The Effect of Indonesian Government’s Debt to the US and Greece on Composite Stock Price Index in ASEAN-5 and Australia

Abstract

The global economic crisis has become a nightmare for other countries when the crisis is originated from a multipower country. A financial crisis that hit European countries (Greece) in 2010 and the United States (US) in 2011 can be categorized as a financial crisis caused by a high state’s debt that leads to default. The response to the financial crisis is reflected in capital market players’ reactions, where other countries will respond to a particular endemic financial crisis. The objectives of this research are (1). Analyze the Impulse Response Function (IRF) of the Composite Stock Price Index of the US on Composite Stock Price Index in Indonesia, Malaysia, Singapore, Vietnam, Thailand, and Australia. (2). Analyze the Impulse Response Function (IRF) of the Composite Stock Price Index of Greece on the Composite Stock Price Index in Indonesia, Malaysia, Singapore, Vietnam, Thailand, and Australia. (3). Analyze the Forecasting Error Variance Decomposition (FEVD) of the Composite Stock Price Index of Indonesia on the Composite Stock Price Index of Malaysia, Singapore, Vietnam, Thailand, and Australia. The analysis will be conducted using VAR (Vector Autoregression). The result shows that all variables are responded to the financial crisis that happened in Greece and the US. This is reflected by the shocks created by the financial crisis in ASEAN-5 countries and Australia. On the other hand, the Composite Stock Price Index of Indonesia is also affected by Malaysia and Singapore.