Modeling the relationship between KLCI and monetary policy after the 1997 Asian financial crisis

Using Johansen multivariate cointegration test with structural break and Granger-causality based on vector error correction model, the interactions between stock prices (KLCI) and monetary policy variables (M1, M2 and interest rate) are examined in the Malaysian setting using monthly data for the po...

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Main Authors:	Abu Hassan Shaari Md Nor, Ruzita Abdul Rahim, Hamizah Mohd, Zaidi Isa, Ugur Ergun
Format:	Article
Language:	English
Published:	Penerbit Universiti Kebangsaan Malaysia 2010
Online Access:	http://journalarticle.ukm.my/1788/ http://journalarticle.ukm.my/1788/ http://journalarticle.ukm.my/1788/1/332-616-1-SM.pdf

id	ukm-1788
recordtype	eprints
spelling	ukm-17882016-12-14T06:30:15Z http://journalarticle.ukm.my/1788/ Modeling the relationship between KLCI and monetary policy after the 1997 Asian financial crisis Abu Hassan Shaari Md Nor, Ruzita Abdul Rahim, Hamizah Mohd, Zaidi Isa, Ugur Ergun, Using Johansen multivariate cointegration test with structural break and Granger-causality based on vector error correction model, the interactions between stock prices (KLCI) and monetary policy variables (M1, M2 and interest rate) are examined in the Malaysian setting using monthly data for the post 1997 Asian financial crisis period from January 2000 to May 2008. Four major conclusions can be drawn from the results. First, evidence of significant cointegration relationships prevails only when structural break is considered in the models. Second, among the monetary variables, only interest rate (money market rate, MM) has a direct short-run relationship with stock prices whereas the relationships between monetary aggregates and stock prices are indirect through MM. Third, all three monetary variables consistently show long-run impacts on stock prices. Fourth, between the two monetary aggregates, M2 consistently prevails as an effective monetary policy tool whereas M1 fails to assume such function. The policy implication of this study is that Bank Negara Malaysia can rely on interest rate rather than money supply as short-term measure to manage the stock market more effectively. However, in the long-run, both interest rate and money supply (specifically M2) can be relied upon to monitor the stock market condition. Investors in the meantime may interpret results of this study as supporting evidence that the stock market in Malaysia is still inefficient. Accordingly, they should exploit new information triggered by changes in monetary policy stance to formulate their future investment strategy Penerbit Universiti Kebangsaan Malaysia 2010-07 Article PeerReviewed application/pdf en http://journalarticle.ukm.my/1788/1/332-616-1-SM.pdf Abu Hassan Shaari Md Nor, and Ruzita Abdul Rahim, and Hamizah Mohd, and Zaidi Isa, and Ugur Ergun, (2010) Modeling the relationship between KLCI and monetary policy after the 1997 Asian financial crisis. Jurnal Pengurusan, 30 . ISSN 0127-2713 http://www.ukm.my/penerbit/jurus.htm
repository_type	Digital Repository
institution_category	Local University
institution	Universiti Kebangasaan Malaysia
building	UKM Institutional Repository
collection	Online Access
language	English
description	Using Johansen multivariate cointegration test with structural break and Granger-causality based on vector error correction model, the interactions between stock prices (KLCI) and monetary policy variables (M1, M2 and interest rate) are examined in the Malaysian setting using monthly data for the post 1997 Asian financial crisis period from January 2000 to May 2008. Four major conclusions can be drawn from the results. First, evidence of significant cointegration relationships prevails only when structural break is considered in the models. Second, among the monetary variables, only interest rate (money market rate, MM) has a direct short-run relationship with stock prices whereas the relationships between monetary aggregates and stock prices are indirect through MM. Third, all three monetary variables consistently show long-run impacts on stock prices. Fourth, between the two monetary aggregates, M2 consistently prevails as an effective monetary policy tool whereas M1 fails to assume such function. The policy implication of this study is that Bank Negara Malaysia can rely on interest rate rather than money supply as short-term measure to manage the stock market more effectively. However, in the long-run, both interest rate and money supply (specifically M2) can be relied upon to monitor the stock market condition. Investors in the meantime may interpret results of this study as supporting evidence that the stock market in Malaysia is still inefficient. Accordingly, they should exploit new information triggered by changes in monetary policy stance to formulate their future investment strategy
format	Article
author	Abu Hassan Shaari Md Nor, Ruzita Abdul Rahim, Hamizah Mohd, Zaidi Isa, Ugur Ergun,
spellingShingle	Abu Hassan Shaari Md Nor, Ruzita Abdul Rahim, Hamizah Mohd, Zaidi Isa, Ugur Ergun, Modeling the relationship between KLCI and monetary policy after the 1997 Asian financial crisis
author_facet	Abu Hassan Shaari Md Nor, Ruzita Abdul Rahim, Hamizah Mohd, Zaidi Isa, Ugur Ergun,
author_sort	Abu Hassan Shaari Md Nor,
title	Modeling the relationship between KLCI and monetary policy after the 1997 Asian financial crisis
title_short	Modeling the relationship between KLCI and monetary policy after the 1997 Asian financial crisis
title_full	Modeling the relationship between KLCI and monetary policy after the 1997 Asian financial crisis
title_fullStr	Modeling the relationship between KLCI and monetary policy after the 1997 Asian financial crisis
title_full_unstemmed	Modeling the relationship between KLCI and monetary policy after the 1997 Asian financial crisis
title_sort	modeling the relationship between klci and monetary policy after the 1997 asian financial crisis
publisher	Penerbit Universiti Kebangsaan Malaysia
publishDate	2010
url	http://journalarticle.ukm.my/1788/ http://journalarticle.ukm.my/1788/ http://journalarticle.ukm.my/1788/1/332-616-1-SM.pdf
first_indexed	2023-09-18T19:34:19Z
last_indexed	2023-09-18T19:34:19Z
_version_	1777405168600481792

Modeling the relationship between KLCI and monetary policy after the 1997 Asian financial crisis

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