The Structure of Interlinkages, Exogeneity and Contagion in the Stock Market and Foreign Exchange Market in Indonesia: A Study of Pre-Crisis and Crisis Times

Abstract

This study attempts to present the structure of interlinkages, exogeneity and contagion of the crisis that occurs in Indonesia's stock and foreign exchange markets. The weekly period it covers extends 1992 to 2002. During the crisis, change in the structure of exogeneity did occur in the foreign exchange market. In the pre-crisis period the foreign exchange market was a most exogenous variable; during the crisis, it was most endogenous. Using correlation adjustment method proposed by Forbes and Rigobon (2002), this study reveals evidence of weak contagion imparted by the stock market during the crisis, particularly from the basic industry sector to the foreign exchange market.

Keywords: Contagion, stock market, Indonesia

JEL Classification: G12, C32