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

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 2004-

2012. 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