Examining the Role of Fiscal Policy in Malaysian Stock Market

Hussain Ali Bekhet · Nor Salwati Othman

15 citations0/0 files storedInternational Business Research

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Monetary Policy and Economic Impact Financial Markets and Investment Strategies Market Dynamics and Volatility

Abstract

This paper analyzes the relationship between stock index and macroeconomic policies (fiscal and monetary) using quarterly data for Malaysia for 1999:Q1–2011:Q4. The change in stock index was used as a proxy for financial performance. The co-integration test utilizes to detect the existence of long run relationship between stock index and macroeconomic variables and develops a vector error correction model (VECM) to test the existence of short run relationship (elasticities) among the variables. The findings indicate that there exists long run relationship among stock index, fiscal and monetary tools. This indicates that fiscal and monetary tools play an important role in accelerating financial performance in Malaysia. However, monetary tools can work faster than fiscal tools. This result would give a signal to investors to strategize their investment decision in the short and long run.

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References

2003Electricity consumption, employment and real income in Australia evidence from multivariate Granger causality tests 2000A vector error correction model of the Singapore stock market 2002Stock market and macroeconomic fundamental dynamic interactions: ASEAN-5 countries 2006Dynamic linkages between exchange rates and stock prices: Evidence from East Asian markets 2003Dollar exchange rate and stock price: evidence from multivariate cointegration and error correction model 2010Macro economy, stock market and oil prices: Do meaningful relationships exist among their cyclical fluctuations?2008A re-examination of the relationship between electricity consumption and economic growth in Malaysia 2007Sectoral energy consumption by source and economic growth in Turkey

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