4. THE KUALA LUMPUR STOCK MARKET AND ECONOMIC FACTORS: A GENERAL-TO-SPECIFIC ERROR CORRECTION MODELING TEST

Abstract

This study applies the Error-Correction Modeling technique to examine the short-run dynamic adjustment and the long-run equilibrium relationships between the four macroeconomic variables and stock returns of Kuala Lumpur stock market. The macroeconomic variables analyzed are interest rate, inflation rate, exchange rate, and the industrial productivity using monthly observations from January 1990 through June 2002. In addition, a dummy variable is included to capture the impact of the 1997 Asian financial crisis. Econometric results support the existence of short-run dynamic adjustment and the long-run, equilibrium relationships between the macroeconomic variables and the Kuala Lumpur stock market. ABSTRACT This study adopts four linear models (multiple regression model, variance-component model, first-order autoregressive model, and variance-component moving average model) with 10 independent variables to analyze the important determinants of capital structures of the high tech and traditional industries, respectively. The results of the study show that the determinants of capital structure of the high tech industry are different from that of the traditional industry. In four linear models, the variance-component model has the smallest root MSE in both industries. These indicate that time-series and cross-sectional variations are very important in analyzing the determinants of capital structure in Taiwanese industry. Managers can apply these results for their dynamic adjustment of capital structure in achieving optimality and maximizing firm's value. ABSTRACT The Student Managed Investment Fund (SMIF) at California State University, Long Beach, has been in operation for eight years, a time span that has covered a wide spectrum of market conditions. The records of the decisions of the SMIF managers over this time period allow for an examination of both the attitudes towards risk and return of the students and some of the factors that contribute to the formation of their expectations about the risk and return of investment alternatives. Using information about the numbers of stocks analyzed, the numbers of stocks actually approved for purchase, and the numbers of students in the class in each of the eight years, three main hypotheses are examined. First, that the

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