STOCK RETURN VOLATILITY AND COINTEGRATION OF U.S. AND ASIAN MARKETS IN ACCORDANCE WITH THE FINANCIAL CRISIS STOCK RETURN VOLATILITY AND COINTEGRATION OF U.S. AND ASIAN MARKETS IN ACCORDANCE WITH THE FINANCIAL CRISIS (1997-2014).
STOCK RETURN VOLATILITY AND COINTEGRATION OF U.S. AND
ASIAN MARKETS IN ACCORDANCE WITH THE FINANCIAL CRISIS
(1997-2014)
THESIS
Presented as Partial Fulfillment of the Requirements
For Degree of Sarjana Ekonomi (S1) in Management Program
Faculty of Economics, Universitas Atma Jaya Yogyakarta
Compiled by:
Yeffi Hadi Winata
Student ID: 10 12 18255
FACULTY OF ECONOMICS
UNIVERSITAS ATMA JAYA YOGYAKARTA
2014
i
ii
iii
iv
ACKNOWLEDGEMENT
First, I would like to use this opportunity to express my gratitude to my Lord
Jesus Christ for his blessings and His richest grace for the accomplishment of this
thesis. I also would like to to express my gratitude to all of the important people that
helped me, supported me throughout my years in college.
1. First and foremost, thank you to my supervisor and my lecturer, Prof.
Sukmawati. Thank you for all the sincerity, advice, notes, feedbacks and all
the knowledge you shared. Without her help, I wouldn’t be able to finish my
thesis and thank you for all the motivation and believe in me to finish my
thesis. With your support, I didn’t lose faith and have more confidence in
myself. It’s really an honour to work and study under your guidance.
2. For my family, parents, aunty, and brother who are really noisy and pestering
me, keep reminding me, teased me, and pushed me to get the job done. I
wouldn’t be able to finish this thesis without the support from my dear family,
thank you so much for the prayers, help and thank you being there for me.
3. To all of my lecturers in Universitas Atma Jaya, thank you for the knowledge
and experiences. Thank you for all of the task, group project, discussion,
presentation. I’ve learn something new each day and it pushed me to become
better and better. Thank you for all the efforts teaching me up to the next
level.
4. To my IBMP friends, (Tegar, Bion, Manggala, Tasha, Yeye, Tasha, Elin,
Icha, Nye-Nyez, and Bani)I’m really gratefull for all these years we’ve spent
v
together. Everyday is a good day with new experience and challenge we spent
in the classroom together. All the funny experience, jokes and laughter we
shared, I won’t forget the time I’ve spent with all of you guys.
5. To my friends I’ve met in college, old friends from high school, and my best
friend, Ci-cin. I’ve spent years together with you guys and everyday full of
jokes and fun, it really help me to relax and let go of my stress and pressure in
my academic days. Thank you for Mo-Mon and Monchu who fight together
and aiming for the same goal especially when we had a last defense, thank
you so much. And also to my beloved person, Gon who stressed out with me
together, but thank you for always be there for me and supported me, you
pulled what’s the best in me and helped me a lot especially with things I’m
not good at, thank you so much
6. To Mas Adit, thank you for all the help with academic matters and provide me
with information when I’m at lost. Thank you also for hear me whining all the
time.
7. To my KKN 96 friends from Suren, (Prima, Ardian, Billy, Yeye, Kris, Bany,
Iting, Ko-chan, Bion, Jeff, and Lia) thank you for giving me a fun experiences
and make my days in rural area colorful. And also for all the people I couldn’t
mention one by one. I’m really gratefull to each and one of you.
Yeffi Hadi Winata
vi
TABLE OF CONTENTS
TITLE PAGE ……………………………………………………………………….. i
APPROVAL PAGE ………………………………………………………………... ii
COMITTEE’S APPROVAL PAGE ……………………………………………... iii
AUTHENTICITY ACKNOWLEDGEMENT …………………………………... iv
ACKNOWLEDGEMENT ………………………………………………………… v
TABLE OF CONTENTS …………………………………………………………. vi
LIST OF TABLES ………………………………………………………………… ix
LIST OF FIGURES ……………………………………………………………….. xi
LIST OF APPENDICES …………………………………………………………. xii
ABSTRACT .............................................................................................................. xv
CHAPTER I: INTRODUCTION.............................................................................. 1
1.1. Research Background …………………………………………………………. 1
1.2. Research Scope ……………………………………………………………...... 5
1.3. Research Problem …………………………………………………………....... 5
1.4. Research Objectives ………………………………………………………....... 6
1.5. Research Contribution …………………………………………………....….... 7
1.5.1.
Academic Contribution …………………………………………….... 7
1.5.2.
Managerial Contribution …………………………………….............. 7
1.5.3.
Contribution to Investor ……………………………………………... 8
1.6. The Originality of the Writing ………………………………………………... 8
vii
1.7. Systematic of the Writing …………………………………………………….. 9
CHAPTER II: THEORETICAL FRAMEWORK ……………………………... 11
2.1. Theoretical Background ……………………………………………………... 11
2.1.1.
US and Asian Market ……………………………………………..... 11
2.1.2.
Global Economic Event ……………………………………………. 12
2.1.3.
Stock Return Volatility …………………………………………….. 13
2.1.4.
Risk Premium ……………………………………………………… 14
2.1.5.
Information Asymmetry …………………………………………… 15
2.1.6.
Co-Integration ……………………………………………………… 16
2.2. Literature Review ……………………………………………………………. 19
2.3. Hypothesis Development ……………………………………………………. 23
CHAPTER III: RESEARCH METHOD ……………………………………...... 26
3.1. Research Design ……………………………………………………………... 26
3.1.1
Type and nature of the study …………………………………......... 26
3.1.2
Type of Investigation …………………………………………......... 27
3.1.3
Study Setting ………………………………………………….......... 27
3.1.4
Unit of Analysis ………………………………………………......... 27
3.1.5
Time Horizon …………………………………………………......... 28
3.2. Sample ……………………………………………………………………….. 28
3.3. Research Variable …………………………………………………………… 29
3.3.1.
Independent Variable ………………………………………………. 29
3.4. Process of Collecting Data …………………………………………………... 30
viii
3.5. Data Analysis Technique ……………………………………………………. 31
CHAPTER IV: DATA ANALYSIS ……………………………………............... 35
4.1. Economic Condition and Stock Returns ........................................................... 36
4.2. ARCH-M .......................................................................................................... 38
4.3. E-GARCH ......................................................................................................... 47
4.4. Cointegration .................................................................................................... 56
4.5. Hypothesis Testing ........................................................................................... 57
CHAPTER V: CONCLUSION .............................................................................. 59
5.1. Conclusion ........................................................................................................ 59
5.2. Research Limitation and Suggestion ................................................................ 61
5.2.1.
Research Limitation ........................................................................... 61
5.2.2.
Suggestion .......................................................................................... 62
5.3. Research Contribution ...................................................................................... 63
5.3.1. Academic Contribution ...................................................................... 63
5.3.1. Managerial Contribution .................................................................... 63
5.3.2. Contribution to Investor ..................................................................... 63
REFERENCES ........................................................................................................ 64
APPENDIXES .......................................................................................................... 68
ix
LIST OF TABLES
Table 2.2……………………………………………………………………………. 13
Table 4.1..................................................................................................................... 35
Table 4.2.1………………………………………………………………………….. 39
Table 4.2.2………………………………………………………………………….. 40
Table 4.2.3………………………………………………………………………….. 41
Table 4.2.4………………………………………………………………………….. 42
Table 4.2.5………………………………………………………………………….. 43
Table 4.2.6………………………………………………………………………….. 44
Table 4.2.7………………………………………………………………………….. 45
Table 4.2.8………………………………………………………………………….. 46
Table 4.3.1………………………………………………………………………….. 48
Table 4.3.2………………………………………………………………………….. 49
Table 4.3.3………………………………………………………………………….. 50
Table 4.3.4………………………………………………………………………….. 51
Table 4.3.5………………………………………………………………………….. 52
Table 4.3.6………………………………………………………………………….. 53
Table 4.3.7………………………………………………………………………….. 54
Table 4.3.8………………………………………………………………………….. 55
Table 4.4.1………………………………………………………………………….. 56
x
Table 5.1.1………………………………………………………………………….. 59
Table 5.1.2………………………………………………………………………….. 60
xi
LIST OF FIGURES
Figure 4.1.1………………………………………………………………………… 36
Figure 4.1.2………………………………………………………………………… 37
xii
LIST OF APPENDIXES
APPENDIX A-1 ........................................................................................................ 68
APPENDIX A-2 ........................................................................................................ 68
APPENDIX B-1. ....................................................................................................... 69
APPENDIX B-2. ........................................................................................................ 69
APPENDIX B-3. ........................................................................................................ 70
APPENDIX B-4. ........................................................................................................ 71
APPENDIX B-5. ........................................................................................................ 72
APPENDIX B-6. ........................................................................................................ 72
APPENDIX B-7. ........................................................................................................ 73
APPENDIX B-8. ........................................................................................................ 74
APPENDIX B-9. ........................................................................................................ 75
APPENDIX C-1. ........................................................................................................ 76
APPENDIX C-2. ........................................................................................................ 76
APPENDIX C-3. ........................................................................................................ 77
APPENDIX C-4. ........................................................................................................ 78
APPENDIX C-5. ........................................................................................................ 79
APPENDIX C-6. ........................................................................................................ 80
APPENDIX C-7. ........................................................................................................ 80
APPENDIX C-8. . ...................................................................................................... 81
xiii
APPENDIX C-9 ........................................................................................................ 82
APPENDIX D-1......................................................................................................... 83
xiv
STOCK RETURN VOLATILITY AND COINTEGRATION OF U.S. AND
ASIAN MARKETS IN ACCORDANCE WITH THE FINANCIAL CRISIS
(1997-2014)
Yeffi Hadi Winata
Sukmawati Sukamulja
International Business Management Program, Economics Faculty
Universitas Atma Jaya Yogyakarta
Jalan Babarsari 43-44, Yogyakarta
ABSTRACT
Nature of the stock return is one of the important aspect for investor in making their
decision to invest their money. The nature of stock could be examined by using three
variables, consist of volatility, risk premium, and information asymmetry.This
research will used E-GARCH and ARCH-M models, using the data from five
counties whichi consist of U.S., Indonesia, Malaysia, Japan, and Hong Kong. These
data was taken from 1st July 1997-30th June 2014 which consist of eight periods of
global economic events Periods. This research was conducted with seceral objectives,
they are: (1) To analyze the effect of global economic conditions to stock return.(2)
To investigate the effect of global economic conditions to risk premium. (3) To
examine the impact of good nor bad news (asymmetric information) effect to the
volatility of stock. (4)To analyze the co-integration between US market and four
Asian markets during the global economic events (financial crisis).
Keywords: Volatility, Risk Premium, Information Asymmetry, Co-integration, Global
Economic Events
xv
ASIAN MARKETS IN ACCORDANCE WITH THE FINANCIAL CRISIS
(1997-2014)
THESIS
Presented as Partial Fulfillment of the Requirements
For Degree of Sarjana Ekonomi (S1) in Management Program
Faculty of Economics, Universitas Atma Jaya Yogyakarta
Compiled by:
Yeffi Hadi Winata
Student ID: 10 12 18255
FACULTY OF ECONOMICS
UNIVERSITAS ATMA JAYA YOGYAKARTA
2014
i
ii
iii
iv
ACKNOWLEDGEMENT
First, I would like to use this opportunity to express my gratitude to my Lord
Jesus Christ for his blessings and His richest grace for the accomplishment of this
thesis. I also would like to to express my gratitude to all of the important people that
helped me, supported me throughout my years in college.
1. First and foremost, thank you to my supervisor and my lecturer, Prof.
Sukmawati. Thank you for all the sincerity, advice, notes, feedbacks and all
the knowledge you shared. Without her help, I wouldn’t be able to finish my
thesis and thank you for all the motivation and believe in me to finish my
thesis. With your support, I didn’t lose faith and have more confidence in
myself. It’s really an honour to work and study under your guidance.
2. For my family, parents, aunty, and brother who are really noisy and pestering
me, keep reminding me, teased me, and pushed me to get the job done. I
wouldn’t be able to finish this thesis without the support from my dear family,
thank you so much for the prayers, help and thank you being there for me.
3. To all of my lecturers in Universitas Atma Jaya, thank you for the knowledge
and experiences. Thank you for all of the task, group project, discussion,
presentation. I’ve learn something new each day and it pushed me to become
better and better. Thank you for all the efforts teaching me up to the next
level.
4. To my IBMP friends, (Tegar, Bion, Manggala, Tasha, Yeye, Tasha, Elin,
Icha, Nye-Nyez, and Bani)I’m really gratefull for all these years we’ve spent
v
together. Everyday is a good day with new experience and challenge we spent
in the classroom together. All the funny experience, jokes and laughter we
shared, I won’t forget the time I’ve spent with all of you guys.
5. To my friends I’ve met in college, old friends from high school, and my best
friend, Ci-cin. I’ve spent years together with you guys and everyday full of
jokes and fun, it really help me to relax and let go of my stress and pressure in
my academic days. Thank you for Mo-Mon and Monchu who fight together
and aiming for the same goal especially when we had a last defense, thank
you so much. And also to my beloved person, Gon who stressed out with me
together, but thank you for always be there for me and supported me, you
pulled what’s the best in me and helped me a lot especially with things I’m
not good at, thank you so much
6. To Mas Adit, thank you for all the help with academic matters and provide me
with information when I’m at lost. Thank you also for hear me whining all the
time.
7. To my KKN 96 friends from Suren, (Prima, Ardian, Billy, Yeye, Kris, Bany,
Iting, Ko-chan, Bion, Jeff, and Lia) thank you for giving me a fun experiences
and make my days in rural area colorful. And also for all the people I couldn’t
mention one by one. I’m really gratefull to each and one of you.
Yeffi Hadi Winata
vi
TABLE OF CONTENTS
TITLE PAGE ……………………………………………………………………….. i
APPROVAL PAGE ………………………………………………………………... ii
COMITTEE’S APPROVAL PAGE ……………………………………………... iii
AUTHENTICITY ACKNOWLEDGEMENT …………………………………... iv
ACKNOWLEDGEMENT ………………………………………………………… v
TABLE OF CONTENTS …………………………………………………………. vi
LIST OF TABLES ………………………………………………………………… ix
LIST OF FIGURES ……………………………………………………………….. xi
LIST OF APPENDICES …………………………………………………………. xii
ABSTRACT .............................................................................................................. xv
CHAPTER I: INTRODUCTION.............................................................................. 1
1.1. Research Background …………………………………………………………. 1
1.2. Research Scope ……………………………………………………………...... 5
1.3. Research Problem …………………………………………………………....... 5
1.4. Research Objectives ………………………………………………………....... 6
1.5. Research Contribution …………………………………………………....….... 7
1.5.1.
Academic Contribution …………………………………………….... 7
1.5.2.
Managerial Contribution …………………………………….............. 7
1.5.3.
Contribution to Investor ……………………………………………... 8
1.6. The Originality of the Writing ………………………………………………... 8
vii
1.7. Systematic of the Writing …………………………………………………….. 9
CHAPTER II: THEORETICAL FRAMEWORK ……………………………... 11
2.1. Theoretical Background ……………………………………………………... 11
2.1.1.
US and Asian Market ……………………………………………..... 11
2.1.2.
Global Economic Event ……………………………………………. 12
2.1.3.
Stock Return Volatility …………………………………………….. 13
2.1.4.
Risk Premium ……………………………………………………… 14
2.1.5.
Information Asymmetry …………………………………………… 15
2.1.6.
Co-Integration ……………………………………………………… 16
2.2. Literature Review ……………………………………………………………. 19
2.3. Hypothesis Development ……………………………………………………. 23
CHAPTER III: RESEARCH METHOD ……………………………………...... 26
3.1. Research Design ……………………………………………………………... 26
3.1.1
Type and nature of the study …………………………………......... 26
3.1.2
Type of Investigation …………………………………………......... 27
3.1.3
Study Setting ………………………………………………….......... 27
3.1.4
Unit of Analysis ………………………………………………......... 27
3.1.5
Time Horizon …………………………………………………......... 28
3.2. Sample ……………………………………………………………………….. 28
3.3. Research Variable …………………………………………………………… 29
3.3.1.
Independent Variable ………………………………………………. 29
3.4. Process of Collecting Data …………………………………………………... 30
viii
3.5. Data Analysis Technique ……………………………………………………. 31
CHAPTER IV: DATA ANALYSIS ……………………………………............... 35
4.1. Economic Condition and Stock Returns ........................................................... 36
4.2. ARCH-M .......................................................................................................... 38
4.3. E-GARCH ......................................................................................................... 47
4.4. Cointegration .................................................................................................... 56
4.5. Hypothesis Testing ........................................................................................... 57
CHAPTER V: CONCLUSION .............................................................................. 59
5.1. Conclusion ........................................................................................................ 59
5.2. Research Limitation and Suggestion ................................................................ 61
5.2.1.
Research Limitation ........................................................................... 61
5.2.2.
Suggestion .......................................................................................... 62
5.3. Research Contribution ...................................................................................... 63
5.3.1. Academic Contribution ...................................................................... 63
5.3.1. Managerial Contribution .................................................................... 63
5.3.2. Contribution to Investor ..................................................................... 63
REFERENCES ........................................................................................................ 64
APPENDIXES .......................................................................................................... 68
ix
LIST OF TABLES
Table 2.2……………………………………………………………………………. 13
Table 4.1..................................................................................................................... 35
Table 4.2.1………………………………………………………………………….. 39
Table 4.2.2………………………………………………………………………….. 40
Table 4.2.3………………………………………………………………………….. 41
Table 4.2.4………………………………………………………………………….. 42
Table 4.2.5………………………………………………………………………….. 43
Table 4.2.6………………………………………………………………………….. 44
Table 4.2.7………………………………………………………………………….. 45
Table 4.2.8………………………………………………………………………….. 46
Table 4.3.1………………………………………………………………………….. 48
Table 4.3.2………………………………………………………………………….. 49
Table 4.3.3………………………………………………………………………….. 50
Table 4.3.4………………………………………………………………………….. 51
Table 4.3.5………………………………………………………………………….. 52
Table 4.3.6………………………………………………………………………….. 53
Table 4.3.7………………………………………………………………………….. 54
Table 4.3.8………………………………………………………………………….. 55
Table 4.4.1………………………………………………………………………….. 56
x
Table 5.1.1………………………………………………………………………….. 59
Table 5.1.2………………………………………………………………………….. 60
xi
LIST OF FIGURES
Figure 4.1.1………………………………………………………………………… 36
Figure 4.1.2………………………………………………………………………… 37
xii
LIST OF APPENDIXES
APPENDIX A-1 ........................................................................................................ 68
APPENDIX A-2 ........................................................................................................ 68
APPENDIX B-1. ....................................................................................................... 69
APPENDIX B-2. ........................................................................................................ 69
APPENDIX B-3. ........................................................................................................ 70
APPENDIX B-4. ........................................................................................................ 71
APPENDIX B-5. ........................................................................................................ 72
APPENDIX B-6. ........................................................................................................ 72
APPENDIX B-7. ........................................................................................................ 73
APPENDIX B-8. ........................................................................................................ 74
APPENDIX B-9. ........................................................................................................ 75
APPENDIX C-1. ........................................................................................................ 76
APPENDIX C-2. ........................................................................................................ 76
APPENDIX C-3. ........................................................................................................ 77
APPENDIX C-4. ........................................................................................................ 78
APPENDIX C-5. ........................................................................................................ 79
APPENDIX C-6. ........................................................................................................ 80
APPENDIX C-7. ........................................................................................................ 80
APPENDIX C-8. . ...................................................................................................... 81
xiii
APPENDIX C-9 ........................................................................................................ 82
APPENDIX D-1......................................................................................................... 83
xiv
STOCK RETURN VOLATILITY AND COINTEGRATION OF U.S. AND
ASIAN MARKETS IN ACCORDANCE WITH THE FINANCIAL CRISIS
(1997-2014)
Yeffi Hadi Winata
Sukmawati Sukamulja
International Business Management Program, Economics Faculty
Universitas Atma Jaya Yogyakarta
Jalan Babarsari 43-44, Yogyakarta
ABSTRACT
Nature of the stock return is one of the important aspect for investor in making their
decision to invest their money. The nature of stock could be examined by using three
variables, consist of volatility, risk premium, and information asymmetry.This
research will used E-GARCH and ARCH-M models, using the data from five
counties whichi consist of U.S., Indonesia, Malaysia, Japan, and Hong Kong. These
data was taken from 1st July 1997-30th June 2014 which consist of eight periods of
global economic events Periods. This research was conducted with seceral objectives,
they are: (1) To analyze the effect of global economic conditions to stock return.(2)
To investigate the effect of global economic conditions to risk premium. (3) To
examine the impact of good nor bad news (asymmetric information) effect to the
volatility of stock. (4)To analyze the co-integration between US market and four
Asian markets during the global economic events (financial crisis).
Keywords: Volatility, Risk Premium, Information Asymmetry, Co-integration, Global
Economic Events
xv