THE IMPACT OF US MONETARY POLICY AND STOCK MARKETS TOWARD INDONESIA STOCK MARKETS

Muhamad Abduh

Abstract


The aim of this paper is to examine the interdependence revulsion of Indonesia Stock Markets (JCI) with the changes in US Monetary policy and Stock Markets (DJCI). The methodology used in this study is time series econometric techniques i.e. the unit root test, cointegration test, Granger’s causality and Vector Error Correction Model (VECM). The result reveals a short-term and long-term dynamic relationship between the US stock markets and the Indonesia one. A 1 percent increase in US stock markets contributes to Indonesia stock markets by 0.4 percent over the next 10 months. One of the policy implications is that the authority of Indonesia stock markets should strengthen and improve their regulations so that the susceptible of the stock markets can be minimized.

Keywords


Indonesia, United States, Error Correction Model, Granger Causality.

Full Text:

PDF

References


Bordo, M.D. and Wheelock, D.C. (2004) “Monetary policy and asset prices: A look back at past U.S. stock market booms.” Review, Federal Reserve Bank of St. Louis, issue Nov., 19–44.

Bredin, Don., Gavin, Caroline., and O’Reilly, Gerard. (2005) “US monetary policy announcements and Irish stock market volatility.” Applied Financial Economics, 15, 124350.

Chen, Shiu-Sheng. (2007) “Does monetary policy has asymmetric effects on stock returns?” Journal of Money, Credit and Banking, Vol. 39, No. 2-3 (March-April 2007), pp. 667-88.

Cheung, Y.L., and Mak, S.C. (1992) “The international transmission of stock market fluctuation between the developed markets and the Asian-pacific markets.” Applied Financial Economics, 2, pp. 43-47.

Daly, Kevin James. (2003) “Southeast Asian stock market linkages: Evidence from Pre- and Post-October 1997.” ASEAN Economic Bulletin, Vol. 20, No. 1, pp. 73-85.

Dunis, C.L. and Shannon, G. (2005) “Emerging markets of south-east Asia and central Asia: Do they still offer a diversification benefit?” Journal of Asset Management, Vol. 6, No. 3, pp. 168-190.

Gangopadhyay, Partha. (2008) “Monetary policy and pricing of cash-flow and discount-rate risk.” Quarterly Journal of Finance and Accounting, Vol. 47, No. 1, pp. 69-95.

Goh, K.L., Wong, Y.C., and Kok, K.L. (2005) “Financial crisis and intertemporal linkages across the ASEAN-5 stock markets.” Review of Quantitative Finance and Accounting, 24, pp. 359-377.

Granger, C. W. J. (1986) “Development in the study of cointegrated economic variables.” Oxford Bulletin of Economics and Statistics, 48: 213-228.

Engle, R. F., and Granger, C. W. J. (1987) “Cointegration and error correction: Representation, estimation, and testing.” Econometrica, 55: 251-276.

Ibrahim, Mansor H. (2005) “International linkage of stock prices: The case of Indonesia.” Management Research News, Vol. 28, No. 4, pp. 93-115.

Ito, Takatoshi and Hashimoto, Yuko. (2005) “High-frequency contagion of currency crises in Asia.” Asian Economic Journal, Vol. 19, No. 4, pp. 357-381.

Ito, Katsuya. (2008) “Oil Price and The Russian Economy: A VEC Model Approach.” International Research Journal of Finance and Economics, 17, 68-74.

Johansen, S., and Juselius, K. (1990) “Maximum likelihood estimation and inference on cointegration with application to the demand for money.” Oxford Bulletin of Economics and Statistics, 52: 169-210.

Johansen, S. (1991) “Estimation and hypothesis of cointegrating vectors in Gaussian vector autoregressive models.” Econometrica, 59 (6): 1551-1580.

Laopodis, Nikiforos T. (2006) “Dynamic interactions among the stock market, federal funds rate, inflation, and economic activity.” The Financial Review, 41, 513-545.

MacKinnon, J.G. (1981) “Critical values for cointegration tests.” In R. F. Engle and C. Granger (eds). Long-run Economic Relationship. Oxford: Oxford University Press.

Ng, Thiam Hee. (2002) “Stock market linkages in south-east asia.” Asian Economic Journal, Vol. 16, No. 4, pp. 353-377.

Ozun, Alper. and Cifter, Atilla. (2007) “Time-scale effects of international risk factors on emerging equity markets: the case of Turkey.” Bulletin of Statistics and Economics, Vol. 1, No. A07, pp. 12-23.

Reilly, F.K., Wright, D.J., and Johnson, R.R. (2007) “Analysis of the interest rate sensitivity of common stocks.” The Journal of Portfolio Management, Spring 2007.




DOI: https://doi.org/10.32507/ajei.v2i1.364

Refbacks

  • There are currently no refbacks.


Copyright (c) 2019 Muhamad Abduh

 Indexed by:

Google ScholarGoogle ScholarGoogle ScholarGoogle Scholar

  

 

License

© Copyright CC BY-SA

web analytics View My Stats

Al-Infaq: Jurnal Ekonomi Islam, p-ISSN: 2087-2178, e-ISSN: 2579-6453