Cointegration of Indonesia's Stock Market and America at The Period of and Recovery From Global Financial Crisis

Akseptori, Ristanti and Mujayana, Marya (2014) Cointegration of Indonesia's Stock Market and America at The Period of and Recovery From Global Financial Crisis. Proceeding The 1st International Conference in Entrepreneurship (ICOEN 2014) (1). pp. 19-28. ISSN 2356-3206

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Abstract

This study aims to investigate the integration of capital market of Indonesia and America as a result of the global financial crisis. Indonesian capital market is represented by the Composite Stock Price Index, while the American stock market is represented by the S & P500. In addition to the influence of foreign capital market condition (S & P500) as the external factor of country’s economy, the Indonesian capital market is influenced by economic conditions in the country, including the exchange rate and foreign transaction (net foreign flow). External and internal factors can affect the stability of the financial system of a country. To find the integration of world capital markets and Indonesian financial system stability due to the global financial crisis, this study was conducted in two periods, they are the period of global financial crisis (July 2007-December 2010) and the period after global financial crisis (January 2011- December 2013). This study used a quantitative approach using the Johansen Cointegration Test. Monthly data were analyzed using the method of Ordinary Least Square (OLS). The result of this study showed that there is no cointegration between Jakarta Composite Index and S&P500 in the period of crisis and recovery. It means there is short term relationship. This prove showed that there is integration between Jakarta Composite Index and S&P500. When there is collapse in S&P500, so did the Indonesia stock market. While internal factors, net foreign flow, showed the stability in the long relationship to the Indonesia Stock Market.

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