Financial Integration between Indonesia and International Markets: An Application of ARDL Bound Testing Approach

• Main Authors: ABDUL KARIM, BAKRI, Majid ABDUL, M SHABRI, ABDUL KARIM, SAMSUL ARIFFIN
• Format: Conference or Workshop Item
• Published: 2009
• Subjects: HG Finance
• Online Access: http://eprints.utp.edu.my/7223/1/Financial_Integration_between_Indonesia_and_International_Markets_Gaber_2009_BEST_PAPER_AWARD.pdf; http://eprints.utp.edu.my/7223/
• Institution: Universiti Teknologi Petronas

This study examines stock market integration among the emerging stock market of Indonesia and its major trading partners (Japan, the US, Singapore and China). We employ the newly proposed autoregressive distributed lag (ARDL) approach to cointegration and recent weekly stock market data spanning from July 1998 to December 2007. The results indicate the Indonesian stock market is cointegrated with the stock markets of the US, Japan, Singapore and China. Thus, this implies that the opportunities for international investors to gain benefits from international portfolio diversification in those markets are limited. In addition, any development in Japan, the US, Singapore and China markets should be considered by the Indonesian government in making policies regarding to the stock market of Indonesia.