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Macroeconomic Activity And The Malaysian Stock Market: Empirical Evidence Of Dynamic Relations

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  • R. Ratneswary V. Rasiah

Abstract

This study uses time-series analysis to investigate the long-run relationships and short-run dynamic interactions between the stock market and various macroeconomic variables in Malaysia over the period 1980M1 to 2006M12. The study applies the multivariate cointegration methodology to establish the possible causal relations between these variables. The cointegration test and the vector error correction model demonstrates the evidence of positive long-run relationships between real stock returns and measures of aggregate economic activity including industrial production, consumer price index, money supply and real exchange rate. The long-term elasticity coefficients of the macroeconomic variables on stock returns display relationships that are theoretically grounded. Further analysis using variance decompositions lends evidence of the dominant influence of certain macroeconomic variables namely; consumer price index, money supply and real exchange rate in forecasting stock price variance.

Suggested Citation

  • R. Ratneswary V. Rasiah, 2010. "Macroeconomic Activity And The Malaysian Stock Market: Empirical Evidence Of Dynamic Relations," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(2), pages 59-69.
    • Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:59-69
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    References listed on IDEAS

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    Cited by:

    1. Ahmad Hamidi, Hakimah Nur & Khalid, Norlin & Abdul Karim, Zulkefly, 2018. "Revisiting Relationship Between Malaysian Stock Market Index and Selected Macroeconomic Variables Using Asymmetric Cointegration," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 52(1), pages 311-319.
    2. Sevinç Güler & Halime Temel Nalın, 2014. "The Determinants of Stock Market Returns: An ARDL Investigation on Borsa Istanbul," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 17(51), pages 3-24, March.
    3. Mat Isa, Norshamshina & Abdullah, Azrul & Hassan, Zunairah, 2012. "Relationship between Macroeconomic Variables and Malaysia Available Shariah Indices," MPRA Paper 69397, University Library of Munich, Germany.
    4. Asmat Ullah & Syed Waqar Hussain & Zahoor Khan & Muhammad Rafiq, 2011. "Shocks in Macroeconomic Variables and Stock Market Stability: Case Study of KSE-100 Index," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 3(2), pages 154-163, October.

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    More about this item

    Keywords

    Cointegration; VECM; Stock Market; Macroeconomic Variables; Variance Decomposition;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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