IDEAS home Printed from https://ideas.repec.org/a/ije/journl/v9y2001i2p141-164.html
   My bibliography  Save this article

Macroeconomic Variables, Exchange Rate And Stock Price: A Malaysian Perspective

Author

Listed:
  • Mansor H. Ibrahim and Wan Sulaiman Wan Yusoff

    (International Islamic University Malaysia)

Abstract

The paper analyzes dynamic interactions among three macroeconomic variables (real output, price level, and money supply), exchange rate, and equity prices for the Malaysian case using time series techniques of cointegration and vector autoregression. In the analysis, we rely on variance decompositions and impulse-response functions to gauge the strength of the interactions among the variables. The Malaysian stock prices seem to be driven more by changes in domestic factors, particularly money supply. Specifically, we note that money supply exerts a positive effect on the stock prices in the short run. However, money supply and stock prices are negatively associated in the long run. We also observe the negative effects of depreciation shocks on stock prices. Other selected notable results are: the stock prices contain valuable information for future variations in macroeconomic variables especially the price level; currency depreciation is both contractionary and inflationary; the Malaysian monetary authorities seem to focus mainly on stabilizing the exchange rate; and the money supply seems to be pro-cyclical and inflationary. One important policy implication is that the monetary authorities should be very cautious in implementing exchange rate and monetary policies as they may have adverse repercussions on the Malaysian financial market.

Suggested Citation

  • Mansor H. Ibrahim and Wan Sulaiman Wan Yusoff, 2001. "Macroeconomic Variables, Exchange Rate And Stock Price: A Malaysian Perspective," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 9(2), pages 141-164, December.
  • Handle: RePEc:ije:journl:v9:y:2001:i:2:p:141-164
    as

    Download full text from publisher

    File URL: http://www.iium.edu.my/enmjournal/92art2.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Khil, Jaeuk & Lee, Bong-Soo, 2000. "Are common stocks a good hedge against inflation? Evidence from the Pacific-rim countries," Pacific-Basin Finance Journal, Elsevier, vol. 8(3-4), pages 457-482, July.
    2. Haug, Alfred A., 1996. "Tests for cointegration a Monte Carlo comparison," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 89-115.
    3. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    4. Cheung, Yin-Wong & Lai, Kon S., 1993. "Long-run purchasing power parity during the recent float," Journal of International Economics, Elsevier, vol. 34(1-2), pages 181-192, February.
    5. Gjerde, Oystein & Saettem, Frode, 1999. "Causal relations among stock returns and macroeconomic variables in a small, open economy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(1), pages 61-74, January.
    6. Abul M.M. Masih & Rumi Masih, 1998. "Does money cause prices, or the other way around?: Multi-country econometric evidence including error-correction modelling from South-east Asia," Journal of Economic Studies, Emerald Group Publishing, vol. 25(3), pages 138-160, September.
    7. Lastrapes, William D. & Koray, Faik, 1990. "International transmission of aggregate shocks under fixed and flexible exchange rate regimes: United Kingdom, France, and Germany, 1959 to 1985," Journal of International Money and Finance, Elsevier, vol. 9(4), pages 402-423, December.
    8. David A. Dickey & Dennis W. Jansen & Daniel L. Thornton, 1991. "A primer on cointegration with an application to money and income," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 58-78.
    9. Park, Kwangwoo & Ratti, Ronald A, 2000. "Real Activity, Inflation, Stock Returns, and Monetary Policy," The Financial Review, Eastern Finance Association, vol. 35(2), pages 59-77, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Buerhan Saiti & Azlan Ali & Naziruddin Abdullah & Sulaiman Sajilan, 2014. "Palm Oil Price, Exchange Rate, and Stock Market: A Wavelet Analysis on the Malaysian Market," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 2(1), pages 13-27.
    2. el Alaoui, AbdelKader & Diwandaru, Ginanjar & Rosly, Saiful Azhar & Masih, Mansur, 2014. "What Drives Profitability of Banks: Do Interest rate, and Fee and Commissions impact the profitability of Banks? Evidence from the European Countries," MPRA Paper 59606, University Library of Munich, Germany.
    3. Albaity, Mohamed Shikh, 2011. "Impact of the monetary policy instruments on Islamic stock market index return," Economics Discussion Papers 2011-26, Kiel Institute for the World Economy (IfW).
    4. 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.
    5. Margaret N. Okoli, 2012. "Return-Volatility Interactions in the Nigerian Stock Market," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(2), pages 389-399, June.
    6. Pathan, Rubina & Masih, Mansur, 2013. "Relationship between macroeconomic variables and stock market index: evidence from India," MPRA Paper 63302, University Library of Munich, Germany.
    7. repec:hur:ijarbs:v:7:y:2017:i:4:p:911-926 is not listed on IDEAS
    8. ALAM Nafis & TAN Ee Chain, 2012. "Impact Of Financial Crisis On Stock Returns: Evidence From Singapore," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 7(2), pages 5-19, August.

    More about this item

    Keywords

    Stock price behavior; Macroeconomic variables; Vector autoregression;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ije:journl:v9:y:2001:i:2:p:141-164. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gairuzazmi Mat Ghani). General contact details of provider: http://edirc.repec.org/data/feiiumy.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.