Malaysian Financial Market Research Articles

Evaluating the efficacy of financial distress prediction models in Malaysian public listed companies

This research critically examines the precision of financial distress prediction models, with a particular focus on their applicability to Malaysian publicly listed companies under Practice Note 17 (PN17) from 2017 to 2021. Financial distress, defined as the imminent risk of bankruptcy evidenced by an inability to satisfy creditor demands, presents a significant challenge in corporate finance management. The study underscores the necessity of an efficient prediction model to strategize preemptive measures against financial crises. Unlike prior research, which predominantly compared prediction models without assessing their accuracy, this study incorporates an accuracy analysis to discern the most effective model. Utilizing the Grover and Zmijerski models, it assesses whether companies listed under PN17 are experiencing financial distress. A noteworthy finding is the substantial correlation between the return on assets (ROA) and the prediction of financial distress in these companies. Furthermore, the Grover model demonstrates a remarkable 100% accuracy rate, indicating its exceptional efficiency in forecasting financial distress. This research not only contributes to the existing body of knowledge on financial distress prediction but also offers practical insights for companies and stakeholders in the Malaysian financial market.

Was short selling embraced by participants in an emerging market during the COVID-19 pandemic?

The COVID-19 pandemic has put the financial system under considerable strain and triggered an unprecedented reaction in the financial market. To promote financial stability and strengthen the Malaysian financial market, the authorities banned regulated short selling activities in March 2020 and subsequently lifted the ban in January 2021. This study objectively examines the stock price reactions toward regulated short selling activities announcements and documents the most recent empirical study which examines the short selling related announcements in the emerging market. There are differing opinions on stock price reactions regarding short selling announcements, so to examine the stock price reactions, the event study methodology was employed. The event window for this study is -15 days, 0 (announcement day), +15 days. Interestingly, the findings showed that the stock prices responded negatively to the ban of regulated short selling activities and responded positively to the removal of the ban. This study supports the downward biased hypothesis which implies that the Malaysian market participants welcome regulated short selling activities.

The Impact of the Investor Sentiment Index (SMI) on the Malaysian Stock Market during the COVID 19 Pandamic

COVID-19 is a highly contagious viral infection that has changed the world, with many human lives being lost. This study aimed to analyse investors' sentiment and stock market behaviour in Malaysia during the COVID-19 pandemic. Stock market performance was measured through the FTSE BURSA 100 Index (T100) from January 29, 2020, until March 31, 2021, by employing principal component analysis (PCA) to construct the investors' Sentiment Index (SMI). The results indicated that the sudden outbreak of COVID-19 and its rapid spread significantly impacted investors' psychology, which disrupted investors' investment decisions. Furthermore, rapid increases in confirmed COVID-19 cases and deaths increased the uncertainty and unpredictability of the country's economic situation. As a result, the Malaysian financial market showed a steep downward trend during the COVID-19 pandemic.

The Impact of the Investor Sentiment Index (SMI) on the Malaysian Stock Market during the COVID 19 Pandamic

COVID-19 is a highly contagious viral infection that has changed the world, with many human lives being lost. This study aimed to analyse investors' sentiment and stock market behaviour in Malaysia during the COVID-19 pandemic. Stock market performance was measured through the FTSE BURSA 100 Index (T100) from January 29, 2020, until March 31, 2021, by employing principal component analysis (PCA) to construct the investors' Sentiment Index (SMI). The results indicated that the sudden outbreak of COVID-19 and its rapid spread significantly impacted investors' psychology, which disrupted investors' investment decisions. Furthermore, rapid increases in confirmed COVID-19 cases and deaths increased the uncertainty and unpredictability of the country's economic situation. As a result, the Malaysian financial market showed a steep downward trend during the COVID-19 pandemic

Factors Influencing Financial Risk Tolerance: A Review

High financial risk tolerance level encourages investors’ participation in financial market. Thus, elevate their capabilities to achieve their financial goals and support national economic growth and well-being. This paper aims to investigate the factors affecting financial risk tolerance from studies around the globe. A comprehensive review of financial risk tolerance is carried out with a particular attention on factors that impact financial risk tolerance on financial decisions. This study indicates that financial risk tolerance can be explained by demographic profiles, psychology, social, geographical differences, and financial capability factors. These findings will be useful to professionals, technologists, and financial institutions to identify potential investors based on the indicators concluded with the suggestion on financial technology (FinTech) utilisation. Hence, encouraging participation in the Malaysian financial market during global health crisis and reaching economic well-being towards industrial revolution 4.0 (IR 4.0).

General Election and Stock Market Performance: A Malaysian Case

The 2018 Malaysia general election has marked a new history for the Malaysia political structure. After more than 60 years Barisan Nasional ruling the country, in the 2018 general election Barisan Nasional lose the game to the Pakatan Harapan. The results of the 14th general election has caused a shock not only to political arena but also to the Malaysian financial market. Therefore, this paper aims to investigate if there is any significant effect of 14th Malaysia general election on the Malaysia financial market specifically the stock market. Results from the statistical analysis reveal that there are significant changes in the Malaysia stock market performance after the 14th general election.

Sukuk and their Impact on Islamic Financial Markets: Malaysia as an Example

The Islamic finance industry has been booming and widespread in the last decade. Financial institutions that deal with Islamic financial instruments have spread in many countries, one of which is Islamic Sukuk. The Sukuk has gained considerable importance in a few years, because of its comparative advantage with other financial instruments, which has encouraged many financial markets to deal with such instruments. Accordingly, the purpose of the present study is to identify the impact of Sukuk on the Malaysian financial market by analyzing the data and statistics during (2003-2017). The study has found that Sukuk has a positive impact on the Malaysian Islamic financial market, and that the increased demand for Sukuk leads to an increase in the volume of issues in the Malaysian Islamic financial market, allowing it to be more active and effective.

A homoscedastic co-integration analysis of Malaysian financial market

A homoscedastic co-integration analysis of Malaysian financial market

A homoscedastic co-integration analysis of Malaysian financial market

This article examined long-term relationships and dynamic links between Malaysian equity market and macroeconomic forces, including inflation rates, interest rates, money supply and real economic activity. It employed the vector error correction model and annual time series for the 1977-2015 period. The empirical results show the existence of six co-integrating vectors, implying a long-term relationship between the selected variables. In addition, inflation rates and interest rates were shown to be negatively associated with Malaysian capital market. Money supply and real economic activity were found to be positively related to Malaysian capital market. However, the sample resulted in several observations during the economic and financial crises periods which influence the findings obtained from the regression.

Competition law and the Malaysian financial services market: an analysis of the structure and level of competition in the market

The main objective of competition law is to protect the process of competition by preventing anti-competitive behaviour such as abuse of dominant position and anti-competitive mergers. The assessment of market structure and the level of competition in the financial sector are important for the exercise of the competition authority's power to enforce the national competition law. It helps the competition authority to better understand the nature of the financial services market such as the existence of market power and features that facilitate anti-competitive behaviour. This paper attempts to analyse structure of the market and the level of competition in the Malaysian financial market using two measures, namely concentration ratio (CR) and Herfindahl-Hirschman index (HHI). The study shows that the banking sector can be considered as 'unconcentrated'. However, based on ownership (foreign or local) the study indicates such sector is 'moderately' concentrated. For the insurance sector, general insurance can be considered as 'unconcentrated', whereas life insurance is 'highly concentrated'.

A comparative study on value at risk and conditional value at risk with an application to the Malaysian financial market

Value at risk (VaR) and conditional value at risk (CVaR) are frequently used as risk measures in risk management. VaR estimates the maximum expected loss over a given time period at a given acceptance level, whereas CVaR measures the extreme risk or the risk beyond VaR. This paper aims to perform an empirical study on VaR and CVaR based on the daily returns of the Malaysian stock markets traded in Kuala Lumpur Composite Index (KLCI) over a time period using the RiskMetrics and the peaks over the threshold (POT) methods. In particular, the IGARCH (1, 1) model is applied for the RiskMetrics method, whereas the generalized Pareto distribution (GPD), a distribution based on an extreme value theory, is considered for the POT method. The results show that the GPD, which is considered in the POT method, provides an adequate fit to the data of threshold excesses, and the POT is a more reliable measure of risks compared to the RiskMetrics. Key words: Value at risk, conditional value at risk, RiskMetrics, peaks the over threshold, IGARCH, generalized Pareto.

Is faith‐based investing rewarding? The case for Malaysian Islamic unit trust funds

PurposeThe growing demand for alternative investment vehicle which adheres to shari'a principles has prompted other measures to boost the Islamic capital market. Unit trust funds in Malaysia have been growing exponentially and their existence signifies the extent of development in the Malaysian financial market. For foreign and domestic investors who have low risk tolerance and wish to diversify, unit trust funds offer the opportunity to invest. The increasing relevance of unit trust funds as an investment instrument has driven us to analyze the fund's performance. This paper addresses these issues.Design/methodology/approachThe paper examines the comparative performance of Malaysian unit trust funds vis‐à‐vis their non‐Islamic counterparts using a variety of measures, such as Sharpe, Treynor, Jenson and Fama's selectivity, net selectivity and diversification. The paper also examines the persistence of performance using Carhart's four‐factor pricing models. Lastly, the paper employs an analysis of cointegration to examine how the Islamic unit trust funds are related in long term with their non‐Islamic counterparts, as well as their respective market portfolios.FindingsThe paper finds no convincing performance differences between Islamic and non‐Islamic Malaysian unit trust funds. Controlling performance for style differences, the paper finds that non‐Islamic unit trust funds in Malaysia are value‐focused while Islamic unit trust funds are small cap oriented. In addition, similar reward to risk and diversification benefits exist only between Islamic and non‐Islamic Malaysian unit trust funds.Research limitations/implicationsThe Worldscope data are used to construct four‐factor models as opposed to Malaysian‐based data – given that Malaysia is an open economy that attracts global investors. Also, US T‐Bill rate is used rather than Malaysian risk‐free rate because no other securities are as riskless as US Treasury Bills.Practical implicationsThe paper observes a significant long‐term relationship between Islamic unit trust funds portfolio and non‐Islamic unit trust funds portfolio. The implication here suggests that investors in Malaysian unit trust funds will most likely benefit from international diversification of financial risks. They do not, however, stand a good chance to gain from portfolio diversification in the local unit trust funds market.Originality/valueThe study contributes to the existing Islamic investment literature by pursuing an empirical analysis on the performance of both Islamic and non‐Islamic Malaysian unit trust funds by using more recent data and further investigating the long‐run relationship between Islamic and non‐Islamic unit trust funds.

Impact of the Global Financial Crisis on the Volatility of the Malaysian Stock Market

Stock market volatility is important in determining the cost of capital and to assess investment and leverage decisions since volatility is synonymous with risk. Risk-averse investors could be affected negatively due to substantial changes in volatility of the financial markets. We focus on the global crisis of 2007/2008 and its impact on the Malaysian financial market. We use GARCH models to model the volatility in order to determine the effect of the crisis on the KLCI. In order to be able to model the volatility, we first test the efficiency of the market using ARIMA models. We found that because of the financial crisis there was an increase in the impact of news about volatility from the previous periods but only a slight drop in the persistency of the conditional variance.

Financial Integration and International Diversification Benefits: Cross Country Evidence from a Malaysian Perspective

A vast deal of research presenting evidence on the benefits of international diversification has been published. The empirical studies came to rather diverse conclusions as the authors used different sampling data, analyzed different countries within a different time period. The purpose of this paper is to analyze the degree of financial integration and benefits of portfolio diversification between the Malaysian equity markets and developed and developing equity markets from Malaysian perspective. The research question is; Is Malaysian financial market integrated to developed and developing markets? It inspects the controversial issues of market segmentation and integration in an emerging market setting, namely Malaysia. In the analysis, the developed and developing equity returns are adjusted for exchange rate fluctuations using Ringgit Malaysia based exchange rates. By employing time series analysis, the paper also seeks to investigate which market actually leads the Malaysian stock market. The research is based on secondary data, existing theories and earlier studies regarding international integration of stock market movements. The methodology utilizes standard co integration analysis, vector error correction model and portfolio theory. We also rely on variance decomposition and impulse response functions to gauge the strength of the interactions among the variables. This study contains secondary data for the period of 1999 to 2008.The study comprises monthly closing Morgan Stanley Composite Index (MSCI) indices of twenty developed and developing countries. The findings from the analysis could be useful to fund managers in their essential decision for portfolio management. The findings may also be of interest to policy makers interested in stock market co movement, since internationalization of markets could represent significant capital inflow or outflow and thus influence savings and consumption decisions.

Financial Liberalisation and Interest Rate Determination in Malaysia

The paper investigates the importance of external factors in the domestic interest rate determination process and measures the openness and adjustment speed of Malaysian financial market. It also seeks to capture the effects of the Asian Financial Crisis 1997 (AFC) and the Malaysian government approaches to the crisis onto the process. Ordinary Least Square estimation method is employed on the time series data of domestic interest rates, foreign and domestic variables. Results of this study indicate the external factors are dominant in the domestic interest rate determination pre-AFC, but post-AFC domestic variables appear to affect most. In addition, the paper found that Malaysian domestic market is less opened with limited speed of foreign adjustment post-AFC.

The impact of capital controls on Malaysian banking industry betas

In response to the recent Asian financial crisis Malaysia introduced a series of capital control measures on 1 September 1998. The aim of these measures was to introduce greater stability to the Malaysian financial market. This study analyses the impact of the introduction of the capital controls on Malaysian bank betas. A study of the ten largest banks reveal evidence of a mean reversion type phenomena, in that the betas are drawn to the grand mean of unity.

New evidence on financial openness in Malaysia

This paper reports the results of an empirical study to ascertain the importance of external factors on the determination of domestic interest rate and to estimate the degree of openness of the Malaysian financial market employing the Edwards and Khan’s [Int. Monet. Fund Staff Paper 32 (1985) 377] model. Quarterly data for two different time periods, 1973.1–1985.3 and 1991.1–1998.3 have been used in our empirical study. The findings reveal that financial liberalization has made the Malaysian interest rate more responsive to foreign interest rates. The regression results seem to confirm the causal observation that the Malaysian economy is more open after 1990 and prior to Exchange Control 1998. With the domestic financial market more integrated with foreign financial market, any external shock would be transmitted to the domestic economy, and any attempts to insulate the economy from external shock would be extremely difficult. Based on the findings of the study, some reflections on national responses to the economic crisis in particular selective capital control and currency peg are offered.