Global Stock Price Linkages Around the US Financial Crisis: Evidence from Indonesia

Global Journal of Business Research, v. 7 (5) p. 35-45

12 Pages Posted: 6 Sep 2013

See all articles by Aldrin Herwany

Aldrin Herwany

Perbanas Institute; Perbanas Institute

Erie Febrian

University of Padjadjaran

Date Written: 2013

Abstract

Monetary authorities in Indonesia, as well as some academicians believe the absence of a long run relation between the Indonesian stock market and developed markets prevents this emerging market from being deeply affected by the US downturn. Nevertheless, this hypothesis may not apply to the domestic financial industry as these firms are involved in cross-country financial investments. This study examines the global linkage of Indonesian Financial Sector stock prices during the US downturn using cointegration tests and vector autoregression. This study examines linkages between the Indonesian Financial Industry with the same industry in the US, UK and four developed Asian markets, i.e., Tokyo, Hong Kong, Singapore, and Kuala Lumpur stock exchanges. We also conduct tests using pre-US-crisis data to show the linkage change magnitude. We find that financial sector stock prices in the Indonesian market are cointegrated with the six observed markets before and during the crisis. Nevertheless, Indonesian financial stock prices are relatively invulnerable to pressures coming from other observed markets Thus, fund managers can gain diversification benefit from a portfolio containing financial industry stocks of these markets either in the long or short run.

Keywords: Financial Sector, Financial Crisis, Market Co-integration

JEL Classification: G01, G11, G15

Suggested Citation

Herwany, Aldrin and Febrian, Erie, Global Stock Price Linkages Around the US Financial Crisis: Evidence from Indonesia (2013). Global Journal of Business Research, v. 7 (5) p. 35-45, Available at SSRN: https://ssrn.com/abstract=2239355

Aldrin Herwany (Contact Author)

Perbanas Institute ( email )

Jalan Perbanas, Karet Kuningan, Setiabudi
Jakarta, Jakarta 12940
Indonesia

Perbanas Institute ( email )

Jakarta, DKI Jakarta
Indonesia

Erie Febrian

University of Padjadjaran ( email )

Jl. Dipatiukur 35
Bandung, West Java 40132
Indonesia

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