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Stock Market and Aggregate Investment Behavior in Malaysia: An Empirical Analysis

  • South East Asia Paper
  • Published:
Transition Studies Review

Abstract

The present paper analyzes the role of stock market, more specifically real stock prices and stock market uncertainty/volatility, on aggregate investment behavior for an emerging market, Malaysia. Employing the autoregressive distributed lags approach to cointegration test, the paper establishes a long run equilibrium that ties the aggregate investment to its determinants—real income, real stock prices, real lending rate and stock market volatility. In the long run, we document a positive relation between aggregate investment and real stock prices and a negative relation between aggregate investment and stock market volatility. These results are further supported by our analyses of their dynamic interactions based on Granger causality and impulse-response functions. Based on the results, the real stock market prices, which has yet reached the level recorded prior to the crisis, may have explained the low investment in Malaysia after the Asian crisis. Moreover, the stock market volatility can also post a threat to the investment performance.

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Notes

  1. As shown by De Santis and Imrohoroglu (1997), the GED has the ability to well capture the leptokurtic properties of financial series. The value of parameter v below 2, which we find in our case, suggests thicker tails of the distribution than the standard normal, i.e. the leptokurtic property. We also document the presence of asymmetric volatility in the Malaysian market, which is well captured by EGARCH variance specification. The GARCH-type models are now standard and, as such, are not detailed here.

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Authors and Affiliations

  1. International Centre for Education in Islamic Finance (INCEIF), Kuala Lumpur, Malaysia

    Mansor H. Ibrahim

  2. Flinders Business School, Flinders University, Adelaide, SA, 5001, Australia

    Abdullahi Ahmed

Authors
  1. Mansor H. Ibrahim
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  2. Abdullahi Ahmed
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Correspondence to Mansor H. Ibrahim.

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Ibrahim, M.H., Ahmed, A. Stock Market and Aggregate Investment Behavior in Malaysia: An Empirical Analysis. Transit Stud Rev 20, 265–284 (2013). https://doi.org/10.1007/s11300-013-0280-8

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  • DOI: https://doi.org/10.1007/s11300-013-0280-8

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