The Influence of the Financial, External and Real Output Indicators on Malaysian Stock Market

This research investigated the linkages between the movements of the financial, external and real output indicators with the FTSE/BM in the long-run and short-run to determine the viability of using available information as indicators to predict Malaysian stock prices. The co integration and causality approach was used to determine the influence of macroeconomic variables changes on the FTSE/BM Top 100 Index, and monthly data was used for the analysis from the period September 1998 to October 2011. A Johansen co integration test indicated a positive long-run relationship between the FTSE/BM Top 100 Index and oil prices, industrial production, and consumer price index, and a negative long-run relationship with money supply, interest rate, and exchange rate. The error correction model estimated that the speed of adjustment was only 21.6%, which indicates that the Malaysian stock market converges on equilibrium within five months. Granger causality tests showed no causal relationship between the Malaysian stock market and the interest rate, but showed bidirectional movement with consumer price index and unidirectional movement from money supply and oil price with respect to the Malaysian stock market; in addition, unidirectional movement was found from the Malaysian stock market to the exchange rate and industrial production. The conclusion was that the Bursa Malaysia is an inefficient stock market with respect to macroeconomic variable such as money supply, oil price, and consumer price index because Malaysian stock market prices could be predicted using available information for these variables in the short run for the study’s selected time period