The Impact of Macroeconomic Variables on Firm's Performance: Evidence from Malaysian GLC
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Date
2009
Authors
Mohd Noh, Azemi
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Abstract
This study investigates the effects of macroeconomic factors on GLC share price returns
m Malaysia. The performance of the share price was largely attributed to the GLC
Transformation Program launched by the government.
To examine the impact of the macroeconomic variables on the share price, we developed
a simple model based on the Arbitrage Pricing Theory by Ross (1976). By applying the
techniques of cointegration, Error Correction Model and Granger causality, we examine the short
run dynamics and long run equilibrium relationship between G-20 Index and the four selected
macroeconomic variables of real output, price level, money supply and interest rate using
monthly data from 1988 to 2008. The data was examined in two periods; whole sample period
and a second sample period of up to 1997 before the Asian Financial Crisis.
The results suggest that the share price and the macroeconomic variables are cointegrated
and there was evidence of long run relationships in the periods under study. Through the Error
Correction Model we found that the short run adjustments were from different channels in
different periods of study. Finally we examined the short run Granger causality to look at the
causal relationship among the variables. We found that in the whole sample period only the past
information on interest rate may be used to predict the share price and in the second sample no
information from any of the macroeconomic variables may be used to predict share price.
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Keywords
The Impact ofMacro~conomic Variables , on Firm's Performance: