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Is There Any Sectoral Cointegration in Indonesia Equity Market?
Abstract
This research analyzes short and medium-run cointegration relationship among 9 sectoral indices in Indonesia equity market (JCI), using 2012-2016 weekly closing prices as the data. Researchers analyzed the relationship among these sectors using Johansen-Julius Cointegration Test and predict the causal relationship using Engle-Granger Causality and model the causalities using Vector Error Correction Model.
Researchers findings based on the empirical results of Johansen cointegration tests are there is no cointegration in the short-run as the sector indices performance are caused by unique moving factors that affect all sectors differently. However, there is a medium run relationship among the sectors as they are moved by macroeconomic and political conditions towards the same direction. Other two methods, Engle-Granger and VECM, are also supporting the results from Johansen cointegration tests. The findings from this research can be useful as an insight for investors and fund managers in minimizing portfolio risk by using sectoral diversification, which based on the research can only be applied in the short run period.
Keywords: Stock Market, Sectoral Integration, Portfolio Diversification, JCI sectors.
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Copyright (c) 2018 Gabriella Natasha, Aileen Clarissa Surya
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