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Macroeconomic variables and stock markets (domestic and foreign): evidence from Malaysia

Author

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  • Sulaiman, Nadzri
  • Masih, Mansur

Abstract

The growing literature on the relationship between Malaysia’s macroeconomic variables and its relation to the performance of Kuala Lumpur Composite Index (KLCI) is well documented. The aim of this term paper is to extend the existing literature by using selected macroeconomic variables and also, include the external variables i.e. the performance of other stock markets around the world namely, United Kingdom’s Financial Times Index, United States Dow Jones Index, Singapore Straits Times Index, and Japan Nikkei Index into the equation. Thus, this paper will provide an analysis on the cointegration relationships among these variables (internal and external) in the long-run by using the standard time series techniques. The result indicates that stock exchanges are a cointegrated market and that there is a long run theoretical relationship among all the selected variables. The variance decomposition analysis tends to reveal that the Malaysian stock market is driven mostly by the exchange rate followed by the stock markets of Singapore and Japan.The results have strong policy implications.

Suggested Citation

  • Sulaiman, Nadzri & Masih, Mansur, 2017. "Macroeconomic variables and stock markets (domestic and foreign): evidence from Malaysia," MPRA Paper 110154, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:110154
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    References listed on IDEAS

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    More about this item

    Keywords

    stock market returns(domestic and foreign); macroeconomic variables; VECM; VDC; Malaysia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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