Causal relationship between the volatility of stock market and selected macroeconomic variables: case of Malaysia
This study examines the dynamic relationship between the volatility of stock market and macroeconomics’ volatility in Malaysia during the period of February 1991 to February 2013. For this purpose, monthly data on the KLCI stock index and a set of macroeconomic variables are used. Firstly, in orde...
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| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Penerbit Universiti Kebangsaan Malaysia
2014
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| Online Access: | http://journalarticle.ukm.my/8412/1/jeko_48%281%29-12.pdf http://journalarticle.ukm.my/8412/ http://www.ukm.my/fep/jem/index.html |
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| Institution: | Universiti Kebangsaan Malaysia |
| Language: | English |
| Summary: | This study examines the dynamic relationship between the volatility of stock market and macroeconomics’ volatility in
Malaysia during the period of February 1991 to February 2013. For this purpose, monthly data on the KLCI stock index
and a set of macroeconomic variables are used. Firstly, in order to estimate the volatility of each series, the well-known
GARCH family models are employed. The empirical stylized facts in the stock indices and the macroeconomic variables
are presented. Secondly, in order to investigate the causation between variables, the Toda and Yamamoto causality
test through a VAR method is conducted using the volatility of stock market and macroeconomic variables. In addition,
from the VAR, we generate Impulse Response Function and Variance Decomposition to track the evolution of economic
shocks through the system. The result of this study shows that exchange rate volatility affects Malaysian stock market
volatility considerably. Furthermore, trade openness is able to affect stock market volatility in Malaysia. These results
will provide more precise information for investors, hedgers, managers and policy makers. |
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