Macroeconomic variables and the Malaysian equity market : A view through rolling subsamples

Abstract

Analyzes dynamic linkages between stock prices and four macroeconomic variables for the case of Malaysia using standard and well‐accepted methods of cointegration and vector autoregression. Empirical results suggest the presence of a long‐run relationship between these variables and the stock prices and substantial short‐run interactions among them. In particular, documents positive short‐run and long‐run relationships between the stock prices and two macroeconomic variables. The exchange rate, however, is negatively associated with the stock prices. For the money supply, documents immediate positive liquidity effects and negative long‐run effects of money supply expansion on the stock prices. Also notes the predictive role of the stock prices for the macroeconomic variables. However, there seems to be irregularity in the data when observations from the recent crisis are included. Finally, documents the disappearance of the immediate positive liquidity effects of the money supply shocks and unstable interactions between the stock prices and the exchange rate over time.