Determinants of Stock Market Performance in Malaysia

Wong, Yan Weng (2019) Determinants of Stock Market Performance in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

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Abstract

Stock market is crucial for a country’s economy as it helps the financial development of a country. When Malaysia was in the recession, the stock exchange had poor performance amid recessionary periods. It indicates that the movement of economic growth and stock performance are moving in the same direction. Thus, stock market performance can be taken as the indicator of overall health of economy. Besides, according to Juglar’s business cycle theory, the next coming crisis might be happened in 2019. The study aimed to examine whether the Malaysia stock market performance is influenced by selected macroeconomic factors, which are economic growth, interest rate and exchange rate, over the period from 2001Q1 to 2017Q1. VAR Granger Causality is employed to examine the causality relationship among the variables. Additionally, Impulse Response Function and Variance Decomposition have been adopted to track the short run dynamic interaction among variables. The findings of the study suggested that there is a positive significant bilateral causation between stock market performance and economic growth. Besides that, interest rate and exchange rate has an insignificant negative impact on stock market performance. Furthermore, the study also found that economic growth does affect interest rate with unilateral relationship significantly. Malaysia government should implement some policies to stimulate the economic growth such as increase government spending and improving infrastructure to enhance productivity and efficiency in order to improve stock market performance.