The relationship between macroeconomic variables and stock market returns
is, by now, well-documented in the literature. However, a void in the literature
relates to examining the cointegration between macroeconomic variables and stock
market’s sector indices rather than the composite index. Thus in this paper we
examine the equilibrium relationships between selected macroeconomic variables
and the Indonesia Exchange Sector index—the finance index. The study concludes
that the finance index form cointegrating relationship with changes in the interest
rates, inflation, exchange rate and money supply. Implications of the study and
suggestions for future research are provided.

Keywords: macroeconomic variables, stock market returns, the finance index,
interest rates, inflation, exchange rate, money supply.