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Dynamic Links between Exchange Rates and Stock Prices in Malaysia: An Asymmetric Cointegration analysis

Author

Listed:
  • Hamisu Sadi ALI
  • Umar MUKHTAR
  • Ganthi Selvi MANIAM

    (Universiti Putra Malaysia, Malaysia.)

Abstract

The present article used a monthly data and applied Enders and Siklos (2001) asymmetric cointegration analysis to examine the impact of exchange rates on stock prices in Malaysia for the period of 1999-2014. The result suggests that variables were cointegrated based on Engle-granger two step technique. Moving to threshold auto regressive (TAR) and momentumthreshold auto regressive (M-TAR) the finding reveals that based on the latter variables were asymmetrically cointegrated as null hypothesis of no cointegration was rejected at 1% significance level based on Enders and Siklos (2001), while the former shows that variables do not have long-run relationship and the speed of adjustment is symmetric. This signifies that increase in the prices of shares in Malaysian stock market could lead to Malaysian Ringgit appreciation over other major global currencies. The stocks will become more expensive and discourage foreign investors participation in the market which inhibits the influx of stable foreign capital into Malaysian financial system. The implication is that regulators should ensure that adequate and efficient policies are put in place in order to keep the Ringgit exchange rates at optimal level so as to enhance the participation of foreign investors and improve market competitiveness.

Suggested Citation

  • Hamisu Sadi ALI & Umar MUKHTAR & Ganthi Selvi MANIAM, 2015. "Dynamic Links between Exchange Rates and Stock Prices in Malaysia: An Asymmetric Cointegration analysis," Journal of Economics and Political Economy, EconSciences Journals, vol. 2(3), pages 411-417, September.
    • Handle: RePEc:cvv:journ1:v:2:y:2015:i:3:p:411-417
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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