Causal relationship between the volatility of stock market and selected macroeconomic variables: Case of Malaysia

Lida Nikmanesh, Abu Hassan Shaari Md Nor, Tamat Sarmidi, Hawati Janor

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)143-154
Number of pages12
JournalJurnal Ekonomi Malaysia
Volume48
Issue number1
Publication statusPublished - 2014

Fingerprint

Macroeconomic variables
Malaysia
Stock market
Stock market volatility
Stock index
Variance decomposition
Economic shocks
Trade openness
Politicians
Macroeconomic volatility
Causality test
Managers
Investors
Stylized facts
Exchange rate volatility
Generalized autoregressive conditional heteroscedasticity
Causation
Impulse response function

Keywords

  • Impulse response function
  • Macroeconomic volatility
  • Stock market volatility
  • Variance decomposition
  • Vector autoregressive model

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)

Cite this

Causal relationship between the volatility of stock market and selected macroeconomic variables : Case of Malaysia. / Nikmanesh, Lida; Md Nor, Abu Hassan Shaari; Sarmidi, Tamat; Janor, Hawati.

In: Jurnal Ekonomi Malaysia, Vol. 48, No. 1, 2014, p. 143-154.

Research output: Contribution to journalArticle

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