Abstract

The objective of this study is to analyze whether, despite the international equity liberalization and growing world financial integration, Indonesian investors can be beneficial from international diversification. The study covers both emerging markets (Indonesia, Philippines, Malaysia, Thailand, Korea, China, and Taiwan) and developed markets (USA, UK, Japan, Singapore, and Australia) over the period of January 1^st, 2007 to April 30^st, 2017. It uses several state-of-the-art techniques: multivariate cointegration and vector error correction models (VECM) with the analysis of impulse response function (IRF) and forecast error variance decomposition (FEVD) to analyze the long-term level of integration and time-varying correlations with the Dynamic Conditional Correlation (DCC) aproach to analyze short term level of integration. The analysis provides the evidence of integration berween Indonesian market and international markets. The findings suggest that Indonesian investors have more chance to gain international diversification benefit from developed markets rather than emerging markets as the Indonesian market has low level of integration compared to developed markets.

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