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Is Money Neutral In Stock Market? The Case of Malaysia

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  • Chin-Hong, Puah
  • Muzafar Shah, Habibullah
  • Venus Khim-Sen, Liew

Abstract

The objective of this study is to examine whether the notion of monetary neutrality hold in Malaysian stock market. Our findings indicate that there is considerable evidence against the long-run neutrality (LRN) of money in Malaysia’s stock market. The important implication is that the stock market is inefficient with respect to money supply. Agents might have the opportunity to gain excess profit from the stock market using the information on changes in the stock of money to predict the movements in stock indices.

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File URL: http://mpra.ub.uni-muenchen.de/24017/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24017.

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Date of creation: 2009
Date of revision: 2010
Publication status: Published in Economics Bulletin 3.30(2010): pp. 1852-1861
Handle: RePEc:pra:mprapa:24017

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Keywords: monetary neutrality; stock market; Malaysia; ARIMA model;

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  1. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
  2. Lawrence S. Davidson & Richard T. Froyen, 1982. "Monetary policy and stock returns: are stock markets efficient?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 3-12.
  3. Serletis, Apostolos & Koustas, Zisimos, 1998. "International Evidence on the Neutrality of Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(1), pages 1-25, February.
  4. Koustas, Zisimos & Serletis, Apostolos, 1999. "On the Fisher effect," Journal of Monetary Economics, Elsevier, vol. 44(1), pages 105-130, August.
  5. Puah, Chin-Hong & Habibullah, Muzafar Shah & Lim, Kian-Ping, 2006. "Testing long-run neutrality of money: evidence from Malaysian stock market," MPRA Paper 37676, University Library of Munich, Germany.
  6. Wongbangpo, Praphan & Sharma, Subhash C., 2002. "Stock market and macroeconomic fundamental dynamic interactions: ASEAN-5 countries," Journal of Asian Economics, Elsevier, vol. 13(1), pages 27-51.
  7. Dimitrios Malliaropulos, 1995. "Testing long-run neutrality of money: evidence from the UK," Applied Economics Letters, Taylor & Francis Journals, vol. 2(10), pages 347-350.
  8. Rahmi Yamak & Yakup Kucukkale, 2002. "Anticipated Money Growth and Stock Prices in Turkey," Macroeconomics 0211010, EconWPA.
  9. Boschen, John F & Otrok, Christopher M, 1994. "Long-Run Neutrality and Superneutrality in an ARIMA Framework: Comment," American Economic Review, American Economic Association, vol. 84(5), pages 1470-73, December.
  10. Sara Alatiqi & Shokoofeh Fazel, . "Can Money Supply Predict Stock Prices?," Journal for Economic Educators, Middle Tennessee State University, Business and Economic Research Center.
  11. Fisher, Mark E & Seater, John J, 1993. "Long-Run Neutrality and Superneutrality in an ARIMA Framework," American Economic Review, American Economic Association, vol. 83(3), pages 402-15, June.
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Cited by:
  1. Hiew, Lee-Chea & Puah, Chin-Hong & Habibullah, Muzafar Shah, 2013. "The Role of Advertising Expenditure in Measuring Indonesia’s Money Demand Function," MPRA Paper 50223, University Library of Munich, Germany.
  2. Tang, Maggie May-Jean & Puah, Chin-Hong & Awang Marikan, Dayang-Affizzah, 2013. "Empirical Evidence on the Long-Run Neutrality Hypothesis Using Divisia Money," MPRA Paper 50020, University Library of Munich, Germany.

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