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Were Foreign Exchange Markets Reacting Negatively to Political Events? The Case of Malaysia

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  • Hon Chung Hui

Abstract

This article explores the effects of political events on foreign exchange returns in Malaysia. We identify five political events in recent history, namely the 13th General Election (GE13), the imprisonment of a key opposition politician, the scandal from the 1MDB exposé, the appointment of a new Central Bank Governor and the 14th General Election (GE14). Using event studies, our findings show that the imprisonment of the opposition party leader triggered a favourable response from the foreign exchange market. However, market reactions to the 1MDB scandal were largely unfavourable. The GE13 triggered unfavourable market response, while the reverse is true for market reactions to GE14. Market response to the appointment of the new Central Bank Governor was rather positive. The Event Study is the first of its kind that examines the foreign exchange market implications of key political events in Malaysia. There are practical considerations that emanate from these findings. JEL Classification: F31, D72, D73, O38

Suggested Citation

  • Hon Chung Hui, 2021. "Were Foreign Exchange Markets Reacting Negatively to Political Events? The Case of Malaysia," South Asian Journal of Macroeconomics and Public Finance, , vol. 10(1), pages 105-129, June.
    • Handle: RePEc:sae:smppub:v:10:y:2021:i:1:p:105-129
    DOI: 10.1177/2277978721995649
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    More about this item

    Keywords

    1MDB; general election; market model; exchange rate; confidence; Malaysia;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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