The Impact of the Global Financial Crisis on the Integration of the Chinese and Indonesian Stock Markets

James Manuel Kenani, Joko Purnomo, Felix Maoni

Abstract


The study investigates the integration of Chinese stock market with Indonesian stock market after the 2008 global financial crisis, by considering volatility spillover between the two countries. The study also considers the volatility spillovers effects of Japan and the U.S on Indonesian and Chinese stock markets. Exponential generalized autoregressive conditional heteroskedasticity model is employed for analyzing data series covering January 4, 2002 to December 20, 2011. The results indicate that Indonesian and Chinese stock markets have bidirectional return spillover effects before and after the 2008 global financial crisis. The results of volatility spillover effects provide evidence that Chinese stock market has unidirectional effect on Indonesia stock market after the financial crisis. We also found evidence of volatility spillover effect of the Japanese stock market on Indonesian stock market before and after the crisis, but we do not find volatility spillover evidence from the U.S to Indonesian stock market after the financial crisis. This finding indicates that besides Japan, China has increased its influence on Indonesian stock market after the global financial crisis, whereas the U.S has become less influential than before the crisis. This strong integration of the Chinese stock market in Indonesia market implies limited gains for portfolio diversification from the international portfolio investors.

 


Full Text: PDF DOI: 10.5539/ijef.v5n9p69

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This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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