The Impact of Crude Oil Price on Macroeconomic Variables: New Evidence from Malaysia
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.
|Date of creation:||29 Jun 2014|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- D. S. Prasada Rao & Bart van Ark, 2013. "Introduction," Chapters,in: World Economic Performance, chapter 1, pages 1-6 Edward Elgar Publishing.
- 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.
- 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.
- Baffes, John, 2007.
"Oil spills on other commodities,"
Elsevier, vol. 32(3), pages 126-134, September.
- Baffes, John, 2007. "Oil spills on other commodities," Policy Research Working Paper Series 4333, The World Bank.
- 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.
- 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)
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 references are entirely missing, you can add them using this form.