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Do spot and future palm oil prices influence the stock market prices of a major palm oil producer? the Malaysian experience

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  • Mohammad Nor, Karina
  • Masih, Mansur

Abstract

The growth of the financial sector such as, the stock market is usually found to be highly correlated with the growth of the real sector of an economy. It is important to examine the existence of the commodity-stock market nexus since there is expectation that commodity prices may influence stock market prices of commodity-based companies. Many studies have investigated this nexus most of them focused on either gold or oil, and there still persists a lack of consensus in the literature. Palm oil is the largest produced vegetable oil in the world. Traditionally, palm oil is an important component of soap, detergent, pharmaceutical products, cosmetics, fuels, food, cooking oil and oleo chemical products. Despite the growing importance of palm oil as an alternative source of cheap and clean energy, not much attention has been given to this “golden fruit”. This study is the first to investigate the dynamic relationship between spot and futures palm oil prices and stock market prices of a major palm oil producer. The methodology employed various unit root tests and Johansen’s cointegration test, followed by long-run structural modelling and vector error-correction modelling, variance decompositions, impulse response functions and persistence profile. The results showed that stock market prices lead spot and futures palm oil prices rather than vice versa for the Malaysian markets. In addition, the findings indicated that the performance of the stock market is dependent on fundamental macroeconomic variables. This has important policy implications in the regulation of the palm oil market whereby stock market performance and fundamental macroeconomic factors are key predictive inputs on the expected performance of the palm oil prices.

Suggested Citation

  • Mohammad Nor, Karina & Masih, Mansur, 2016. "Do spot and future palm oil prices influence the stock market prices of a major palm oil producer? the Malaysian experience," MPRA Paper 69777, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:69777
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    References listed on IDEAS

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    Cited by:

    1. Bentivoglio, D. & Bucci, G. & Finco, A., 2018. "Factor affecting the palm oil boom in Indonesia: a time series analysis," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277129, International Association of Agricultural Economists.

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    More about this item

    Keywords

    palm oil; spot price; futures price; stocks; Malaysia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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