Recursive Cointegration of Energy and Stock Prices in Indonesia
International Journal of Trade, Economics and Finance
The purpose of this study is to investigate the time-varying behavior and the dynamic linkages of Indonesian exchange rate, and stock, oil, and natural gas prices over the period from 2005 to 2015. To capture the dynamics of long-run relationships, we use the Gregory and Hansen (1996) cointegration test with structural break and a recursive cointegration test to examine the time-varying nature of convergence here. The main findings are as follows. First, the result of the Gregory and Hansen
... gory and Hansen (1996) test shows that the main structural break occurred in the long-run cointegration around 2008 and 2009 and was caused by the 2008-2009 global financial crisis. Second, the results of recursive cointegration present cointegration among the variables after 2009. Third and finally, the results of recursive cointegration's coefficients display that increasing oil prices produce a drop in Indonesian stock prices, while rising gas price will bring about higher stock price. Index Terms-Stock price, oil price, natural gas price, recursive cointegration.