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The Malaysian Domestic Bond Market: Growing into its Rightful Role

Author

Listed:
  • Meng-Wai Lee

    (Faculty of Economics and Administration, University of Malaya, Malaysia.)

  • Kim-Leng Goh

    (Faculty of Economics and Administration, University of Malaya, Malaysia.)

  • Michael Meow-Chung Yap

    (Business School, University of Nottingham, Malaysia.)

Abstract

This paper revisits Malaysia’s past for a closer look into the interaction between its dominant banking sector and capital markets, encompassing both domestic bond and equity markets. Data beginning Q4, 1993 on the Malaysian domestic bond market are extracted from Bank for International Settlements (BIS). The sample period ends at Q4, 2011 due to a change in definition for categories of domestic debt securities by BIS. Nine possible determinants of bond market development are identified from the empirical literature. The ARDL modelling approach is used. In the absence of a long-run relationship, the analysis continues with an OLS distributed lag regression. Findings point to competition between the domestic bond market with the established banking sector and equity market, which could have hindered development of the bond market in its earlier years. Since interest rate volatility and exchange rate changes adversely impacted bond market development, credible monetary policy is necessary to support development of the Malaysian bond market. The benefits accruing from a better developed domestic bond market for raising long-term funds and providing financing for post-crisis recoveries can be seen in Malaysia’s example as a policy lesson for other emerging economies.

Suggested Citation

  • Meng-Wai Lee & Kim-Leng Goh & Michael Meow-Chung Yap, 2019. "The Malaysian Domestic Bond Market: Growing into its Rightful Role," Capital Markets Review, Malaysian Finance Association, vol. 27(1), pages 34-52.
    • Handle: RePEc:mfa:journl:v:27:y:2019:i:1:p:34-52
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Domestic bond market; determinants; debt; banking sector.;
    All these keywords.

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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