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Real Exchange Rate Returns And Real Stock Price Returns In The Stock Market Of Malaysia

Author

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  • HOCK TSEN WONG

    (Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah, Jalan UMS, 88400 Kota Kinabalu, Sabah, Malaysia)

Abstract

This study examines the relationships between real exchange rate returns and real stock price returns in the stock market of Malaysia. The Kwiatkowski, Phillips, Schmidt and Shin (KPSS) and Dickey and Fuller (DF) unit root test statistics show that all the variables examined are found to be stationary in the first differences. The constant conditional correlation (CCC)-multivariate generalized autoregressive conditional heteroskedasticity (MGARCH) model shows that real exchange rate return of Malaysian ringgit against the United States dollar (RM/USD) and real stock price return of Kuala Lumpur Composite Index (KLCI) are found to be negative and significantly correlated. However, there is insignificant correlation between real exchange rate return of Malaysian ringgit against Japanese Yen (RM/¥) and real stock price return of KLCI. Moreover, the CCC-MGARCH models show that real exchange rate returns and real stock price returns of some stocks are found to be significantly correlated. The KPSS unit root test statistics show that the time invariant conditional variances of real exchange rate returns and real stock price returns are mostly found to be stationary in the levels. There is no evidence of Granger causality between the time invariant conditional variances of real exchange rate returns and real stock price return of KLCI but some evidence of Granger causality between the time invariant conditional variances of real exchange rate returns and real stock price returns. There is a link between the exchange rate market and the stock market in Malaysia but not every real stock price return is significantly linked with real exchange rate return.

Suggested Citation

  • Hock Tsen Wong, 2019. "Real Exchange Rate Returns And Real Stock Price Returns In The Stock Market Of Malaysia," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(05), pages 1319-1349, December.
    • Handle: RePEc:wsi:serxxx:v:64:y:2019:i:05:n:s0217590816500387
    DOI: 10.1142/S0217590816500387
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    Citations

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    Cited by:

    1. Tian, Maoxi & El Khoury, Rim & Alshater, Muneer M., 2023. "The nonlinear and negative tail dependence and risk spillovers between foreign exchange and stock markets in emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    2. Shaobo Long & Mengxue Zhang & Keaobo Li & Shuyu Wu, 2021. "Do the RMB exchange rate and global commodity prices have asymmetric or symmetric effects on China’s stock prices?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-21, December.
    3. Yue‐Jun Zhang & Shu‐Jiao Ma, 2021. "Exploring the dynamic price discovery, risk transfer and spillover among INE, WTI and Brent crude oil futures markets: Evidence from the high‐frequency data," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2414-2435, April.
    4. Rizwan Ali & Inayat Ullah Mangla & Ramiz Ur Rehman & Wuzhao Xue & Muhammad Akram Naseem & Muhammad Ishfaq Ahmad, 2020. "Exchange Rate, Gold Price, and Stock Market Nexus: A Quantile Regression Approach," Risks, MDPI, vol. 8(3), pages 1-16, August.
    5. Sun, Qingru & Gao, Xiangyun & An, Haizhong & Guo, Sui & Liu, Xueyong & Wang, Ze, 2021. "Which time-frequency domain dominates spillover in the Chinese energy stock market?," International Review of Financial Analysis, Elsevier, vol. 73(C).
    6. Dejan Živkov & Marina Gajic-Glamoclija & Jasmina Duraskovic & Mirela Momcilovic, 2022. "Assessing Permanent and Transitory Volatility Spillover Effect from Oil to Stocks in Baltic and Visegrad Countries," Journal of Economics / Ekonomicky casopis, Institute of Economic Research, Slovak Academy of Sciences, vol. 70(6), pages 523-542, June.

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