KLSE composite index and macroeconomic fundamental dynamic interactions
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Date
2005-05
Authors
Yu, Teik Beng
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Abstract
This thesis employs Granger causality test to investigate causal relations and dynamic interactions among Malaysia’s macroeconomic variables and Kuala Lumpur Stock Exchange Composite Index (KLCI). This research investigates the possible causal relations for different economic conditions in Malaysia by using three hundred thirty six monthly data points from January 1977 to December 2004. The macroeconomic variables being investigated are industrial production index, consumer price index, money supply measured by M1, three month fix deposit rate, Treasury bill rate and foreign exchange. The findings show that normally market is efficient and KLCI is a leading indicator for Malaysia’s macroeconomic variables. However there are times when Efficient Market Hypothesis (EMH) is violated, i.e. the market is inefficient. When market is inefficient, past macroeconomic variables can better predict KLCI. From the findings, inefficient market normally happened during economic crisis that is when government intercepts the market to control the crisis from further deteriorate through either monetary or fiscal policies.
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Keywords
Business Administration , KLSE Composite Index , Macroeconomic