IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

The Impact of Crude Oil Price on Macroeconomic Variables: New Evidence from Malaysia

Listed author(s):
  • Abdullah, Ahmad Monir
  • Masih, Abul Mansur M.

An understanding of how volatilities of and correlations between crude oil and macroeconomic variables change over time including their directions and size is of crucial importance for both the domestic and international investors with a view to diversifying their portfolios for hedging against unforeseen risks. This paper is a humble attempt to add value to the existing literature by empirically testing for the ‘time-varying’ and ‘scale dependent’ correlations between selected commodities and selected macroeconomic variables taking Malaysia as a case study. Particularly, by incorporating the scale dependence, it is possible to identify unique portfolio diversification opportunities for different set of investors bearing different investment horizons or stock-holding periods. Our findings tend to suggest that there is a theoretical relationship between the selected macroeconomic variables and the selected commodities and that the crude oil, gold, KLCI, CPI, BLR and T-bill are exogenous but the corn, industrial production and M2 are endogenous. Consistent with these results, our analysis based on the application of Generalised variance decompositions (VDCs) tends to indicate that the gold commodity is the most exogenous variable that drives the other commodities and the Malaysian macroeconomic variables. Finally, the value added stemming from the findings of Continuous Wavelet Transformation (CWT) tends to indicate that an investor who has exposure in crude oil commodity and wants to invest in KLCI, industrial production and treasury bill in Malaysia, should not hold his/her portfolio for more than 8 months in order to obtain diversification benefit.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://mpra.ub.uni-muenchen.de/56976/1/MPRA_paper_56976.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 56976.

as
in new window

Length:
Date of creation: 29 Jun 2014
Handle: RePEc:pra:mprapa:56976
Contact details of provider: Postal:
Ludwigstraße 33, D-80539 Munich, Germany

Phone: +49-(0)89-2180-2459
Fax: +49-(0)89-2180-992459
Web page: https://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. D. S. Prasada Rao & Bart van Ark, 2013. "Introduction," Chapters,in: World Economic Performance, chapter 1, pages 1-6 Edward Elgar Publishing.
  2. Park, Jungwook & Ratti, Ronald A., 2008. "Oil price shocks and stock markets in the U.S. and 13 European countries," Energy Economics, Elsevier, vol. 30(5), pages 2587-2608, September.
  3. Jammazi, Rania & Aloui, Chaker, 2010. "Wavelet decomposition and regime shifts: Assessing the effects of crude oil shocks on stock market returns," Energy Policy, Elsevier, vol. 38(3), pages 1415-1435, March.
  4. Baffes, John, 2007. "Oil spills on other commodities," Resources Policy, Elsevier, vol. 32(3), pages 126-134, September.
  5. Mara Madaleno & Carlos Pinho, 2012. "International stock market indices comovements: a new look," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 17(1), pages 89-102, 01.
  6. Mansur Masih & Ali Al-Elg & Haider Madani, 2009. "Causality between financial development and economic growth: an application of vector error correction and variance decomposition methods to Saudi Arabia," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1691-1699.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:56976. 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: (Joachim Winter)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.