant. In the short run, only the interest rate was significant and positive (beta=6.696431; p<0.001). The error-correction coefficient was negative and significant (ECT=-0.890171; p<0.001), indicating rapid adjustment toward long-run equilibrium. Stock price volatility in Indonesian digital banks is more consistently related to monetary conditions than to the selected firm-specific indicators in the short run, while firm size and trading activity become relevant over longer horizons.