A study on the effect of macroeconomic factors on stock market performance in Malaysia

Abstract

This study examines the effect of macroeconomic variables on stock market performance in Malaysia from January 2015 to December 2021. The macroeconomic variables included in this study are inflation rate, real effective exchange rate, m2 money supply and short-term interest rate. Johansen Cointegration Test has been utilized if the variables have long-term impact on Malaysian stock market performance; whereas regression analysis will quantify the impact. The results show that the real effective exchange rate has a moderate positive effect on KLCI index. Secondly, the inflation rate and overnight-policy rate have long-term positive effect on the KLCI index. M2 money supply has a long-term negative effect on the KLCI index. This study extends previous studies by examining the effect of macroeconomic variables on stock market performance in emerging market.

Keywords

• inflation rate
• real effective exchange rate
• m2 money supply
• overnight policy rate