Causal Relationship between the Volatility of Stock Market and Selected Macroeconomic Variables: Case of Malaysia

Lida Nikmanesh (), Abu Hassan Shaari Mohd Nor (), Tamat Sarmidi () and Hawati Janor ()
Additional contact information
Lida Nikmanesh: Faculty of Economics and Management Universiti Kebangsaan Malaysia 43600 UKM Bangi Selangor
Abu Hassan Shaari Mohd Nor: Faculty of Economics and Management Universiti Kebangsaan Malaysia 43600 UKM Bangi Selangor
Tamat Sarmidi: Faculty of Economics and Management Universiti Kebangsaan Malaysia 43600 UKM Bangi Selangor
Hawati Janor: Faculty of Economics and Management Universiti Kebangsaan Malaysia 43600 UKM Bangi Selangor

Jurnal Ekonomi Malaysia, 2014, vol. 48, issue 1, 143-154

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.

Keywords: Impulse response function; Stock market volatility; macroeconomic volatility; variance decomposition; vector autoregressive model (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.ukm.my/jem/wp-content/uploads/2021/06/jeko_481-12.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ukm:jlekon:v:48:y:2014:i:1:p:143-154

Access Statistics for this article

More articles in Jurnal Ekonomi Malaysia from Faculty of Economics and Business, Universiti Kebangsaan Malaysia Contact information at EDIRC.
Bibliographic data for series maintained by Muhammad Asri Abd Ghani ().