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Indonesia's stock market: evolving role, growing efficiency

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  • James Kung
  • Andrew Carverhill
  • Ross McLeod

Abstract

The banking sector traditionally dominated Indonesia's financial system, and until the 1990s the stock market remained of little significance. Re-opened in 1977 after two decades of inactivity, the stock exchange made little contribution to Indonesia's development until a series of reform and deregulation measures were implemented from December 1987. This study examines the evolving role of the stock market in the financial system, and analyses changes in its efficiency over time. We find that stock market activity grew markedly in importance relative to banking after the reforms began to take effect, gaining the ascendancy in 2004 and moving well ahead subsequently. One contributor to this success is improvement in efficiency. Using two simple technical trading rules, we demonstrate that the stock exchange secondary market has indeed become significantly more efficient over time.

Suggested Citation

  • James Kung & Andrew Carverhill & Ross McLeod, 2010. "Indonesia's stock market: evolving role, growing efficiency," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 46(3), pages 329-346.
    • Handle: RePEc:taf:bindes:v:46:y:2010:i:3:p:329-346
    DOI: 10.1080/00074918.2010.522503
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    References listed on IDEAS

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    1. Ross Mcleod, 1984. "Financial Institutions and Markets in Indonesia," Palgrave Macmillan Books, in: Michael T. Skully (ed.), Financial Institutions and Markets in Southeast Asia, chapter 2, pages 49-109, Palgrave Macmillan.
    2. Swati R. Ghosh, 2006. "East Asian Finance : The Road to Robust Markets," World Bank Publications - Books, The World Bank Group, number 7063.
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    Cited by:

    1. Pierre van der Eng, 2022. "Securities Trading in an Emerging Market: Indonesia, 1890s-1950s," CEH Discussion Papers 06, Centre for Economic History, Research School of Economics, Australian National University.
    2. Li, Nanqi & Wei, Chishen & Zhang, Linti, 2023. "Risk factors in the Indonesian stock market," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).

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