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

Abstract

<!--[if gte mso 9]><xml> <o:OfficeDocumentSettings> <o:RelyOnVML /> <o:AllowPNG /> <o:TargetScreenSize>800x600</o:TargetScreenSize> </o:OfficeDocumentSettings> </xml><![endif]--> <p>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.</p><p class="MsoNormal" style="margin-bottom: 4.0pt; text-align: justify; line-height: 12.0pt; mso-line-height-rule: exactly;"> </p> <!--[if gte mso 9]><xml> <w:WordDocument> <w:View>Normal</w:View> <w:Zoom>0</w:Zoom> <w:TrackMoves /> <w:TrackFormatting /> <w:PunctuationKerning /> <w:ValidateAgainstSchemas /> <w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid> <w:IgnoreMixedContent>false</w:IgnoreMixedContent> <w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText> <w:DoNotPromoteQF /> <w:LidThemeOther>EN-US</w:LidThemeOther> <w:LidThemeAsian>X-NONE</w:LidThemeAsian> <w:LidThemeComplexScript>X-NONE</w:LidThemeComplexScript> <w:Compatibility> <w:BreakWrappedTables /> <w:SnapToGridInCell /> <w:WrapTextWithPunct /> <w:UseAsianBreakRules /> <w:DontGrowAutofit /> <w:SplitPgBreakAndParaMark /> <w:EnableOpenTypeKerning /> <w:DontFlipMirrorIndents /> <w:OverrideTableStyleHps /> </w:Compatibility> <m:mathPr> <m:mathFont m:val="Cambria Math" /> <m:brkBin m:val="before" /> <m:brkBinSub m:val="&#45;-" /> <m:smallFrac m:val="off" /> <m:dispDef /> <m:lMargin m:val="0" /> <m:rMargin m:val="0" /> <m:defJc m:val="centerGroup" /> <m:wrapIndent m:val="1440" /> <m:intLim m:val="subSup" /> <m:naryLim m:val="undOvr" /> </m:mathPr></w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:LatentStyles DefLockedState="false" DefUnhideWhenUsed="true" DefSemiHidden="true" DefQFormat="false" DefPriority="99" LatentStyleCount="267"> <w:LsdException...

Movements of Islamic Stock Indices in Selected OIC Countries

“…The finding of this study depicts that the markets is cointegrated after the global crisis and the interrelated market across OIC members could be gain limited benefit from portfolio diversification because the market was predictable. The result is consistent with prior study done by Kenani et al (2013) where the market is cointegrated after the global financial crisis. However, in the case of OIC countries, there are many advantages can be gained through stock market integration such as market efficiency and competitiveness, cost saving for stock market transaction and possibility to get higher return.…”

“…There is similar result with study done by Kenani et al (2013) whereas the integration only existed after the crisis for equation where Oman and Qatar are the dependent variable. Somehow sub-prime mortgage crisis in 2007 impacted significantly in the degree of cointegration for Islamic stock market integration.…”

“…We relate to the empirical studies conducted by Darrat et al (2000), Ceylan and Dogan (2004), Marashdeh (2005), Majid and Kassim (2010), Karim and Karim (2012), and Kenani et al (2013), stock market linkage could give less benefit to the investor for portfolio diversification and the market become inefficient because it is predictable. However, in the case of OIC countries where they have difficulties to generate foreign trade volume due to small illiquid stock market, market integration could benefit them a lot in terms of cost saving.…”

“…The finding indicated that investors who diversified their investment across the ASEAN markets could only gain limited benefits during the period of subprime crisis. Kenani et al (2013) divide the sample into before and after 2008 Global Financial Crisis (GFC) to analyze the integration between Chinese stock market with Indonesian stock market. The study also included the volatility spillovers effects of Japan and the US on Indonesian and Chinese stock market by employing Exponential GARCH (EGARCH) model for analysis.…”

Alteration of Risk in Asian Bond Markets During and After Mortgage Crisis: Evidence from VaR Analysis

“…According to the authors, countries heavily affected by the crisis are the ones that are more dependent on the international financial markets. More specifically, Ali and Afzal (2012) Kenani, Purnomo and Maoni (2013) analyse the integration of markets and demonstrate that, both before and after the mortgage crisis, there is a bidirectional return spillover. More recently, Hengchao and Hamid (2015) state that while investors benefited from portfolio diversification in Asian-Pacific Islamic stock markets before the mortgage crisis, this advantage has decreased since these markets moved together during the period of crisis.…”