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Structural break and cointegration in Malaysian Stock Market

Kan, Y. Y. and Lim, G. C. (2015) Structural break and cointegration in Malaysian Stock Market. International Proceedings of Economic Management and Research, 84. pp. 25-43.

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Abstract/Summary

This study explores the empirical influence of domestic and foreign factors on equity pricing in Malaysia for the period 1990-2013. This research seeks to determine if the dynamics have changed over time with the period of study spanning across major episodes of crisis such as the Asian Financial Crisis, the Global Financial Crisis and the European Debt crisis. Advanced econometric techniques namely unit root test with structural breaks, multivariate cointegration analysis, error correction model and innovation accounting technique are employed in the analysis. The findings show that share prices and macroeconomic variables (inflation rate, industrial production, money supply and US share price) are cointegrated in Malaysia for the period 1990-2013. In the long-run, consumer price index and US share prices contribute positively to share price movement while industrial production and money supply have a negative relations with KLCI. As for short-run dynamic interaction, Malaysia share prices are not significantly affected by lagged information from macroeconomic variables. Macroeconomic activities have weak explanatory power on stock market movements in short-run. Structural change has occurred after the Asian Financial Crisis.

Item Type:Article
Refereed:Yes
Divisions:University of Reading Malaysia
ID Code:69675
Publisher:IACSIT Press, Singapore

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