MACROECONOMIC DETERMINANTS OF DIFFERENT TYPES OF BOND YIELD SPREAD IN MALAYSIA
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Date
2009
Authors
AHMAD, NORLIZA
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Abstract
Bond market plays an important role as an alternative source of financing in the growing world
economy today. Malaysian debt market has grown tremendously from RM 225 billion in 1999
to RM557 billion at the end of 2007. Although Malaysian bond market is developing rapidly, yet
not much is understood in term of causes of yield changes. This study focuses on investigating
the macroeconomic factors which might influenced the yield spread of Ringgit Malaysia
denominated bonds in Malaysian Bonds Market. Most of the previous studies have concentrated
only on conventional bonds but Islamic bonds remained largely unexplored . Therefore, this study
attempts to investigate the relationship between macroeconomic factors and yield spread of MGS
and both conventional and Islamic corporate bonds. Based on a multifactor model , we have
developed a relatively simple model to examine the impact of four macroeconomic factors
namely: KLCI, Industry Production Index (IPI), Consumer Price Index (CPI) and interest rates
(rR) on bond yield spread for the period of January 2001 to December 2008. The empirical
analysis begins with the stationarity test and followed by cointegration test and Vector Error
Correction Model (VECM). The empirical results support the expected hypothesis for
conventional and Islamic corporate bonds that KLCI, IR and IPT are negatively related and cpr is
positively related to yield spread for both of these bonds. However the result varies for MGS,
whereby IPT and IR are negatively related and CPI is positively related to MGS yield spreads
except for KLCI.
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Keywords
MACROECONOMIC , DIFFERENT TYPES