Analyzing financial crisis and contagion effect on the Indonesian and United States stock markets via a Markov switching Bayesian vector autoregressive approach

Syarifah Inayati, Nur Iriawan*, Irhamah, Dwilaksana Abdullah Rasyid

*Corresponding author for this work

Research output: Contribution to journalConference articlepeer-review

Abstract

The global crisis has led to the transmission of economic hardships among nations, impacting multiple countries, with significant effect on stock prices. This study investigates the financial contagion models between Indonesia and the United States, by specifically examining the IDX Composite (JKSE) and the Dow Jones Industrial Average (DJI). The Markov Switching Bayesian Vector Autoregressive (MSBVAR) method was employed, utilizing a Bayesian framework with a particular emphasis on the MSVAR model for parameter estimation. Analysis of the data from January 1995 to December 2021 revealed that both the JKSE and DJI markets experienced four crisis periods and five periods of non-crisis, indicating notable changes in market conditions. Pearson's correlation analysis verifies the presence of financial contagion between the two stock markets during periods of non-crisis, suggesting a relatively pronounced transmission of financial influences from the United States on Indonesia during those times, thus impacting economic growth. However, the brief duration of the crisis period poses challenges in conclusively identifying in the occurrence of financial contagion during this time. It can be predicted to occur during the transition from the non-crisis period to the crisis period. The non-crisis period lasted for 63.2 months, while the crisis period lasted for 1.2 months.

Original languageEnglish
Article number060019
JournalAIP Conference Proceedings
Volume3201
Issue number1
DOIs
Publication statusPublished - 15 Nov 2024
Event9th SEAMS-UGM International Conference on Mathematics and its Applications 2023: Integrating Mathematics with Artificial Intelligence to Broaden its Applicability through Industrial Collaborations - Yogyakarta, Indonesia
Duration: 25 Jul 202328 Jul 2023

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