Financial contagion analysis on asset return of S&P 500 Index, Shanghai Index, and Hang Seng Index with Jakarta Composite Index for the period 2017 – 2023

https://doi.org/10.35912/jomabs.v2i2.2682
Published: Jan 22, 2025

Abstract:

Purpose: Using the co-volatility contagion test investigation method developed by Fry-McKibbin (2018), this study analyzes financial contagion, which is how risk and instability spread from one market to another, especially during periods of economic crises.

Method: The subject of this research is the asset return of four global stock markets represented by the S&P 500 Index (SPX, United States), the Shanghai Composite Index (SCI, China), the Hang Seng Index (HSI, Hong Kong), and the Jakarta Composite Index (JCI/JCI, Indonesia) from January 2017 to December 2023.

Results: Utilizing the contagion co-volatility test developed by Fry-McKibbin (2018), this study successfully finds contagion from the SPX, SCI, and HSI indices to the JCI index with varying co-volatility values. The difference in co-volatility values between the SPX and JCI indices is significantly positive; it decreases during a crisis, meaning that both indices tend to move in the same direction and independently during periods of global uncertainty. Meanwhile, the difference in the co-volatility values between the SCI and JCI indices is significantly negative, indicating that the index tends to move in opposite directions during a crisis or independently. However, the magnitude is small during non-crisis and crisis periods. For the HSI and JCI, the difference in the co-volatility values is also significantly negative and decreases. This shows that the Hong Kong and Indonesian markets are becoming less connected with each market moving in opposite directions, reflecting different sensitivities to global uncertainty risk. These differences in market characteristics can provide valuable insights for market participants, investors, and policymakers, enhancing their understanding of risk preferences and volatility transmission between stock markets, thereby supporting informed investment decision making based on historical data analysis.

Keywords:
1. financial contagion
2. co-volatility
3. return
Authors:
1 . Ferdy Fardian
Telkom University, Indonesia
2 . Brady Rikumahu
Telkom University, Indonesia
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How to Cite
Fardian, F., & Rikumahu, B. (2025). Financial contagion analysis on asset return of S&P 500 Index, Shanghai Index, and Hang Seng Index with Jakarta Composite Index for the period 2017 – 2023. Journal of Multidisciplinary Academic Business Studies, 2(2), 371–384. https://doi.org/10.35912/jomabs.v2i2.2682
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Vol. 2 No. 2 (2025): February
Articles
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  1. Abu, S. E. (2024). Audit committee characteristics and firm financial performance of quoted industrial goods firms in Nigeria. International Journal of Financial, Accounting, and Management, 5(4), 445-458.
  2. Akabom, I. A., & Ejabu, F. E. (2018). Effects of thin capitalization and international law on performance of multinational companies in Nigeria. Journal of Accounting and Financial Management ISSN, 4(2), 2018.
  3. Alfredo, H. K. (2023). Calculating Expected Stock Return Using Arbitrage Pricing Theory Model and Analyzing Independent Variables That Affect Stock Expected Return (Analysis Conducted on Kompas100 Stock Issuers For The Period 2020–2022). Journal Research of Social Science, Economics, and Management, 2(9).
  4. Ameliah, A. D., & Jatnika, R. (2024). Descriptive Study of College Student’s Career Adaptability with An Internship Experience. Annals of Human Resource Management Research, 4(1), 1-11.
  5. Ang, A., Hodrick, R. J., Xing, Y., & Zhang, X. (2006). The cross?section of volatility and expected returns. The Journal of finance, 61(1), 259-299.
  6. Asai, M., Gupta, R., & McAleer, M. (2019). The impact of jumps and leverage in forecasting the co-volatility of oil and gold futures. Energies, 12(17), 3379.
  7. Bekaert, G., Harvey, C. R., & Lundblad, C. (2011). Financial openness and productivity. World Development, 39(1), 1-19.
  8. Cotter, J., Hallam, M., & Yilmaz, K. (2023). Macro-financial spillovers. Journal of International Money and Finance, 133, 102824.
  9. Diebold, F. X., & Yilmaz, K. (2009). Measuring financial asset return and volatility spillovers, with application to global equity markets. The Economic Journal, 119(534), 158-171.
  10. Forbes, K. J., & Rigobon, R. (2002). No contagion, only interdependence: measuring stock market comovements. The Journal of finance, 57(5), 2223-2261.
  11. Fry-McKibbin, R., Hsiao, C., & Martin, V. L. (2018). Measuring financial interdependence in asset returns with an application to euro zone equities.
  12. Fry-McKibbin, R., & Hsiao, C. Y.-L. (2018). Extremal dependence tests for contagion. Econometric Reviews, 37(6), 626-649.
  13. Fu, S., Liu, C., & Wei, X. (2021). Contagion in global stock markets during the COVID?19 crisis. Global Challenges, 5(10), 2000130.
  14. Hsu, S.-H. (2022). Investigating the co-volatility spillover effects between cryptocurrencies and currencies at different natures of risk events. Journal of Risk and Financial Management, 15(9), 372.
  15. Li, C., Su, C.-W., Altunta?, M., & Li, X. (2022). COVID-19 and stock market nexus: evidence from Shanghai Stock Exchange. Economic research-Ekonomska istraživanja, 35(1), 2351-2364.
  16. Li, Y.-M., & Bai, L.-R. (2021). A Study of the Co-movement and Spillover Effects of Stock Markets Among China and ASEAN-5 Countries. Paper presented at the 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021).
  17. Limanseto, H. (2023). Indonesia dan Republik Rakyat Tiongkok Sepakati Kerja Sama di Bidang Ekonomi Digital. Retrieved from https://ekon.go.id/publikasi/detail/5374/indonesia-dan-republik-rakyat-tiongkok-sepakati-kerja-sama-di-bidang-ekonomi-digital
  18. Mulyadi, M. S. (2009). Volatility spillover in Indonesia, USA, and Japan capital market.
  19. Nguyen, T. N., Phan, T. K. H., & Nguyen, T. L. (2022). Financial contagion during global financial crisis and covid–19 pandemic: The evidence from DCC–GARCH model. Cogent Economics & Finance, 10(1), 2051824.
  20. Platonov, K. (2024). Confidence spillovers, financial contagion, and stagnation. Journal of International Money and Finance, 148, 103163.
  21. Rigobon, R. (2019). Contagion, spillover, and interdependence. Economía, 19(2), 69-100.
  22. Sugiyono, S. (2017). Metode penelitian bisnis: pendekatan kuantitatif, kualitatif, kombinasi, dan R&D. Bandung: CV. Alfabeta.
  23. Sulistiowati, R., Adisa, A. F., & Caturiani, S. I. (2021). Stakeholder synergy for sustainable tourism. Journal of Sustainable Tourism and Entrepreneurship, 3(1), 53-60.
  24. WHO. (2023). Statement on the fifteenth meeting of the International Health Regulations (2005) Emergency Committee regarding the coronavirus disease (COVID-19) pandemic. Retrieved from https://web.archive.org/web/20230505135517/https://www.who.int/news/item/05-05-2023-statement-on-the-fifteenth-meeting-of-the-international-health-regulations-%282005%29-emergency-committee-regarding-the-coronavirus-disease-%28Covid-19%29-pandemic