Abstract
This paper examines the impact of commodity prices (palm oil price, oil price, and gold price), interest rate, and exchange rate on the Malaysian stock market performance. Employing the bounds test approach, the results of the study showed cointegrating relationships among variables. Specifically, the results revealed a significant influence of palm oil price on the stock market index. However, no significant influence was observed for both the oil price and gold price. Interest rate and exchange rate showed significant influences, which are consistent with past empirical studies. One important policy implication from this study is that the authorities should also pay attention to the effect of commodity prices, in addition to macroeconomic variables, in implementing relevant polices, as they may have a negative impact on the Malaysian stock market.
Highlights
A stock market plays a major role in contributing to the economic growth and development of a country
Even though the bounds test approach did not stress on the importance of knowing the order of integration of the underlying variables, there was still a need to examine the variables in terms of their stationarity in order to avoid having an I(2) variable
This study investigated the impact of selected macroeconomic variables, namely the interest rate and exchange rate on the stock market index by focusing on the Malaysian stock market
Summary
A stock market plays a major role in contributing to the economic growth and development of a country. The performances of stock market indices have been commonly used to reflect the general performance of a country’s economic condition. Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT) are two prominent theories that are often used to explain the performance of stock returns. According to CAPM, stock returns are solely determined by market return. In contrast to CAPM, APT stated that stock returns are influenced by macroeconomic variables rather than market return only. APT can provide a more realistic explanation to the variations in stock prices as it allows for a wider selection of various factors that determine stock return. APT has become a significant theory in explaining the impact of macroeconomic variables on stock returns
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