Oil price shocks, global economic policy uncertainty, geopolitical risk, and stock price in Malaysia: Factor augmented VAR approach

Mohammad Enamul Hoque, Low Soo Wah, Mohd Azlan Shah Zaidi

Research output: Contribution to journalArticle

Abstract

This article examines the impacts of the geopolitical risk, global economic policy uncertainty, and oil price shocks on stock prices in Malaysia using factor augmented SVAR approach. The findings show that while geopolitical risk has no significant direct impacts on the overall stock market, its indirect impacts are significant and transmitted through the global economic policy uncertainty and oil shocks channels. Global economic policy uncertainty exerts negative effects on the overall stock market and its impacts are magnified by geopolitical risk. Oil related shocks exhibit asymmetric effects on both the aggregated and sectoral stock price. The impacts of oil demand shock on stock price are amplified by global economic uncertainty factor whereas oil supply shocks impacts are amplified by the geopolitical risk factor. At sectoral level, the impacts of all the global shocks vary across different sectors and time. The overall findings imply that global economic policy uncertainty and oil demand shock factors are systematic risk factors that can be employed to forecast stock market returns. The findings also provide implications for policymakers to regulate markets in maintaining financial stability and investors to react to future shocks in these global economic factors with regard to the risks and opportunities.

Original languageEnglish
Pages (from-to)3701-3733
Number of pages33
JournalEconomic Research-Ekonomska Istrazivanja
Volume32
Issue number1
DOIs
Publication statusPublished - 1 Jan 2019

Fingerprint

price dynamics
vector autoregression
oil supply
stock market
geopolitics
policy analysis
global economy
economic policy
oil
risk factor
economics
price
market

Keywords

  • emerging stock market
  • FAVAR
  • Geo-political risk
  • global economic policy uncertainty
  • oil price shocks
  • sectoral stock price

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Oil price shocks, global economic policy uncertainty, geopolitical risk, and stock price in Malaysia : Factor augmented VAR approach. / Hoque, Mohammad Enamul; Soo Wah, Low; Zaidi, Mohd Azlan Shah.

In: Economic Research-Ekonomska Istrazivanja, Vol. 32, No. 1, 01.01.2019, p. 3701-3733.

Research output: Contribution to journalArticle

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