Is Domestic Stock Price Cointegrated with Exchange rate and Foreign Stock Price? Evidence from Malaysia

Sarkar Kabir, Omar Bashar, Mansur Masih

Research output: Contribution to journalArticle

Abstract

The growth of the financial sector of an economy such as, the stock market is usually found to be highly correlated with the growth of the real sector of an economy. In this study, we make an attempt to investigate whether there is any significant relationship between the stock prices, macroeconomic variables and foreign stock prices in an economy. Using the Malaysian quarterly data from 1991-2010 and the time series techniques such as, cointegration, long run structural modeling, vector error correction, variance decompositions, impulse response functions, and persistence profile approaches, we evidence a significant statistical relationship existing between the Malaysian stock prices, exchange rate and foreign stock prices with the exchange rate being the most leading variable. We also found evidence of negative impact of the Asian Financial Crisis on
Malaysian stock prices in the short run. The results appear to be plausible and contain strong policy implications.
Original languageEnglish
Pages (from-to)285 – 302
Number of pages18
JournalThe Journal of Developing Areas
Volume48
Issue number3
DOIs
Publication statusPublished - 2014

Keywords

  • Domestic Stock Price
  • Foreign Stock Price
  • Exchange rate
  • Cointegration

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