Relationship between Macroeconomics and Stock Market: Empirical Study in Malaysia

Lai Yeen Khong; Yee Sin Lee; Mahendra Kumar a/l Chelliah

Lai Yeen Khong Lecturer, Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman (UTAR), Malaysia
Yee Sin Lee Lecturer, Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman (UTAR), Malaysia
Mahendra Kumar a/l Chelliah Lecturer, Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman (UTAR), Malaysia

Keywords: FTSE Bursa Malaysia KLCI, Foreign Macroeconomic Variables, Local Macroeconomic Variables, Unit Root Test, Johansen & Juselius Co-Integration Test.

Abstract

This paper attempt to investigate the relationship between macroeconomic variables and FTSE Bursa Malaysia KLCI, the samples are divided into 2 groups such as foreign macroeconomic variables and local macroeconomic variables, foreign macroeconomic variables consist of Gold Bullion LBM price and Dow Jones Index, meanwhile local macroeconomic variables consist of Consumer Price Index, Base Lending Rate, Exchange Rate.

This study employs data from Jan 2000 to Dec 2013 which contains a monthly data set of 168 observations. There are 3 methodologies used in this study to investigate the relationship, the first test is Unit Root test which used to test the stationary of each variable, the results indicate that all the variables are stationary in first difference, this is important to use stationary variables because if the variables are not stationary, it might lead to spurious regression. The second methodology is Johansen & Juselius Co-integration test to investigate the long run relationship among these variables, the results show that the foreign macroeconomic variables and local macroeconomic variables have long run relationship with KLCI and significant. Next, this study will investigate the short run relationship between macroeconomic variables and KLCI, the results indicate that Gold, BLR and CPI can granger cause KLCI and significant at 1%, 5% significance level respectively.

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