How does the impact of the COVID-19 pandemic on Indonesia's Islamic stock returns?

The unprecedented COVID-19 pandemic has ripped down the worldwide economies since the beginning of 2020. The stock market was one of the economic sectors that experienced depression and crashed during the pandemic. In this study, we mount an investigation on how Indonesia's large-scale social restrictions (known as "PSBB"), the announcement of the daily growth in total confirmed and death cases by COVID-19 affect the dynamic of Islamic stock returns in the Jakarta Islamic Index. This study used panel regression to test the effect between variables with market-to-book ratio and market capitalization ruled as a control variable. This study concluded that the announcement of daily growth in total confirmed cases by COVID-19 and the implementation of PSBB has a negative effect on the deterioration of the Islamic stock market's stability. Therefore, the higher growth of the total confirmed cases by COVID-19 and the tightening of the PSBB that was announced and implemented by the government would impact on the volatility of market and shareholders returns negatively. Interestingly, this study also found that there was a positive and significant relationship between the daily growth of death cases and stock return. Furthermore, the sectors of consumer goods, mining, and trading counted as the most performed market during the pandemic crisis.


Introduction
The novel coronavirus (known as  case discovered for the first time in Wuhan, China in December 2019 has quickly spread around the world. The  outbreak, then, has been labeled as a pandemic by World Health Organization (WHO) in early January 2020. Chien et al. (2021) added that WHO has already counted 32,429,965 confirmed cases and 985,823 deaths by COVID-19 in September 2020. However, the current COVID-19 pandemic is not the first pandemic in history. Since the 20th century, several pandemics have stricken several parts of the world, including H1N1 flu, SARS, Ebola, and so on. Not only limited to healthiness issues, but the impact of these pandemics also caused several negative consequences for the economy and environment at the domestic, regional, and global levels. Lalwani & Meshram (2020) added that the panic situations related to COVID-19 also have led to increased inefficiency in stock markets. He et al. (2020) stated that emergency events influenced the dynamical of investor psychology and behavior (as the inefficiently and inconsistency of public information related government policies during the crisis) which in turn affects stock price movements. For example, Jiang et al. (2020) throughout their study found that the growth of daily cases of the H7N9 virus had a negative and significant effect on stock performance in China. Thus, the Ebola virus pandemic that occurred in 2014-2016 and started in Africa had a significant effect on the dynamic stock price movements in the United States (Ichev & Marinč, 2018). Akhtaruzzaman et al. (2020) also added that dynamic conditional correlations (DCCs) between Chinese and G7 financial and nonfinancial stock returns increased significantly during the COVID-19 period.
Moreover, 14 sectors indexed by NIFTY50 in India drastically experienced negative stock returns after the WHO announcement. This decline turned into a positive return after the Indian government announced the implementation of a lockdown (Thomas et al. 2020).
In the case of Indonesia, the first COVID-19 case was discovered on March 2, 2020.
Wijaya & Andriani (2020) stated that the Indonesian government has chosen not to use lockdown or quarantine strategy to tackle the spread of the COVID-19 virus, as the impact of lockdown would have a serious effect on small communities in the informal sector who depend on daily income. Alternatively, to respond to the state of emergency of public health issue, the government is imposing large-scale social restrictions which also known as Pembatasan Sosial Berskala Besar or "PSBB". Numerous studies have been conducted in various contexts to investigate the impact of COVID-19 on the Indonesian Capital Market.
While a previous study from Amanda (2021) found that the financial risks during the sub-prime mortgage crisis is slightly higher compared to the COVID-19 pandemic as the rising of stock index volatility, exchange rate, and interest rate at that time, Nugroho & Robiyanto (2021) reported that gold return volatility affects Jakarta Composite Index (JCI) volatility positively and USD/IDR volatility impact JCI volatility negatively during the COVID-19 pandemic. Furthermore, Devi et al. (2020), Dilla et al. (2020), and Liu et al. (2020) proved that the COVID-19 pandemic caused abnormal market returns. The abnormal return occurred in the basic industry and chemical sector. They also added that based on the cumulative value of abnormal returns, the most optimistic sector during the COVID-19 pandemic period is the consumer goods and mining industry sectors.
This study aims to investigate the effect of COVID-19 on the deterioration of the stock market's stability. Islamic stock market chooses as an object of the study as there were limited studies that discuss COVID-19 impacts on the Islamic Stock Market performance especially in developing countries like Indonesia. Following the conclusion of Aggarwal et al. (2020) and Anh & Gan (2020) which stated that there was a significant effect of the stringency of the lockdown period on stock performances, this study also aims to investigate the impact of the implementation of PSBB on Islamic Stock Market performances in Indonesia. Furthermore, by considering the firm-specific characteristics, this study includes market capitalization and daily market to book ratio as control variables to explain the stock market returns.

Indonesia Lockdown (Large-Scale Social Restriction)
The COVID-19 pandemic hurts economies in almost every country in the world, including Indonesia. Several government policies have been introduced with the public health and economic sector as a main priority to prevent the Indonesian economic chain from breaking. The Indonesian government has formed the COVID-19 task force, an acceleration countermeasures group, to discuss various possible strategies to deal with the COVID-19 pandemic. Interestingly, the Indonesian government has chosen not to use lockdown or quarantine terminologies to tackle the spread of COVID-19. Alternatively, to respond to the state of emergency in public health, the government is imposing large-scale social restrictions (PSBB). While lockdown can be defined as home incarceration or mobility isolation, which required all, including those who were asymptomatic, to spend the next two weeks at home with allowance to do basic activities like buying food or medication, visiting medical facilities, or commuting to work (Günther-Bel et al., 2021), a large-scale social restriction is the restriction the mobility of people and/or goods (only) within a certain area ). The mobility restrictions that regulated by the Indonesian government include; 1) the closure of schools and workplaces, except central government offices and businesses and transportation companies that serve essential public needs, 2) prohibitions on mass religious gatherings, 3) activities prohibitions in public places or facilities, 4) prohibitions on socialcultural activities, and 5) transportation restrictions, and 6) restrictions on other activities explicitly related to defense and security, but military and police operations are allowed. Mishra, et al, (2020)

H1:
The implementation of PSBB significantly affects stock return.

The Role of Confirmed and Death Cases by COVID-19
The fact that the COVID-19 virus caused a big disruption on the global capital market and He et al. (2020) added that during the pandemic the number of stock returns in the information technology, medicine manufacturing, consumer goods, and mining industry sectors performed better than others (Dilla et al., 2020;Al-Awadhi et al., 2020). Interestingly, Asian countries experienced higher abnormal negative returns than other countries as negative investor sentiment becomes the mediation and main effect on the relationship between the COVID-19 pandemic and stock market movements (Liu et al., 2020). experienced a similar pandemic like (SARS), investors with previous experience react faster and better to COVID-19. This is because the former group of investors is more concerned with similar risks encountered in the past, while the latter group tends to overlook certain risks. Finally, Bissoondoyal-Bheenick et al. (2020), Zaremba et al. (2020), Al-Awadhi et al.
(2020) concluded that there were significant differences in stock market responses regarding the number of confirmed and death cases from COVID-19. Therefore, the proposed hypotheses of this study can be described as follows. H2: The daily growth in a total confirmed case by COVID-19 significantly affects stock return.

H3:
The daily growth in total death cases by COVID-19 significantly affects stock return.

Market to Book Ratio and Market Capitalization as Control Variables
Market to Book value ratio (MTB) is also known as the price to book value. The increase or decrease in the company's MTB contains information that will cause investors to react as indicated by abnormal returns. A high MTB company indicates that the company can perform well in the sense of being able to increase profits, increase stock prices or produce successful products so that this will respond by investors positively (Baker et al., 2020). Ferri & Jones (1979) stated that market capitalization is a scale to classify the company's size. Large companies have relatively more remarkable growth than small companies so that the stock return of large companies is greater than those of small-scale companies. Therefore, investors tend to choose large-scale companies to achieve optimal returns. Following Al-Awadhi et al.
(2020) and Anh & Gan (2020), this study included market to book ratio and market capitalization as control variables that reflect the firm characteristics. Control variables are used in this study to perceive the effect of the independent variable on the dependent in the presence of confounding variables.

Methods
This study can be classified as a quantitative study since it was using numerical data for  REi,t = α0 + β1ACTt-1 + β2DTHt-1 + β3PSBBt-1 + βxXi,t-1 + εi,t Where is the return of stock j company on day t, based on the formula with is the stock price of i company on day t, and is the stock price of j company on day t-1. While ACTt-1 and DTHt-1 is the daily growth in total confirmed case and the daily growth in total death case by COVID-19, PSBBt-1 is the implementation day of large-scale social restrictions which is equals to 1 if the day t-1 is PSBB period in Jakarta, otherwise 0. Thus, Xi,t-1 is a vector of firm-specific characteristics that includes natural logarithm of daily market capitalization and market to book value ratio of i company and is an error term.     Table 2 indicates that while the DTH had a positive and significant correlation with the ACT, ACT and DTH had a positive but not significant correlation on Islamic stock return.  which means that H1 is supported (Table 3). This negative effect occurs as the economic loss due to the restriction the people's mobility (Rahman, 2020;Coccia, 2021) and the feelings of fear among investors on the stock market due to the novel COVID-19 (Al-Qudah & Houcine, 2020). that investors tend to be more reactive to the announcement that's related to the daily growth in total confirmed cases rather than to the growth in the number of deaths. Mishra et al.

Result and Discussion
(2020) argued that as more information related to COVID-19 becomes available and the higher level of people understanding the prevention and the death caused by COVID-19, the ramifications of the market will correct themselves. Ashraf (2020) added that since death is a result of a confirmed case and occurs several days after infection diagnosis with COVID-19, sophisticated stock market investors price in the expected negative effect of COVD-19 early on from the increase in confirmed cases. Market capitalization (LMCAPs) and market to book value (MTB) also had a positive and significant effect on stock returns. The large value of market capitalization was generally one of the attractions of investors for long-term investment due to the potential for good company growth, apart from dividend distribution and relatively low-risk exposure (Mahmud, 2019;Al-Awadhi et al., 2020). On other hand, the significance of MTB indicates that investors make MTB one of the factors considered in investing in the capital market. Although there were companies that listed on JII experienced a negative book value during the study period, there are several sectors that had a resilient market price that boost the positivism of investor (Xue & Zhang, 2017).
The results of the sector analysis (Table 4) suggest that stock returns of basic industry, miscellaneous, and infrastructure sectors performed significantly worse than the market during the pandemic. In contrast, the sector of consumer goods, mining, and trading performed better than the market. These results are consistent with numerous studies by Trisnowati & Muditomo (2021) and Dilla et al. (2020) that concluded the consumer goods sector is the most persistent and defensive sector during the COVID-19 pandemic.

Conclusion and Suggestion
This study aims to investigate how Indonesia's large-scale social restrictions (known as "PSBB"), the announcement of the daily growth in total confirmed and death cases by the government affect the dynamic of Islamic stock returns in the Jakarta Islamic Index (JII). The result of this study concluded that the announcement of daily growth in total confirmed cases by COVID-19 and the implementation of PSBB has a negative effect on the deterioration of the Islamic stock market's stability. Therefore, the higher growth of the total confirmed cases