CAUSALITY AND INTEGRATION OF THE INDONESIAN STOCK MARKET WITH THE US AND CHINESE MARKETS, 2024–2026: A VECM APPROACH

Abstract

Purpose: This study examines the causality, long-run integration, and regime market influence between the Indonesian Composite Stock Price Index (IHSG) and the capital markets of the United States (S&P 500) and China (Shanghai Stock Exchange) during Indonesia's new government regime (2024–2026).

Research Methodology: Employing a quantitative causal-associative design, daily time-series data (JKSE, SP500, Shanghai Composite, STI, and IDR/USD exchange rate, added by CBOE VIX as exogenous variables) from February 15, 2024, to 30 June 2026 were analysed. Econometric procedures using RStudio included ADF unit root tests, VAR lag selection, Johansen cointegration, Granger causality, VECM, Impulse Response Function (IRF), and Forecast Error Variance Decomposition (FEVD).

Results: Findings reveal a bidirectional Granger causality between JKSE and S&P 500, alongside a unidirectional causality running from the Shanghai Composite to JKSE. One significant long-run cointegrating vector was identified. FEVD results indicate that at period 20, the CBOE VIX accounts for the largest external forecast error variance in IHSG (6.23%), followed by China (1.03%) and the US (0.74%).

Limitations: The research does not apply structural break tests or regime-switching dummy variables to explicitly isolate the government transition period.

Contribution: Provides valuable insights for international portfolio diversification, capital market risk management, monetary policy formulation, and empirical research on emerging market integration in international finance.