Did the Foreign Exchange Market Cheer or Jeer in Response to Political Events? An Event Study of Malaysia – Some Stylised Facts

This paper explores the effects of political events on foreign exchange returns in Malaysia. We identify five recent events that induce political uncertainty on investors, namely the 13th General Election (GE13), the imprisonment of a key opposition politician, the scandal from the 1MDB exposé, the appointment of a new Central Bank Governor and the 14th General Election (GE14). Using an event study, our findings show that the imprisonment of the opposition party leader triggered a favourable response from the foreign exchange market. However, market reactions to the 1MDB scandal were followed largely unfavourable. The GE13 triggered unfavourable market response, while the reverse is true for market reactions to GE14. Market response to the appointment of the new Central Bank Governor was rather favourable. The Event Study is the first of its kind that examines the foreign exchange market implications of key political events in Malaysia. There are practical considerations emanating from these findings