http://jurnal.ut.ac.id/plugins/themes/sintrettheme

The Effect of Crude Oil Price Shocks on Indonesia Stock Market Performance

Written by Indra Darmawan, Hermanto Siregar, Dedi Budiman Hakim, Adler Haymans Manurung


##plugins.themes.bootstrap3.article.main##

Abstract

The primary purpose of this study is to investigate the effects of crude oil price shocks on Indonesia stock market performance, represented by the composite index (IHSG). We used a vector error correction model (VECM) approach to observe the relationship between Brent crude oil price (BPO) and the seven stock market indices, including IHSG, and the relationship between IHSG and the six global stock market indices. Findings. The results show that the Brent crude oil prices cointegrated to the seven stock market indices, including IHSG, and IHSG cointegrated to the six global stock market indices. This finding proves that crude oil price shocks affect the Indonesia stock market performance directly through the co-integration mechanism between the crude oil price and IHSG and indirectly transmitted through the co-integration mechanism between IHSG and the global stock market indices.


Keywords:

Cointegration, Crude Oil, Stock Market, VECM


References

Adam, P., Rianse, U., Cahyono, E., & Rahim, M. (2015) Modeling of the dynamic relationship between world crude oil price and the stock market in Indonesia. International Journal of Energy Economics and Policy, 5(2), 550–557.

Amizuar, S.H., Ratnawati, A., & Andati, T. (2017). The integration of capital market from Indonesian investor's perspective: do integration still give diversification benefit? International Journal of Economics and Finance, 9(9), 157–165.

Antonakakis, N., & Filis, G. (2013). Oil price and stock market correlation: a time-varying approach. The International Journal of Energy and Statistics, 1(1), 17–29. DOI: 10.1142/S2335680413500026

Arouri, M.E., & Jawadi, F. (2010). Nonlinear stock market integration in emerging countries. International Journal of Economics and Finance, 2(5), 79–90. DOI: 10.5539/ijef.v2n5p79

Atje, R., & Titiheruw, I.S. (2016, October). ASEAN capital market integration: the way forward. CSIS Economics Working Paper 01 – 2016. Central for Strategic and International Studies.

Atiq, Z., & Farhan, M. (2019). Impact of oil prices on stock returns: evidence from Pakistan’s stock market. Journal of Social Sciences and Humanities. 47–63. https://www.researchgate.net/publication/331087966_IMPACT_OF_OIL_PRICES_ ON_STOCK_RETURNS_EVIDENCE_FROM_PAKISTAN'S_STOCK_MARKET

Badan Pusat Statistik. (2018). Indikator Ekonomi. Buletin Statistik Bulanan, Desember 2018. https://www.bps.go.id/publication/2019/02/28/9ea9b2670bce7dda0a68ac3d/ indikator-ekonomi-desember-2018.html

Baumeister, C., & Killian, L. (2015). Understanding the decline in the price of oil since June 2014. Journal of the Association of Environmental and Resource Economists, 3(1), 131–158. DOI: 10.1086/684160.

Bekaert, G., Harvey, C.R., & Lumsdaine, R.L. (2002). Dating the integration of world equity markets. Journal of Financial Economics, 65(2), 203–247.

Chang, T., Ranjbar, O., & Jooste, C. (2017). Stock Market Interactions between the BRICS and the United States: Evidence from Asymmetric Granger Causality Tests in the Frequency Domain. Iranian Economic Review, 21(2), 297–320.

FRED economic data, The Federal Reserve Bank of St.Lois. (2018). Crude oil price: Brent–Europe (DCOILBRENTEU). https://fred.stlouisfed.org/series/ DCOILBRENTEU/downloaddata.

Gujarati, D.N. (2003). Basic Econometrics. Tata McGraw-Hill.

Hardouvelis, G., Malliaropulos, D., & Priestley, R. (2006). EMU and European stock market integration. The Journal of Business, 79(1), 365-392.

Hasan, M.Z., & Ratti R.A. (2012). Oil price shocks and volatility in Australian stock returns. Business Conference Paper (pp.1–38). The University of Notre Dame, Sydney, Australia. https://core.ac.uk/download/pdf/61302184.pdf.

Hamilton, J.D. (1983). Oil and the macroeconomy since World War II. The Journal of Political Economy, 91(2), 228-248.

Hetch, A. (2019). Understanding the crude oil market: pricing differential between Brent crude and WTI. The Balance. https://www.thebalance.com/crude-oil-brent-versus-wti-808872.

Hillier, D., & Loncan, T. (2019). Stock market integration, cost of equity capital, and corporate investment: evidence from Brazil. European Financial Management, 25(1), 181–206.

Huang, R.D., Masulis, R.W., & Stoll, H.R. (1995). Energy shock and financial markets. Journal of Futures Markets, 16(1), 1–27.

Jung, H., & Park, C. (2011). Stock market reaction to oil price shock: a comparison between an oil-exporting economy and an oil-importing economy. Journal of Economic Theory and Econometrics, 22(3), 1–29.

Kaneko, T., & Lee, B.S. (1995). The relative importance of economic factors in the U.S. and Japanese stock markets. Journal of the Japanese and International Economies, 9(3), 290–307. https://doi.org/10.1006/jjie.1995.1015.

Kang, W. Ratti, R.A., & Yoon, K.H. (2015). The impact of oil price shock on the stock market return and volatility relationship. Journal of International Financial Market, Institutions and Money, 34(2015), 41–54.

Kang, W., Ratti, R.A., & Vespignani, J. (2016). The impact of oil price shocks on the U.S. stock market: a note on the roles of U.S. and Non-U.S. oil production. Economics Letters, 145(2016), 176–181.

Killian, L., & Park, C. (2009). The impact of oil price shock on the U.S. stock market. International Economic Review, 50(4), 1267–1287.

Maboudian, E., & Shokn, K.S. (2015). Reinvestigation of oil price-stock market nexus in Iran: A SVAR approach. Iranian Economic Review, 19(1), 81–90.

Maghyereh, A. (2004). Oil price shocks and emerging stock markets. A generalized VAR approach. International Journal of Applied Econometrics and Quantitative Studies, 1(2), 27–40.

Marashdeh, H.,& Afandi, A. (2017). Oil price shock and stock market return in the three largest oil-producing countries. International Journal of Energy Economics and Policy, 7(5), 312–322.

Masih, R. Peters, S., & De Mello, L. (2010). Oil price volatility and stock price fluctuation in an emerging market: evidence from South Korea. Energy Economics, 33(5), 975 – 986. https://doi.org/10.1016/j.eneco.2011.03.015

Najaf, R., & Najaf, K. (2016). Impact of oil prices on the stock exchange of Pakistan and Malaysia. International Journal of Academic Research in Management and Business, 1(1), 88–97.

Olsen, A.B., & Henriz, P. (2014). Oil price shocks and stock market return: a Study on Portugal, Ireland, Italy, Greece, and Spain. (Master Thesis, Lund University),. http://lup.lub.lu.se/luur/download?func=downloadFile&recordOId= 4616229&file OId=4616231

Rahmanto, F., Riga, M.H., & Indriana, V. (2016). The effect of crude oil price changes on Indonesia’s stock market: a sector investigation. The Indonesia Capital Market Review, 8(2016), 12–22. https://doi/org/10.21002/icmr.v8i1.5442.

Zhang, Y. (2018). China, Japan, and the U.S. stock market and the global financial crisis. Asia-Pacific Financial Markets, 25(1), 23–45. https://doi.org/10.1007/s10690-018-9237-6.

##plugins.themes.bootstrap3.article.details##