International linkage of stock prices: the case of Indonesia

The paper evaluates the international linkage of Indonesian stock market during pre‐crisis and post‐crisis periods using time series techniques of cointegration and vector autoregression (VAR). We find evidence for lack of cointegration among the Indonesian market, other ASEAN markets (Malaysia, the Philippines, Singapore and Thailand) and two advanced markets (the US and Japan) during both pre‐crisis and post‐crisis periods. Looking at short run dynamics, we document evidence for substantial interactions among the ASEAN markets. However, it seems that the Indonesian market becomes more segmented from other ASEAN markets during the post‐crisis period. Additionally, while most ASEAN markets respond quickly to shocks in the US regardless of the sample period and seem to be less influenced by the Japanese market post crisis, the Indonesian market becomes more responsive to the developed markets of the US and Japan during the post crisis period.