61

CHAPTER V
CONCLUSION, LIMITATION AND SUGGESTION

5.1

Conclusion
Based on the analysis of the long-run, and short-run interdependence between

stock markets and exchange rates during pre-Euro through post-Euro periods, are
obtained some conclusions as follow:
1. The Indonesia market has a cointegrated relationship toward the US stock market
during in both the periods. After the introduction of Euro, the influence relationship
between the Indonesia and US markets has sharply increased in long-run.
2. The Indonesia market has a cointegrated relationship toward the Japan stock market
during in both the periods. During the post-Euro period, the influence relationship
of Indonesia market has increased toward the Japan market in the long-run.
Comparing with the Japan market, the US market is absolutely more dominant in
long-run to influence the Indonesia market.
3. The US Dollar currency has a cointegrated relationship toward the Indonesia stock
market during in both the periods. The power influence of US Dollar has declined
toward the Indonesia market in long-term after the introduction of Euro.
4. The Japan Yen currency has a cointegrated relationship toward the Indonesia stock
market during in both the periods. The power influence of Japan Yen has sharply
risen toward the Indonesia market in long-term after the emerging of Euro.
Comparing both the currencies, the Japan Yen is more substantial in long-run to
influence the Indonesia market after the introduction of Euro.

62
5. The results from Granger causality that during in both the periods, the Indonesia
market has bidirectional causality with the US market. It means that the Indonesia
market has negatively a stable short-run interdependence with the US market. And
the finding from error correction model (ECM) shows that the influence weight of
the US market has decreased toward the Indonesia market after the emerging of
Euro.
6. The results from Granger causality that during in the pre-Euro period, the Indonesia
market has bidirectional causality with the Japan market. While during in the postEuro period, the Indonesia market has no causality with the Japan market. It means
that the Indonesia market has negatively a short-run interdependence with the Japan
market before the introduction of Euro. And the finding from error correction model
(ECM) shows that the influence weight of the Japan market has sharply decreased
toward the Indonesia market after the emerging of Euro. Comparing both the stock
markets, the US market is more dominant in short-run to influence the Indonesia
market after the introduction of Euro.
7. The results from Granger causality that during in the pre-Euro period, the Indonesia
market has unidirectional causality toward the US Dollar currency. While during in
the post-Euro period, the Indonesia market has bidirectional causality with the US
Dollar currency. It means that the Indonesia market has negatively a short-run
interdependence with the US Dollar after the introduction of Euro. And the finding
from error correction model (ECM) shows that the influence weight of the US
Dollar has sharply increased toward the Indonesia market after the emerging of
Euro in short-term.

63
8. The results from Granger causality that during in the pre-Euro period, the Indonesia
market has unidirectional causality toward the Japan Yen currency. While during in
the post-Euro period, the Japan Yen has unidirectional causality toward the
Indonesia market. It means that the Indonesia market has no a short-run
interdependence with the Japan Yen during in both the periods. And the finding
from error correction model (ECM) shows that the influence weight of the Japan
Yen has sharply increased toward the Indonesia market after the emerging of Euro.
Comparing both the currencies, the US Dollar is more substantial in short-run to
influence the Indonesia market after the introduction of Euro.
5.2

Limitation

This research only applies stock markets and exchange rates variables to observe the
both interactions. Even, other economic variables like consumer price index, and
interest rate which can influence the both variables. The next research is advised to
involve the other economic variables examining dynamic relationship.
5.3
1.

Suggestion
For the next research is suggested to use data in the long term, to get more
accurate in improving observation and using a single as source data is important
to keep accurate results in the research.

2.

In this research applies vector auto regression (VAR) model to examine long-run
and short-run interdependence, in the next research is suggested to use vector
error correction model (VECM) to obtain robust statistic result.

3.

For further research, uses more advanced techniques of estimation and utilizes
more representative data to get robust results.