Malaysia Kuala Lumpur Composite Index Research Articles

Examining determinants of book-tax difference: Insights from Malaysian multinational corporations

This research investigates the factors affecting the book-tax differences of multinational corporations (MNCs) operating in Malaysia. The sample for this study consists of MNCs with subsidiaries in tax haven countries listed on the Financial Times Stock Exchange (FTSE) Bursa Malaysia Kuala Lumpur Composite Index (KLCI) and FTSE Bursa Malaysia Mid 70 Index. About 67 MNCs were selected after eliminating 32 companies with inadequate data and one with extreme outliers. A secondary data approach was employed, utilising multiple regression analysis. Selected corporate characteristics, including deferred tax liabilities and assets, taxable income, interest coverage ratio, return on assets, and effective tax rate, were used as independent variables. Descriptive analysis revealed evidence that corporations with a high return on assets (ROA) typically benefit from very high levels of book-tax differences (BTDs). Furthermore, the results indicate that a high interest coverage ratio may partly explain the outcomes leading to an increase in differences recorded between book income and taxable income. Thus, this supports the idea that a positive relationship exists between the interest coverage ratio and BTD. Hence, this study contributes to the tax literature and informs policymakers on factors influencing BTD, especially MNCs with subsidiaries in tax haven countries. The study aims to contribute to the existing body of knowledge by offering insights into the factors influencing MNCs' strategic tax planning decisions in the Malaysian context. Policymakers should address the unfair allocation of the worldwide tax base, where a reasonable portion of the earnings made by MNCs doing business in a nation should be subject to taxation in that nation.

A Comprehensive Analysis of the Drivers Behind the Effective Tax Rate of Financial Times Stock Exchange (FTSE) in Malaysia

This study examines corporate effective tax rates (ETR) of Malaysian multinational corporations (MNC) listed in the Financial Times Stock Exchange (FTSE) Bursa Malaysia Kuala Lumpur Composite Index (KLCI) and FTSE Bursa Malaysia Mid 70 Index. The main objective of this study is to examine the relationship between the ETR of MNCs with subsidiaries in tax haven countries, and selected corporate characteristics such as firm size, leverage, capital intensity, return on assets, inventory intensity, profit margin, and foreign directors. Using a multiple linear regression approach on a balanced panel sample of 68 companies (321 firm-years) spanning 2017 to 2021, the study provides evidence for the variability of corporate ETRs in which the average corporate ETRs falls below the STR for the financial year 2021 of 24%. The statistical results also reveal that lower ETRs are associated with highly leveraged companies, and greater investments in fixed assets. Further, a negative coefficient for return on assets and profit margin suggests that companies have benefited from tax incentives provided by the government. Hence, this study contributes to tax literature and policymakers on factors that influence the corporate ETR, especially MNC with subsidiaries in tax haven countries. Tax authorities should implement tight monitoring to avoid these MNCs extensively engaging in tax planning which will result in revenue loss to the Malaysian income tax collection.

Estimation of stock market index volatility using the GARCH model: Causality between stock indices

This paper aims to model the volatility of returns for selected stock indices and examine the causal relationships between the markets using the historical daily prices of the Financial Times Stock Exchange (FTSE), Bursa Malaysia Kuala Lumpur Composite Index (KLCI), the Indonesia Stock Exchange Index (LQ45), and the Stock Exchange of Thailand (SET) from January 2008 to November 2019. The study employs univariate GARCH models that are prominent in capturing the volatility clustering of financial instruments in association with the Box–Jenkins methodology for better estimation. Generally, the ARMA-GARCH model is used to capture the volatility series, while the Granger causality test examines the causal directions between the markets. The findings revealed leverage effects on the markets, with the outperformance of the EGARCH in analyzing the empirical properties of stock returns. An initial test that yielded positive correlations suggests the existence of co-movement between the derived volatility series. The study concluded bidirectional causal relationships between the selected markets, and based on the resulting relationships, it is proposed that supervision of markets among the ASEAN members could be advantageous in predicting the corresponding market performance.

Impact of COVID-19 and government interventions on Bursa Malaysia sectors

Purpose The purpose of this paper is to examine the influence of the daily growth in confirmed COVID-19 cases in Malaysia and government interventions on the daily returns of financial times stock exchange Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) and eight selected Bursa Malaysia sectorial indices for the period January 29, 2020 to March 31, 2021. Design/methodology/approach This paper adopts the multivariate generalized autoregressive conditional heteroscedasticity model to determine the effects for the entire study period and four sub-periods, i.e. pre-government intervention, movement control order (MCO), conditional MCO (CMCO) and recovery MCO phases. Findings This paper finds no evidence of the effect of the daily growth in confirmed COVID-19 cases on the returns of FBMKLCI and eight Bursa Malaysia sectorial indices for the full study period. However, the former has exerted different effects over the four sub-periods. Sectors that are positively affected for the MCO period are financial services and real estate investment trust. Yet, these sectors are negatively affected for the CMCO period along with the industrial products and services and technology sectors. Sectors that consistently demonstrate statistically insignificant results are construction, energy, plantation and utilities. Originality/value This study makes an initial attempt to investigate the influence of the COVID-19 pandemic on the returns of Bursa Malaysia sectorial indices over different phases of government interventions in Malaysia.

Determinants of Malaysian Real Estate Investment Trusts (M-REITs) Risk-Adjusted Performance during the Period of Property Oversupply

After the remarkable property surge in the first half of 2010s decade (2010-2014), the Malaysian property market has then moved into a period of oversupply and price overhang, which pose more challenges for REIT managers. Unlike most previous research that mainly compared various risk-adjusted performance measures among REITs, this research looks into whether size of portfolio, fundamental performance measures (net property income and dividend yield) and types of property managed by REITs influence their risk-adjusted performance measure of Jensen alpha. Based on a sample of 16 Malaysian REITs over the period 2015-2017, regression results generally show that there is no significant relationship between any of these determinants and Jensen alpha. Furthermore, only one out of the 16 M-REITs has a positive Jensen alpha and outperforms the benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index. Investors who prefer a high and certain dividend yield can consider to invest in M-REITs that mainly focused in the hospitality sector. Based on the rankings of Jensen alpha, M-REIT fund managers can consider to diversify their property portfolios to include more retail and hospitality properties during the period of property oversupply.

The Determinants of Gold Price in Malaysia

The purpose of this paper is to look into the linkage between inflation rate, exchange rate, stock market return with price of gold. The sample collected for this empirical study covered 30 years of data from 1991 to 2020. The secondary data was collected annually and total 30 observations are taken for each variable. Multiple Linear Regression model is developed to find out the linkage between variables chosen with gold prices. The independent variables included Inflation rate (Consumer Price Index), exchange rate (Malaysia to USD), stock market return (FTSE Bursa Malaysia Kuala Lumpur Composite Index) and dependent variable is Price of Gold. Besides that, several tests are used including Unit Root Test (Augmented Dickey-Fuller Test), Jarque-Bera Normality Test, Breusch-Godfrey Serial Correlation LM Test, Heteroscedasticity-White Test, Ramsey Regression Equation Specification Error (RESET) Test and Granger Causality Test. The time series analysis used as the methodology by using Eview 11 to proceed all the test. The result showed that inflation rate and exchange rate have strong positive link to gold price while stock market return does not have significant relationship with gold price. In summary, this research can provide reference for other investors.

Stock Market Reactions on Shariah Indices Following Sukuk Issuances: CAAR Analysis on 2008-Financial Crisis

The purpose of this study is to look at how stock markets in Malaysia reacted to sukuk issuance announcements from 2004 to the post-2008 financial crisis by examining 50 selected companies listed in The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI), FTSE Bursa Malaysia Emas Shari’ah Index (FBM EMAS), FTSE Bursa Malaysia Hijrah Shari’ah Index (FBM HIJRAH), and Dow Jones Islamic Market Index (DJIM). The data gathered from Datastream, Bloomberg, the Securities Commission Malaysia, and the Bursa Malaysia stock exchange were used to compile this study. A three-year estimation period to investigate market reactions using cumulative average abnormal return (CAAR) was adopted in this study. To investigate market efficiency, this study looked at symmetric and asymmetric event windows. This study discovers that markets responded favourably before the crisis but negatively and significantly during and after the crisis. The findings of this study provide advice to policymakers on how to direct regulators, investors, and issuers to the most stable sukuk during a crisis, as well as useful information and suggestions to issuers, policymakers, regulatory organisations, and investors in Islamic bonds.

Impact of COVID-19 on the Co-Movement of Cryptocurrencies and Financial Assets: Evidence from Malaysia

Due to the significant increase in novel coronavirus disease (COVID-19) cases in Malaysia, this study took the initiative to examine the impact of COVID-19 on the co-movement of five selected cryptocurrencies and two financial assets, namely FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) and Ringgit Malaysia over United States Dollar (MYRUSD). By using the daily frequency data from May 2013 to July 2021, the Dynamic Conditional Correlation of Multivariate GARCH (MGARCH-DCC) was applied to examine the time-varying conditional correlation of these financial assets as it could determine the co-movement of the assets. Then, independent t-test and non-parametric Mann-Whitney U test were utilised to examine the conditional correlation difference from the pre-COVID-19 pandemic and during the COVID-19 pandemic period. The results of the independent t-test and Mann-Whitney U test proved that the co-movements of the cryptocurrencies and FBMKLCI and MYRUSD had significant differences after the COVID-19 pandemic outbreak in Malaysia. This implied that co-movement between the cryptocurrencies and FBMKLCI and MYRUSD was impacted by the COVID-19 pandemic as it was strengthened during the COVID-19 pandemic period, except for Binance and Cardano with FBMKLCI, which showed a weakened co-movement during the COVID-19 pandemic period. These findings provided a crucial implication for all stakeholders as the findings could be used as guidance in reallocating the investment portfolio, especially during the COVID-19 pandemic period.

PERFORMANCE OF KUALA LUMPUR COMPOSITE INDEX STOCK MARKET

Financial Times Stock Exchange (FTSE) Bursa Malaysia Kuala Lumpur Composite Index (KLCI) is made up of over 30 large companies listed on the Bursa Malaysia Main Market. All FTSE Bursa Malaysia data are calculated and disseminated every 15 seconds in real-time. It is believed that the volatility of the stock market has a negative impact on real economic recovery. This paper aims to describe the underlying structure and the phenomenon of the sequence of observations in the series. The information obtained, can determine the performance of time series model to fit the data series from January 2002 until December 2018. Autoregressive Integrated Moving Average (ARIMA) and Generalized Autoregressive Conditional Heteroscedasticity (GARCH) models have been shown to provide the correct trend of volatility. The objectives of this paper are to determine the overall trend of the KLCI stock return and to investigate the performance of Generalized Autoregressive Conditional Heteroscedasticity (GARCH) and Autoregressive Integrated Moving Average (ARIMA) based on KLCI stock return. Root Mean Square Error (RMSE) and Mean Absolute Percentage Error (MAPE) have been chosen to be used in this paper to measure accuracy. The results show that the best ARIMA model is ARIMA(1,1), while for the GARCH model, it is GARCH(1,1).

Intertemporal price discovery between stock index futures and spot markets: New evidence from high‐frequency data

AbstractThis article utilizes high‐frequency 15‐s intraday data from September 2017 through to August 2018 to investigate price leadership dynamics between Kuala Lumpur index futures (FKLI) and its underlying spot market: FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) in Bursa Malaysia. Harnessing the explanatory powers of Wavelet analysis, we employ Maximal Overlap Discrete Wavelet Transform to evaluate interdependence between contemporaneous futures and spot returns. We observe that price discovery between futures and spot markets at granular level is a scale‐dependent phenomenon. Moreover, we record a counter‐intuitive but not unprecedented evidence of futures market lagging the spot market in price formation. This discrepancy approaches convergence in 1–8 min. Our findings constitute evidence against the efficient market hypothesis and hint at opportunities for statistical arbitrage by high‐frequency trading. The results from time‐frequency domain receive strong support from vector error correction robustness checks, though corroboration is less conclusive from DCC‐GARCH and Baba, Engle, Kraft, and Kroner‐GARCH results.

Volatility of Malaysian conventional and Islamic indices: does financial crisis matter?

PurposeThis study aims to investigate the volatility of conventional and Islamic indices and to explore the impact of the global financial crisis toward the volatility of both markets in Malaysia.Design/methodology/approachThe data consist of financial times stock exchange group (FTSE) Bursa Malaysia Kuala Lumpur Composite Index and FTSE Bursa Malaysia Hijrah-Shari‘ah Index covering the period January 2008-October 2014. Generalized autoregressive conditional heteroskedasticity is used to find the volatility of the two markets and an ordinary least square model is then used to investigate the impact of the crisis toward the volatility of those markets.FindingsInterestingly, the result shows that Islamic index is less volatile during the crisis compared to the conventional index. Furthermore, the crisis is proven to significantly affect the volatility of conventional index in the short run and Islamic index in the long run.Originality/valueThis study explores the volatility–financial crisis nexus, especially for the Islamic financial markets, which to the best of the author’s knowledge, is still lacking empirical research which may improve the understanding upon this issue.

CO-MOVEMENT AND CAUSAL RELATIONSHIP BETWEEN STOCK MARKET AND MACROECONOMIC VARIABLES: LATEST EVIDENCE FROM MALAYSIA

Previous studies pertaining to the co-movement and causal relationship between Malaysian stock markets and domestic macroeconomic variables are by now quite well documented. Nonetheless, to the best of authors’ knowledge, there is a void in the literature about foreign macroeconomic variables. Therefore, this paper aims to examine co-movement and causal relationship between FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) with foreign macroeconomic variables namely world crude oil price, gold price, and five world major stock market indices; Singapore’s Straits Times Index (STI), Chinese Shanghai A-Share Index (SHAI), the US’s Dow Jones Industrial Average (DJIA), Hong Kong’s Hang Seng Index (HSI) and Japanese Nikkei 225 Index (NIK). We also include domestic macroeconomic variables namely private sector domestic credit, gross international reserves and foreign currency assets, and an exchange rate of Malaysian ringgit (MYR) to the US dollar (USD) in this study. Using 9-year monthly data series from 2010 to 2018, the Augmented Dickey-Fuller (ADF) test reveals that data series have unit root in level order, but become integrated when converted into the first difference. The t-statistics of the Trace test suggests that FBMKLCI co-moves with Malaysian gross international reserves and foreign currency assets, world gold price and STI in the long run, respectively. Further, the VECM notes the absence of long-run or short runs causal relationships except Singapore’s STI to FBMKLCI in the short run. The pairwise Granger causality test indicates a one-way causal relationship running from FBMKLCI to gross international reserves and foreign currency assets. The findings benefit stock market investors, diversified portfolio fund managers, market regulators, and policymakers besides enriching the existing literature.

Forecasting the Financial Times Stock Exchange Bursa Malaysia Kuala Lumpur Composite Index Using Geometric Brownian Motion

In Malaysia, Financial Times Stock Exchange (FTSE) of Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) provides charts, companies’ profile and other market data to help the local and foreign i nvestors to make decisions involving their investments. Until now, there have been a lot of investors who faced losses due to making wrong investments at wrong times. The objective of this study is to forecast FBMKLCI for a one - month period using different periods of data. Besides, this study finds the suitable length of period when the forecasted values are the most accurate for FBMKLCI. Geometric Brownian motion (GBM) of stochastic calculus is used to predict the future indices. The results showed that th e forecasted FBMKLCI needed 1 to 20 weeks of input data to come out with the best values. The forecasted FBMKLCI will only be accurate within 4 weeks; after that the values will diverge. Since the average value of MAPE for eight different forecasted values is 1.54%, GBM can be used to predict the future FBMKLCI.

Information Spillover Between Crude Oil and Stock Markets: Evidence from Subsidy Cut for RON95 Fuel Price in Malaysia

Malaysia has been enjoying fixed retail prices for research octane number (RON) 95 petrol and diesel as a form of subsidy from the government since 1983. As of December 2014, the pricing of RON95 and diesel officially went on a managed float mechanism. Therefore, this study examines how information on oil shocks is transmitted to FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) upon the announcement of subsidy cut for RON95 fuel price on 2 October 2014. The sample period of September 2013–December 2014 is separated into the pre-announcement (3 September 2013–1 October 2014) and post-announcement (2 October 2014–28 November 2014) periods. Using the forecast error variance decomposition, the results indicate that Brent crude oil prices dominate information spillover during the post-announcement period. From the perspective of investors’ behaviour, this study suggests that investors’ sensitivity towards information on oil price is elevated by the announcement of subsidy cut and steers their consciousness towards information on oil prices in making decisions.

The impact of derivatives on Malaysian stock market

The essential of derivatives has been discovered by researchers over recent decade. However, the conclusions made regarding the impact of derivatives on stock market volatility remains debatable. The main objective of this study is to examine the impact of derivatives on Malaysian stock market volatility by exploring FTSE Bursa Malaysia Kuala Lumpur Composite Index Futures (BMD FKLI) using FBM KLCI as the underlying asset. Generalized Autoregressive Conditional Heteroskedasticity (GARCH) (1, 1) model was employed to realize the objective. The results have shown that the introduction of futures trading has decreased the volatility of Malaysian stock market. The volatility increased vigorously during the Asian financial crisis compared to the Global financial crisis. However, the role of futures as a risk transfer is agreed as it could improve the market by decreasing the volatility in the spot market.

The Relationship between Macroeconomic Variables and FTSE Bursa Malaysia Kuala Lumpur Composite Index

This study aims to examine the relationship between top ten constituents in FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) with a set of macroeconomic variables and industrial production using Johansen co-integration test. This study also analyzes the respond of each macroeconomic variable on the stock indices using Impulse Response Function (IRF) and forecast error decomposition. The findings show a long-run relationship between each stock index in FBM KLCI with macroeconomic variables and that the shocks of stock indices on its own shock contribute the largest portion followed by money supply. In addition, we apply GARCH (1, 1) model to determine which macroeconomic affects volatility of stock indices. The result shows that macroeconomic volatility does not affect much on Genting and IHH Healthcare, but Public Bank Bhd, Tenaga Nasional, Malayan Banking, CIMB Group Holdings, Axiata Group Bhd, Petronas Chemicals Group Bhd are affected by the volatility of macroeconomic variables.

Stock price and volume effects associated with changes in the composition of the FTSE Bursa Malaysian KLCI

We examine the stock price and volume effects associated with changes in the composition of the FTSE Bursa Malaysia Kuala Lumpur Composite Index (KLCI), over the time period of 2005–2012. We find evidence to support the price pressure hypothesis for both additions to and deletions from the KLCI. This is because significant stock price and trading volume effects in the pre index revision period are entirely reversed after the announcement of the news. Our empirical findings can be explained by the market microstructure literature. Significant changes in liquidity cause trading volume and stock prices to reverse back to their original level before the index revisions took place.

Stock Price and Volume Effects Associated with Changes in the Composition of the FTSE Bursa Malaysian KLCI

We examine the stock price and volume effects of changes in the composition of the FTSE Bursa Malaysia Kuala Lumpur Composite Index (KLCI), over the time period of 2005 to 2012. We find evidence to support the price pressure hypothesis for both additions to and deletions from the KLCI. This is because substantial stock price and trading volume effects in the pre index revision period are entirely reversed after the announcement of the news. Significant changes in liquidity causes trading volume and stock prices to reverse back to their original level before the index revisions took place.

Bivariate Value-at-risk in the emerging Malaysian sectoral markets

This study examines the transmission of price changes and volatility among the Malaysian economic barometer (FTSE Bursa Malaysia Kuala Lumpur Composite Index- FBMKLCI) and four sectoral markets after the Asian financial crisis. The preliminary structural break identification provides an optimal sample size for the cross-markets transmission mechanism analysis. In order to reveal the hidden intention of interactions among the sectoral markets, the pair-wise markets which consist of CI-IND, CI-PLN, CI-PRP and CI-FIN are evaluated using a bivariate asymmetric BEKK model. The major intention of this study focuses on the cross-market hedging and market risk evaluations in terms of shocks and volatility.