Analysis of Cointegration and Causality Relationship among Selected Stock Market Indexes in the World and Indonesia Stock Exchange Composite Index (IHSG) for the Period 2005-2017

Abstract

This research aims to analyze the cointegration and causality relationship among selected stock market indexes in the world and Indonesia Stock Exchange Composite Index (IHSG) for the period 2005 until 2017. The stock market indexes are selected based on the trading relationship between Indonesia and other countries in the non-oil and gas sectors. The selected stock market indexes are Dow Jones Industries Average, Bombay Stock Exchange Sensex, Kuala Lumpur Stock Exchange, Nikkei, Korea Stock Exchange, Stock Exchange of Thailand, Shanghai Composite, Straits Times Index, and Indonesia Stock Exchange Composite Index (IHSG). This research is a time series research which uses monthly data from January 2005 until December 2017 and Augmented Dickey-Fuller Test, Lag Optimum, Johansen Cointegration Test, Granger Causality Test, Vector Error Correction Model (VECM), Variance Decomposition, and Impulse Response Function. The results of the research show that there is cointegration among selected stock market indexes and Indonesia Stock Exchange Composite Index (IHSG) and there is causality among selected stock market indexes and Indonesia Stock Exchange Composite Index (IHSG).