Abstract
<p><em>This study investigate the relationship between macroeconomic variables and FTSE Bursa Malaysia KLCI, the samples are divided into 2 groups such as foreign macroeconomic variables and local macroeconomic variables, foreign macroeconomic variables consist of Gold Bullion LBM price and Dow Jones Index, meanwhile local macroeconomic variables consist of Consumer Price Index, Base Lending Rate, Exchange Rate. This study employs data from Jan 2000 to Dec 2013 which contains a monthly data set of 168 observations. There are 3 methodologies used in this study to investigate the relationship, the first test is Unit Root test which used to test the stationary of each variable, the results indicate that all the variables are stationary in first difference, this is important to use stationary variables because if the variables are not stationary, it might lead to spurious regression. The second methodology is Johansen &amp; Juselius Co-integration test to investigate the long run relationship among these variables, the results show that the foreign macroeconomic variables and local macroeconomic variables have long run relationship with KLCI and significant. Next, this study will investigate the short run relationship between macroeconomic variables and KLCI, the results indicate that Gold, BLR and CPI can granger cause KLCI and significant at 1%, 5% significance level respectively.</em></p>
Highlights
The stock market is one of the sources that play an important role in contributing to the economic growth of a country
This study investigate the relationship between macroeconomic variables and FTSE Bursa Malaysia Kuala Lumpur Composite Index (KLCI), the samples are divided into 2 groups such as foreign macroeconomic variables and local macroeconomic variables, foreign macroeconomic variables consist of Gold Bullion LBM price and Dow Jones Index, local macroeconomic variables consist of Consumer Price Index, Base Lending Rate, Exchange Rate
There are 3 methodologies used in this study to investigate the relationship, the first test is Unit Root test which used to test the stationary of each variable, the results indicate that all the variables are stationary in first difference, this is important to use stationary variables because if the variables are not stationary, it might lead to spurious regression
Summary
The stock market is one of the sources that play an important role in contributing to the economic growth of a country. There are many important macroeconomic variables to represent the economic growth of a country such as GDP, CPI, interest rate, money supply and others. They are similar with the stock market where both are important to the country growth. The knowledge of the factors which can influence the behavior of stock market and macroeconomic variables has attracted the attention from investors and to the policy makers for a long time but it is still hardly to determine whether which macroeconomic variables can influence the stock market directly. The local macroeconomic variables adopted in this study are as CPI, ER and BLR, whereas for foreign macroeconomic variables adopted in this study are Dow Jones Industrial Average (DJIA) and Gold
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