Macroeconomic determinants of stock market volatility

An empirical study of Malaysia and Indonesia

Lida Nikmanesh, Abu Hassan Shaari Md Nor

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

The present study examines the relationship between stock market volatility and the volatility of macroeconomic variables in Malaysia and Indonesia. The relationship is examined through the analysis of the monthly data concerning stock indices and macroeconomic variables in Malaysia and Indonesia for the period of 1998 until 2013. Firstly, in order to estimate the conditional volatility of each series, GARCH family models are employed. Secondly, a Seemingly Unrelated Regression (SUR) is utilized to determine whether any significant relationship exists between stock volatility and macroeconomic volatility. The results of the present study provide evidence of a significant relationship between the volatility of stock markets and macroeconomic variables in both countries. In particular, the results indicate that macroeconomic volatility and trade openness explain 81% of stock market volatility in Malaysia; and 75% of stock market volatility in Indonesia. The results of the present study provide more precise information for investors making decisions relating to asset allocation. Additionally, the findings are beneficial for managers and policy makers seeking to reduce the negative effects of stock market volatility on economic performance.

Original languageEnglish
Pages (from-to)161-180
Number of pages20
JournalAsian Academy of Management Journal
Volume21
Issue number1
Publication statusPublished - 2016

Fingerprint

Stock market volatility
Macroeconomics
Empirical study
Indonesia
Malaysia
Macroeconomic variables
Macroeconomic volatility
Stock volatility
Trade openness
Politicians
Investor decision making
Stock index
Conditional volatility
Managers
Asset allocation
Stock market
Economic performance
Generalized autoregressive conditional heteroscedasticity
Seemingly unrelated regression

Keywords

  • GARCH
  • Macroeconomic variables
  • Seemingly unrelated regression (SUR)
  • Stock market
  • Volatility

ASJC Scopus subject areas

  • Business, Management and Accounting(all)

Cite this

Macroeconomic determinants of stock market volatility : An empirical study of Malaysia and Indonesia. / Nikmanesh, Lida; Md Nor, Abu Hassan Shaari.

In: Asian Academy of Management Journal, Vol. 21, No. 1, 2016, p. 161-180.

Research output: Contribution to journalArticle

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