Market Reactions to Sovereign Wealth Fund Formation in An Emerging Market: Price Inertia and Microstructure Volatility in Indonesia’s Danantara

This study investigates the short-term market reaction to the announcement of Indonesia’s sovereign wealth fund (SWF), Danantara, using a dual-framework approach that combines price-based and microstructure-based measures. Although sovereign wealth funds are intended to boost investor confidence and attract long-term capital, the Indonesian equity market—dominated by retail investors and characterized by institutional opacity—offers a unique testing ground. The research aims to assess whether the announcement of Danantara triggered abnormal returns or changes in trading behavior and liquidity among related state-owned enterprises (SOEs) and the broader market index (IHSG). Utilizing an event study methodology, this study measured abnormal returns (AR), cumulative abnormal returns (CAR), trading volume activity (TVA), abnormal volume (AV), and Amihud illiquidity (ILLIQ) across a ±5-day window around the event date. The findings show no significant price reactions but reveal temporary spikes in trading activity and liquidity disruption, suggesting behavioral responses driven by policy uncertainty. The implications indicate that market participants in emerging economies process reforms not through valuation changes but via speculative and liquidity-driven behavior. This emphasizes the importance of transparency and follow-through in institutional reform. The study provides a replicable analytical model for emerging markets responding to top-down economic policy shifts.