Final Year Project Report
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This document analyzes the correlation between stock market indexes in Indonesia, Japan, Australia, the United Kingdom, and the United States from 2004-2012. It finds that the Indonesian index (IHSG) has a low correlation with other indexes, indicating national factors strongly influence its movement. The correlation between London and New York strengthened after the crisis, as correlations generally increase during periods of high volatility. However, international diversification still provides benefits by reducing country risk, even if the gains from diversification lessen during market turmoil.
Final Year Project Report
- 1. 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 Nama : Owen Vinson NIM : 10130110072 Fakultas : Ekonomi Program Studi : Manajemen SKRIPSI Diajukan sebagai salah satu syarat untuk memperoleh gelar Sarjana Ekonomi (S.E.) UNIVERSITAS MULTIMEDIA NUSANTARA TANGERANG 2014
- 2. 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 20042012. 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. Keywords: Stock Market Indices, International Portfolio Diversification, Pearson Correlation