Global stock market integration: correlation analyzes of the stock market indexes in indonesia, japan, australia, the united kingdom, and the united states of america for the period 2004-2012
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Institusion
Universitas Multimedia Nusantara
Author
Vinson, Owen
Subject
HF5001-6182 Business
Datestamp
2017-08-14 10:16:13
Abstract :
Due to several recent phenomenona, international correlations fluctuate over time, leading to renewed interest in international portfolio diversification. The objective of this study is to assess the extent of capital market correlations between five stock markets (Indonesia, Japan, Australia, London, and New York) over the period 2004-2012. In this study, monthly returns in local currencies of IHSG, Nikkei225, ASX200, FTSE100, and S&P500 have been selected. Pearson Product-Moment Correlation has been computed for the selected stock market indices.This study finds that the low level of correlation between IHSG and other indices is indicative of some national factors strongly affecting the movement of the indices. Furthermore, the post-crisis correlation between London and New York is the strongest. In fact, correlations between stock markets increase during the period of crisis because of high market volatility, leading to the correlation breakdown where the benefits of international portfolio diversification are needed most. However, the benefits of international portfolio diversification aren?t totally disappear. It?s still diversifying away country risk.
Due to several recent phenomenona, international correlations fluctuate over time, leading to renewed interest in international portfolio diversification. The objective of this study is to assess the extent of capital market correlations between five stock markets (Indonesia, Japan, Australia, London, and New York) over the period 2004-2012. In this study, monthly returns in local currencies of IHSG, Nikkei225, ASX200, FTSE100, and S&P500 have been selected. Pearson Product-Moment Correlation has been computed for the selected stock market indices.This study finds that the low level of correlation between IHSG and other indices is indicative of some national factors strongly affecting the movement of the indices. Furthermore, the post-crisis correlation between London and New York is the strongest. In fact, correlations between stock markets increase during the period of crisis because of high market volatility, leading to the correlation breakdown where the benefits of international portfolio diversification are needed most. However, the benefits of international portfolio diversification aren?t totally disappear. It?s still diversifying away country risk.
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