Article Metrics

Article abstract view : 1365 times
PDF full text: 688 times

Is There Any Sectoral Cointegration in Indonesia Equity Market?

Gabriella Natasha, Aileen Clarissa Surya


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.

Full Text:



Chrisholm, D., O'Reilly, S., & Betro, M. (2013). Equity Sectors: Essential Building Blocks for Portfolio Construction. Fidelity Investments.

Fitriana, P. (2009). Pembentukan Portfolio Saham yang Optimal dengan Menggunakan Beberapa Model Analisis.

Gupta, R., & Basu, P. K. (2011). Does Sector Diversification Benefit All Markets?-Analysis of Australian and Indian Markets. Asia Pacific Journal of Economics and Business, 15.1, 15-25.

Jayasuriya, S. A. (2008). Efficient Market Frontiers for the Emerging Economies of China and India. Asia Pacific Journal of Economics and Business, 12.

Krishnankutty, R., & Tiwari, A. K. (2011). Are the Bombay Stock Exchange Sectoral Indices of Indian Stock Market Cointegrated? Evidence using Fractional Cointegration Test. Journal of Emerging Financial Markets, 2, 37-45.

Law, S. H., & Ibrahim, M. H. (2014). The Response of Sectoral Returns to Macroeconomics Shocks in the Malaysian Stock Market. Malaysian Journal of Economic Studies, 51.2, 183-199.

Rahmanto, F., Riga, M. H., & Indriana, V. (2016). The Effects of Crude Oil Price Changes on the Indonesian Stock Market: A Sector Investigation. Indonesian Capital Market Review, 12-22.

Vardar, G., Tunc, G., & Aydogan, B. (2012). Long-Run and Short-Run Dynamics among the Sectoral Stock Indices: Evidence from Turkey. Asian Economic and Financial Review, 2, 347-357.

Vardharaj, R., & Fabozzi, F. J. (2007). Sector, Style, Region: Explaining Stock Allocation Performance. Financial Analysts Journal, 63(3).

Yuksel, E., & Gulyeruz, G. (2010). How Are The Sector Indexes Are Related to ISE 100 Index: An Empirical Study on Istanbul Stock Exchange. Continuous Optimization and Information-Based Technologies in the Financial Sector. Turkey.

Copyright (c) 2018 Gabriella Natasha, Aileen Clarissa Surya

International Research Journal of Business Studies has been covered by the following services:

Image result for university of Saskatchewan small logo