Abstract

This research examines the impact of crude oil price and money supply on Malaysian stock price.
In this research, multiple regression technique is applied using monthly data from January 2009 to
December 2013 of Brent crude oil price obtained from Federal Reserve Economic Data (FRED)
Database, money supply acquired from the Monthly Statistical Bulletin published by Bank Negara
Malaysia and FTSE Kuala Lumpur Composite Index (FBM KLCI) sourced from Wall Street
Journal. The empirical findings of this research exhibit the evidence of positive influence of crude
oil price and money supply on Malaysian stock price.
1. Introduction

1.1 Research Background

In the theoretical context, there are different approaches in explaining the impact of crude oil price
and money supply on stock prices. These include the monetary portfolio hypothesis and stock
valuation model stating that money supply causes a fall in interest rates which consequently leads
to an increase in stock prices. Besides, the portfolio theory affirms that an increase in money supply
will lead investors to shift their portfolio from non-interest bearing money to financial assets.
Moreover, real activity theorists claim that money supply have a positive influence on stock prices.
This is because money supply delivers information on money demand, which is based on future
yield outlooks. An increase in money supply indicates an increase in money demand indicating an
increase in economic activity. Greater economic activity entails greater cash flows leading to higher
stock prices. However, Keynesian economists debate that money supply has a negative influence
on stock prices. This is due to the expectation of future contraction monetary policy resulting in the
increase in the purchase of bonds which increases the present interest and discount rate.
Consequently, present value of future earnings falls resulting in a fall in stock prices. In addition, as
money growth rate rises, inflation rate is anticipated to increase. Subsequently, the stock price falls.

Besides, crude oil price affects the economy. In the theoretical context, the association between oil
and stock prices is as follows. Stock prices are discounted values of expected future cash flows.
The net stock returns can be computed as follows:
() ()

whereby R (stock returns) =

-

c (cash flow stream)

r (discount rate)

E (expectation operator)

d (differentiation operator)

Therefore, discount rates and systematic movements of expected future cash flows affect stock
returns.

Oil prices can impact stock prices in three ways. The first way is oil is regarded as a raw material in
the manufacturing process of an oil-based product. An increase in oil price results in an increase in
the cost of production. Consequently, stock prices will fall as the performance of a company falls
due to higher costs of production causing a fall in the profitability of the company. The second way
is oil is regarded as a final product of an oil manufacturing firm. An increase in oil price results in
an increase in the profitability of an oil manufacturing firm. Consequently, stock prices will
increase as the performance of a company advances due to higher sales price causing a rise in the
profitability of the company. The third way is expected oil prices influence stock prices through the
discount rate. The discount rate comprises of expected inflation rate and expected real interest rate.
Therefore, for a net exporter of oil, a rise in oil price will increase its foreign exchange rate and
decrease its expected domestic inflation rate. A lower expected inflation causes the discount rate to
fall resulting in a surge in stock prices. On the contrary, for a net importer of oil, a rise in oil price
will lower its foreign exchange rate and increase its expected domestic inflation rate. A greater
expected inflation causes the discount rate to increase resulting in a decline in stock prices.

Theoretically, an increase in crude oil price will increase the cost of production of companies using
crude oil while it will increase the profits of companies producing crude oil. Hence, the impact of
crude oil price on stock price will have to take into consideration if the country is a net oil exporter
or importer. According to U.S. Energy Information Administration (2013), Malaysia is a net oil
exporter. This is because the production exceeds the consumption of oil in Malaysia. Hence, the
impact of crude oil price and money supply on Malaysia stock price varies from other countries.
Malaysia is a net oil exporter with a developing economy.

In the empirical context, there are different explanations on the impact of crude oil price and money
supply on the stock prices as well. Richards and Safar (2013), Arouri and Rault (2012), Valdés,
Vázquez and Fraire (2012), Wang and Chen (2011), Lai, Narayan and Narayan (2010) and Arouri
and Fouquau (2009) state that crude oil price have a positive impact on stock prices. Nonetheless,
Bhar and Nikolova (2009) and Miller and Ratti (2009) argue that crude oil price have a negative
impact on stock prices. Naik (2013), Caginalp and Desantis (2011), Srinivasan (2011), Yu (2011),
Rasiah (2010), Sohail and Hussain (2009), Som Sankar and Ghosh (2008) and Ratanapakorn and
Sharma (2007) affirm that money supply have a positive impact on stock prices. However, Asmy et
al (2009) and Daya Tahan Ekonomi Negara: Dasar dan Strategi Pengukuhan
(Universiti Kebangsaan Malaysia) debate that money supply has a negative impact on stock prices.

There have been numerous conflicts on the impacts of crude oil price and money supply on
different stock market indices. This is because the reaction of a particular stock market index also
has to consider if that country is a net oil exporter or importer. Different researches attained
indecisive and inconclusive results concerning the influence of crude oil price and money supply
on stock market indices. Hence, this research would be an attempt in investigating these issues.
1.2 FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI)
Background

The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) comprises of the 30
biggest and well-known financially sound companies on the Bursa Malaysia by market
capitalization that fulfil the eligibility requirements of the FTSE Bursa Malaysia Index Ground
Rules. It is computed based on a value weighted formula and accustomed by a free float factor,
using the real time and closing prices obtained from Bursa Malaysia. Every 15 seconds, the FBM
KLCI values are computed and disclosed on a real time basis. The endurance of the KLCI index
value conserves the Malaysian stock market past movements.

1.3 Brent Crude Oil Price Background

According to Cummans (2012), “B en ” originated from a joint project between Exxon Mobil
(XOM) and Royal Dutch Shell. He further stated that all of their oil deposits were named after
birds such as Brent goose. Besides, Brent is an acronym for the different layers in an oil turf which
are Broom, Rannoch, Etieve, Ness and Tarbat. He affirms that Brent and West Texas Intermediate
(WTI) crude oil are sweet oil but Brent oil is sourer than WTI. This is evaluated based on the
sulphur content.

He also claims that sweet crude is commonly manufactured in Africa, the Asia Pacific region,
the central U.S. and the North Sea region of Europe. He articulated that the Northwest regions of
Europe have the most supply of Brent oil and refineries of Brent oil. He claimed that Brent oil is
more expensive than WTI because Brent oil is marginally sourer than WTI and it requires more
refining to be used in machineries and vehicles. Recently, Brent oil immensely outpaced WTI.

1.4 Malaysia Money Supply Background

Money exists in three different forms in Malaysia. These include coins, currency notes and current
or demand deposits which are jointly known as current accounts of private sector holdings. Coins
and currency notes are physical money which is used in daily trading activities whereas current
deposit is money when an individual with this account spends the remaining balance in his current
account by issuing cheques.

There are various classifications of money supply. In Malaysia, it is generally classified into M1,
M2 and M3 by Bank Negara Malaysia. M1 is the currency in circulation and demand deposits of
the private sector. M2 is the combination of M1 and quasi-money which includes repurchase
agreements (repos), fixed and savings deposits of private sector holdings with commercial banks
and net issues of Negotiable Certificates of Deposit (NCDs). M3 is the total accumulation of M2
and repos, fixed and saving deposits of private sector holdings with finance firms, merchant banks,
discount houses and Bank Islam Malaysia, excluding placements of funds. In this research, M3 is
used to examine the impact of money supply on Malaysian stock price since it is used by central
banks to predict inflation. M1, M2 and M3 are published monthly in the Monthly Statistical
Bulletin by bank Negara Malaysia.

1.5 Problem Statement

Numerous researches were conducted mostly on developed countries and not on developing
countries. Besides, different empirical researches attained indecisive and inconclusive results
concerning the impact of crude oil price and money supply on stock market indices of developed
and developing countries of net oil exporters and importers. Moreover, there are conflicting
theories on the influence of crude oil price and money supply on stock market indices because this
has to consider if the country is a net oil exporter or importer as well. Domestic and international
investors need to decide on their investment plan and timing due to changes in macroeconomic
variables as these changes affect their portfolio investment. Without the knowledge on the impact
of crude oil price and money supply on Malaysian stock price, investors will not be able to adjust
their investment portfolio accordingly to the changes of the macroeconomic variables in time.
This will greatly affect the returns of the investment portfolio. Therefore, there is a need to
investigate the influence of crude oil price and money supply on the Malaysian stock market.

1.6 Objective

To investigate the impacts of crude oil price and money supply on Malaysia stock price.

1.7 Research Question

What are the impacts of crude oil price and money supply on Malaysia stock price?

1.8 Research Scope

This research examines the influence of crude oil price and money supply on Malaysian stock price
only. In this research, multiple regression technique is applied using monthly data from January
2009 to December 2013 of Brent crude oil price obtained from Federal Reserve Economic Data
(FRED) Database, money supply acquired from the Monthly Statistical Bulletin published by Bank
Negara Malaysia and FTSE Kuala Lumpur Composite Index (FBM KLCI) gathered from Wall
Street Journal.

1.9 Research Significance

This research benefits investors and researchers. With the knowledge on the impact of crude oil
price and money supply on Malaysian stock price, investors will be able to invest wisely and
diversify their portfolio in the Malaysian stock market respectively to the changes in crude oil price
and money supply based on their risk tolerance level. Moreover, researchers will be able to
compare and contrast the impacts of crude oil price and money supply on FBM KLCI with other
stock market indices globally. Furthermore, researchers can use this research as a reference for
future research. Besides, this research helps to fill in the literature gap on the impacts of crude oil
price and money supply on stock prices.

1.10 Expected Results

Both crude oil price and money supply are expected to have a positive impact on Malaysia stock
price.

1.11 Time Frame

The time-frame allocated for this research is approximately 14 weeks.

The rest of the paper is structured as follows. Section 2 reviews certain carefully chosen empirical
literature relating to this research. Section 3 delivers the theoretical rationalization and selection of
variables, research methodology and econometric framework. Section 4 reports and analyzes the
empirical findings of this research. Lastly, section 5 summarizes the findings of this research,
limitations of this research, and suggestions for future research and concludes this paper.
2. Literature Review

2.1 Crude Oil Price & Stock Price

According to Lin, Fang and Cheng (2010), there is no consensus among economists regarding the
relationship between crude oil price and stock price although crude oil price fluctuations are
typically regarded as one of the crucial factors in understanding stock price changes. This is
because various researches conducted provided contradicting results. This is due to the different
types of data and methodology applied by different researchers in their studies.

Asteriou, Dimitras and Lendewig (2013) discovered that oil prices have a positive influence on the
stock markets in Australia (developed country) but negative influence in China and India
(developing countries). They applied VAR models using monthly data from January 1988 to
December 2008 of stock market index in US dollars for Australia, Belgium, Brazil, Canada, China,
Finland, France, Germany, Greece, India, Italy, Japan, Kazakhstan, Korea, Kuwait, Malaysia,
Mexico, Netherlands, Nigeria, Norway, Oman, Qatar, Russia, Saudi Arabia, Singapore, Spain,
Thailand, Turkey, United Kingdom, United States and Venezuela obtained from Morgan Stanley
Capital International Index and the average crude oil price acquired from International Monetary
Fund, International Financial Statistics data via the Economic and Social Data Service.

Richards and Safar (2013) identified crude oil prices have a significant positive impact on stock
indices. They used panel data model using monthly data from April 2001 to November 2011 of
OPEC crude oil price per barrel and overall index of Iran, Kuwait, Qatar, Saudi Arabia and United
Emirates of Arabia.

Besides, Arouri and Rault (2012) discovered that oil price increases have a positive effect on the
stock market of Bahrain, Kuwait and Oman. They applied recent bootstrap panel cointegration
methods and SUR approach using monthly data from the January 1996 to December 2007 of the
stock market indices of Bahrain, Kuwait and Oman gathered from the Arab Monetary Fund and
OPEC spot prices from the Energy Information Administration.

Moreover, Valdés, Vázquez and Fraire (2012) articulated that there is focal positive relationship
between oil prices and stock prices of the Mexican Stock Market. They used BEKK Model using
weekly data from 30 December 2005 to 31 December 2010 of closing stock prices for thirty
companies included in January 2011 Índice de Precios y Cotizaciones and Brent oil prices.

Furthermore, Lai, Wang and Chen (2011) stated that a significant positive general correlation exists
among oil prices and stock indexes in the oil producing countries of Norway and Canada
irrespective of the movement in oil prices. They applied copula method using weekly data from 1
January 1988 to 1 August 2008 of West Texas Intermediate crude oil spot prices gathered from
United States Energy Information Administration and stock price indices in major stock markets
including Belgium, Brazil, Canada, China, Finland, France, Germany, Hong Kong, India, Italy,
Japan, Korea, Netherlands, Norway, Russia, Singapore, Spanish, Taiwan, United Kingdom and
United States obtained from DataStream.

On the contrary, Hosseini, Ahmad and Yew (2011) articulated that in the long run, crude oil price
has a positive impact on the stock market index in China but a negative impact on the stock market
index in India. In the short run, crude oil price has a positive impact on the stock market index in
India but a negative impact on the stock market index in China. They used Augmented Dickey-
Fuller unit root test, Multivariate Cointegration and Vector Error Correction Model technique using
monthly data from January 1999 to January 2009 of Bombay Stock Exchange, Shanghai Stock
Exchange index, crude oil price and money supply gathered from DataStream.

Narayan and Narayan (2010) acknowledged that oil prices have a positive impact on the Vietnam
stock market. They applied unit root tests, cointegration tests, long run elasticity tests, error
correction model and parameter stability tests using daily data from 28 July 2000 to 16 June 2008
of oil prices and the Vietnam stock price index acquired from Bloomberg.

In addition, Arouri and Fouquau (2009) discovered a significant positive relationship between oil
prices and the stock indexes of Qatar, Oman and United Arab Emirates but there is no relationship
between oil price and the stock indexes of Bahrain, Kuwait and Saudi Arabia. They applied linear
regression and a non-parametric model using weekly data from the first week of June 2005 to the
third week of October 2008 of the stock market indices of six members of the Gulf Cooperation
Council which are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates
obtained from Morgan Stanley Capital International and spot oil prices of OPEC countries
weighted by estimated export volume acquired from the Energy Information Administration.

On the other hand, Bhar and Nikolova (2009) articulated that oil price have a negative impact on
the stock market of China and India. They used parsimonious bivariate AR(1)–EGARCH(1,1)
model using weekly data from January 1995 to February 2007 of closing market price indexes
denoted in local currencies for four developing markets including Brazil (Bovespa), China
(Shanghai Composite), India (Sensex) and Russia (AK&M Composite) and West Texas
Intermediate (WTI) crude oil prices denoted in US dollars gathered from Bloomberg.

Likewise, Miller and Ratti (2009) discovered an inverse relationship between crude oil prices and
stock indexes. They applied cointegrated vector error correction model with additional regressors
using monthly data from January 1971 to March 2008 of nominal U.K. Brent oil prices obtained
from IFS, International Monetary Fund, Producer Price Index for all commodities obtained from
FRED, FRB of St. Louis, stock market prices obtained from S&P 500 and Main Economic
Indicators, OECD, consumer price indices and industrial production indices obtained from Main
Economic Indicators, OECD and short term interest rates acquired from FRED, FRB of St. Louis,
Frankfurt banks, German Federal Bank, IFS, International Monetary Fund, National Institute for
Statistics and Economic Studies.
2.2 Money Supply & Stock Price

There is also no consensus among economists about the influence of money supply on stock
markets due to inconsistent results produced by different researches (Sirucek, 2012). This is also
due to the different types of data and methodology adopted by different researchers in their studies.

Naik (2013) articulated that a positive relationship exists between money supply and stock prices.
He use J hansen’s -integration and vector error correction model using monthly data from April
1994 to April 2011 of industrial production index, inflation, money supply, short term interest rate
acquired from Handbook of Statistics on Indian Economy provided by the Reserve Bank of India
and BSE Sensex from Bombay Stock Exchange official website.

Besides, Caginalp and Desantis (2011) discovered that increasing money supply have a major
positive impact on stock price. They applied Augmented Dickey-Fuller unit root test, Multivariate
Cointegration and Vector Error Correction Model technique using monthly data from January 1999
to January 2009 of Bombay Stock Exchange, Shanghai Stock Exchange index, crude oil price and
money supply obtained from DataStream.

On the contrary, Hosseini, Ahmad and Yew (2011) discovered that in the short run and long run,
money supply has a positive impact on the stock market index in China but a negative impact on
the stock market index in India. They applied mixed-effects regressions to comprehend price
dynamics using daily data from 26 October 1998 to 30 January 2008 of 125 closed-end funds (28
Generalized, 66 Specialized and 31 World funds) consisting of 119 260 daily prices, weekly data of
M2 obtained from the Federal Reserve website and later linearly interpolated for daily data.

Srinivasan (2011) acknowledged that NSE-Nifty share price index has a significantly positive long
run relationship with money supply. He applied Johansen and Juselius multivariate cointegration
technique and multivariate Vector Error Correction Model using quarterly data from the first
quarter in 1991 to the second quarter in 2010 of money supply obtained from RBI website and
NSE-Nifty share price index acquired from NSE website.

Moreover, Yu (2011) identified that money supply has a positive impact on the Lithuania stock
market index. He used EGARCH model using quarterly data from the first quarter in 2001 to the
fourth quarter in 2009 of money supply and Lithuanian stock market index gathered from the
International Financial Statistics, published by the International Monetary Fund.

Furthermore, Rasiah (2010) articulated that a positive relationship exists between money supply
and the Malaysian stock market. She used multivariate cointegration methodology of Johansen and
Johansen-Juselius, cointegration test, vector error correction model, generalized variance
decomposition analysis based on the unrestricted VAR model technique using monthly data from
January 1980 to December 2006 of real output, money supply, real effective exchange rate and
consumer price index for Malaysia acquired from International Financial Statistics, published by
the International Monetary Fund and Kuala Lumpur composite index gathered from DataStream.

On the other hand, Asmy et al (2009) articulated that money supply has a negative influence on
stock prices. They used cointegration test, error correction model, variance decomposition and
impulse response function using monthly data from January 1987 to January 1995 and January
1999 to January 2007 of exchange rates, inflation, money supply and KLCI price index acquired
from International Monetary Fun ’s In e na i na Finan ia a is i s Da abase an n a s.

Humpe and Macmillan (2009) articulated that money supply has a positive impact on the stock
prices in the US but a negative impact on the stock prices in Japan. They used cointegration
methodology of Johansen based on vector error correction model using monthly data from January
1965 to June 2005 of money supply acquired from Organization for Economic Co-operation and
Development, S&P500 gathered from Bloomberg and Nikkei 225 obtained from DataStream.

In addition, Sohail and Hussain (2009) identified that money supply has a positive influence on
stock returns. They used cointegration test, vector error correction model and variance
decomposition using monthly data from December 2002 to June 2008 of consumer price index,
industrial production index, money supply, real effective exchange rate, three month treasury bills
rate and LSE25 index acquired from monthly bulletins of State Bank of Pakistan, The Business
Recorder (Pakistani financial newspaper), Publications of the Federal Bureau of Statistics and
International Financial Statistics.

Likewise, Som Sankar and Ghosh (2008) discovered that money supply have a major positive
effect on the Indian stock market. They applied long-run static model, Error Correction Model and
Principal Component Analysis using monthly data from January 1995 to December 2005 of money
supply gathered from Organization for Economic Cooperation and Development and SENSEX and
NIFTY figures obtained from the Reserve Bank of India.

Similarly, Ratanapakorn and Sharma (2007) stated that money supply has a positive impact on US
stock prices. They applied Johansen and Johansen and Juselius, VECM, Granger causality test
method using monthly data from January 1975 to April 1999 of money supply obtained from

In e na i na M ne a y Fun ’s In e na i na Finan ia a is i s CD-ROM and S&P 500 stock price index

acquired from the World Stock Exchange Fact Book.

Nonetheless, Daya Tahan Ekonomi Negara: Dasar dan Strategi Pengukuhan (Universiti
Kebangsaan Malaysia) stated that money supply has an inverse long run relationship with KLCI.
Cointegration, VECM & ARDL techniques were applied using monthly data from 1 January 2000
to 30 May 2008 of Money Market Interest Rate and 10 years Treasury Bill Rate gathered from
International Financial Statistics, Narrow Money Supply obtained from Bank Negara and KLCI
acquired from DataStream.
2.3 Summary

In short, there is no consensus among economists regarding the relationship between crude oil price
and money supply with stock price as there are various contradicting results albeit countless
empirical researches have been conducted. Different researches provided different results as
different data and methodology were employed by different researches. There were even some
researchers who found contradicting results within their own research.
3. Research Methodology

3.1 Data Description

This empirical research encompasses a 5-year period from January 2009 to December 2013 using
monthly time series data. Monthly time series data was used instead of daily or weekly as money
supply was only available monthly. There are a total of 60 observations. The FTSE Bursa Malaysia
Kuala Lumpur Composite Index (FBM KLCI) is employed as a proxy for Malaysian stock market
indices because it comprises of the 30 biggest and well-known financially sound companies on the
Bursa Malaysia by market capitalization that fulfil the eligibility requirements of the FTSE Bursa
Malaysia Index Ground Rules. Besides, FBM KLCI is extensively used in assessing the
performance of the Malaysian stock market. For Malaysian stock market price, I used the end of
month closing FBM KLCI price index obtained from the Wall Street Journal. I only selected two
macroeconomic variables including crude oil price and money supply as these two variables led to
most conflicting theoretical and empirical context. The end of month closing Brent crude oil prices
in terms of USD/barrel were obtained from the Federal Reserve Economic Data (FRED) database
whereas broad money supply, M3 in terms of RM million was acquired from the Monthly
Statistical Bulletin published by Bank Negara Malaysia. Brent crude oil price is used instead of
West Texas Intermediate (WTI) crude oil price because Brent crude oil price is regularly used as an
ideal benchmark for oil pricing in Australia, Indonesia, Malaysia and Vietnam (Australian Institute
of Petroleum, 2014; IntercontinentalExchange, no date). M3 is used instead of M2 and M1 because
it is used by central banks to estimate inflation (The Economist, 2010). The selection of variables
for this research is based on the prevailing theories and the empirical researches. However, the end
of month closing exchange rate in terms of RM/unit of USD was obtained from the Monthly
Statistical Bulletin published by Bank Negara Malaysia as well solely for the conversion purpose of
Brent crude oil prices in terms of USD/barrel to RM/barrel. This is done by multiplying Brent
crude oil prices in terms of USD/barrel with the exchange rate in terms of RM/unit of USD using
Microsoft Excel. As discussed earlier on, these variables are widely used in preceding literature to
capture macroeconomic happenings. All three variables which are Malaysian stock price, crude oil
price and money supply were converted into their natural logarithmic.
3.2 Research Methodology

This research uses the quantitative approach whereby fairly reliable secondary data is obtained and
analysed statistically. The quantitative approach emphasizes on positivism whereby scientific
rationale is used to investigate existing theories and either reject or tentatively accept them.
Consequently, this research is conducted objectively. This research adopts the multiple regression
technique using EViews 7 to establish the possible impacts of crude oil price and money supply
simultaneously on Malaysian stock price.

3.2.1 Econometric Framework

As discussed earlier on, numerous prevailing literatures on economics and finance offer theoretical
and empirical associations between macroeconomic variables and stock prices. These theoretical
and empirical associations between macroeconomic variables and stock prices act as the foundation
for this research.

To investigate the impact of these variables on stock prices, the generic model below is proposed:

n CI nC I nM n

whereby KLCI signifies the Malaysian stock price index, an are the
coefficients, CPI represents consumer price index, M2 denotes money supply, NEER represents
exchange rate and is he e e . This equation is obtained from the preceding research

(Asmy et al, 2009) investigating Effects of Macroeconomic Variables on Stock Prices in Malaysia
between January 1987 to January 1995 and January 1999 to January 2007.

Therefore, the equation above has been altered in this research as below:

nFBM CI n I nM

whereby FBMKLCI signifies the Malaysian stock price index, OIL represents crude oil price and
M3 denotes money supply. The following are the assumptions on the multiple regression equation:

(a) Normal distribution

(b) Linearity

(c) Absence of multicollinearity

(d) Absence of serial correlation (autocorrelation)

3.2.2 Descriptive Statistics

Descriptive statistics for all three variables that have been used in this research which are crude oil
price, money supply and Malaysian stock price are used to determine the normality of the
distribution of the data.

The standard deviation measures the proximity of the data from its mean and the degree of
consistency of the data. A smaller standard deviation indicates more clustered data signifying less
extreme values.

The value of skewness and kurtosis shows the normality of the variables. The rule of thumb for
normally distributed data is to have a skewness of 0 and a kurtosis of 3. The data are skewed right
(positively skewed) if skewness is positive, indicating that the left tail of the distribution is shorter
than the right. The data are skewed left (negatively skewed) if skewness is negative, indicating that
the right tail of the distribution is shorter than the left. The distribution is highly skewed if
skewness <− skewness > . The is ibu i n is e a e y skewe if -1 < skewness < -0.5 or 0.5 < skewness
< 1. The distribution is approximately symmetric if -0.5 < skewness < 0.5. The data has a
leptokurtic distribution if the kurtosis > 3, platykurtic distribution if the kurtosis < 3 and mesokurtic
distribution if kurtosis = 3.

Besides, the coefficient of Jarque-Bera and its probability further determines the normality of the
variables. The rule of thumb for normally distributed data is to have a coefficient of Jarque-Bera <
5.99 an i s p babi i y > α. In his esea h α . 5.

3.2.3 Scatter Plot, Correlation Matrix and Variance Inflation Factor (VIF)

Scatter plot is used to assess the linearity between crude oil price and money supply with Malaysian
stock price.

The correlation matrix displays the correlation coefficient, r, among crude oil price, money supply
and Malaysian stock price. Correlation coefficient is used to identify the strength of linear
relationship between crude oil price and money supply with Malaysian stock price. Every variable
is checked one by one to discover the significant relationship between crude oil price and money
supply with Malaysian stock price. If r > 0, there is positive correlation. If r < 0, there is negative
correlation. If 0 < |r| < .3, there is weak correlation. If 0.3 < |r| < 0.7, there is moderate correlation.
If |r| > 0.7, there is strong correlation.

Moreover, the correlation matrix is used to test for the degree of multicollinearity problem. The
rule of thumb for serious degree of multicollinearity problem is to have a correlation coefficient >
0.8. Nonetheless, the correlation coefficient from the correlation matrix is not strong indication of
the degree of a multicollinearity issue. Consequently, a variance inflation factor (VIF) is conducted
to reaffirm the degree of multicollinearity as identified by the correlation matrix. The rule of thumb
of a severe multicollinearity problem is to have a VIF value > 5.0.

3.2.4 Multiple Regression

Multiple regression is used to determine the possible impacts of crude oil price and money supply
concurrently on Malaysian stock price.

The sign of the coefficient of crude oil price and money supply signifies the impact of crude oil
price and money supply individually on Malaysian stock price. A positive coefficient indicates that
the independent variable have a positive impact on Malaysian stock price whereas a negative
coefficient signifies that the independent variable have a negative impact on Malaysian stock price.

Standard error measures the variability of the sampling distribution and the likely accuracy of the
sample mean as compared with the population mean.

The t-statistic and its probability determine the ability of crude oil price and money supply
individually to explain Malaysian stock price significantly. The rule of thumb for an independent
variable to explain the dependent variable imperatively is to have a t-s a is i > . a α . 5 an
a p-va ue < α . 5.

The R-squared, adjusted R-squared and standard errors of regression describe how well the model
fits the data. R-squared assesses the dependability of the independent variables in a model to
explain the dependent variable prior to any adjustments. R-squared increases when an independent
variable is added and decreases when an independent variable is removed.

Adjusted R-squared adjusts the R-squared to include the number of independent variables in the
regression and it subtracts a minor penalty for each independent variable added to the regression. It
also takes into account the sample size and it assesses the reliability of the model more accurately.

The standard error of the regression estimates standard deviation of the error terms. The rule of
thumb fo a fi e is have a s an a e f e essi n ≤ .5.

The F-statistic and its probability tests the significance of the independent variables used in the
regression in explaining the dependent variable together. The rule of thumb for the independent
variables in the regression to explain the dependent variable significantly together is to have a F-
statistic > 1 and the probability of F-s a is i < α . 5.

The Durbin-Watson statistic tests for first order serial correlation only. The rule of thumb for no
first order serial correlation is to have a Durbin-Watson statistic > .
3.2.5 Cochrane-Orcutt Two-Step Method

Cochrane-Orcutt Two-Step Method is used to resolve serial correlation. Firstly, a regression was
run based on the residuals of the multiple regression equation allegedly experiencing first order
serial correlation. The estimated rho ( ) is used to transform the multiple regression equation to
resolve the first order serial correlation issue. Next, the Cochrane-Orcutt method is performed by
estimating a new equation as follow.

nFBM CI n I nM v

whereby LnFBMKLCI* = (LnFBMKLCI -

nFBM CI - )

)
n I =( n I - n I -

nM = ( nM - nM - )

The Durbin-Watson statistic is assessed again to determine if serial correlation has been corrected.
4. Data Analysis and Discussion

LFBMKLCI LOIL LM3

Mean 7.275776 5.681034 13.97096
Std. Dev. 0.181986 0.22263 0.145281
Skewness -1.140843 -1.110549 0.042114
Kurtosis 3.852265 3.595809 1.566907

Jarque-Bera 14.83113 13.22067 5.152123

Probability 0.000602*** 0.001346*** 0.076073*

Table 1.0 Descriptive Statistics

Notes: *** implies significant at 1% level, ** implies significant at 5% level and * implies
significant at 10% level.

The descriptive statistics for all three variables used in this research including Malaysian stock
price represented by FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI), crude
oil price (OIL) and broad money supply (M3) are displayed in Table 1.0. The standard deviation of
Malaysian stock price, crude oil price and money supply are 0.1820 = 18.20%, 0.2226 = 22.26%
and 0.1453 = 14.53% respectively which are close to 0. This indicates that the crude oil price,
money supply and Malaysian stock price data is fairly consistent because the proximity of the crude
oil price, money supply and Malaysian stock price data is clustered and close to its mean signifying
less extreme values. In the financial context, the standard deviation measures the risk and volatility
of stock prices, crude oil prices and money supply. It is crucial for investors to know the risk
associated with the stocks that they are investing because risk determines the variation in returns on
the stock or portfolio of stocks by acting as a mathematical foundation for investment choices.
Fundamentally, the bigger the standard deviation, the greater the risk involved. Hence, the greater
the expected return on the investment. Consecutively, risk-averse investors should choose stocks
with low standard deviation as they have lower risks and risk-seeking investors should choose
stocks with high standard deviation as they have higher expected returns. This implies that
Malaysian stocks are low return stocks with low risks and volatility as they have a relatively low
standard deviation. Crude oil price and money supply have low volatility as well since they have
low standard deviation as well.

The value of skewness for Malaysian stock price is -1.1408 < -1, highly skewed left and the value
of kurtosis is 3.8523 > 3, leptokurtic. The value of skewness for crude oil price is -1.1105 < -1,
highly skewed left as well and the value of kurtosis is 3.5958 > 3, leptokurtic. The value of
skewness for money supply is 0.0421 < 0.5, approximately symmetric and the value of kurtosis is
1.5669 < 3, platykurtic. In the financial context, skewness measures the frequency of occurrence of
huge returns in a specific direction whereas kurtosis measures the extent to which the values of the
variables fall above or below the mean and exhibits itself as a fat tail. This implies that Malaysian
stock price and crude oil price have greater frequency of occurrence of negative returns than
positive returns resulting in the distribution of negative skewness whereas money supply has an
almost equal frequency of occurrence of positive and negative returns. Skewness aids in estimating
skewed returns and investors can make wiser decisions. Hence, investors require higher expected
returns from negative skewness since they have a higher tendency of providing negative returns.
Therefore, risk-averse investors will seek for stocks with positive skewness as there will be lower
tendency of negative returns and risk-seeking investors will seek for stocks with negative skewness
as there will be higher expected returns. This implies that Malaysian stocks and crude oil price
offer negative returns more frequently than positive returns and money supply offer positive returns
more frequently than negative returns.

The coefficient of Jarque-Bera of Malaysian stock price is 14.8311 > 5.99 and its probability is
0.0006 < 0.05. The coefficient of Jarque-Bera of crude oil price is 13.2207 > 5.99 and its
probability is 0 < 0.05. The coefficient of Jarque-Bera of money supply is 5.1521 < 5.99 and its
probability is 0.0761 > 0.05. Hence, crude oil price and Malaysian stock price are not normally
distributed but money supply is normally distributed. However, this is typical for time series data
because time series mirror the stochastic characteristic of most measurements over time which may
cause data to be non-normally distributed and skewed (Senter, no date). Moreover, according to
Grace-Martin (2009), the linear model does not have any specific assumptions on the distribution
of independent variables. This is further supported by Williams, Grajales and Kurkiewicz (2013)
elucidated that the assumption of normally distributed errors but not normally distributed response
of independent variables is necessary for reliable interpretations in multiple regression models
estimated with ordinary least squares (OLS) technique.
 7.6 7.6

7.5 7.5

7.4 7.4

7.3 7.3
LFBMKLCI

LFBMKLCI
7.2 7.2
7.1
7.1
7.0
7.0
6.9
6.9
6.8
6.8
6.7
6.7
5.0 5.2 5.4 5.6 5.8 6.0 13.7 13.8 13.9 14.0 14.1 14.2

LOIL LM3
Crude oil price vs. Malaysian Stock Price Money supply vs. Malaysian Stock Price
Table 2.0 Scatter plot

Based on Table 2.0, it can be observed that both crude oil price and money supply seem to have
positive linear relationship with Malaysian stock price. This implies that the relationship between
crude oil price and money supply with Malaysian stock price can be explained using a straight line,
whereby the changes in Malaysian stock price is proportional to the changes in crude oil price and
money supply. However, money supply has a stronger positive linear relationship with Malaysian
stock price as compared to crude oil price. This is further supported by Table 3.0. It is important
that the there is a linear relationship between crude oil price and money supply with Malaysian
stock price to ensure that the true relationship between the variables will not be underestimated by
the results of the multiple regression analysis (Osborne and Waters, 2002).

LFBMKLCI LOIL LM3

LFBMKLCI 1 0.90286 0.882028
LOIL 1 0.819351
LM3 1

Table 3.0 Correlation matrix

Table 3.0 exhibits the correlation coefficient, r of all three variables. Based on Table 3.0, the
correlation between crude oil price and Malaysian stock price is 0.9029 > 0.7 whereas the
correlation between money supply and Malaysian stock price is 0.8820 > 0.7 signifying that crude
oil price and money supply have strong positive linear relationship with Malaysian stock price. In
the financial context, correlation coefficient measures the extent to which two variables move
together. In this research, it can be implied that Malaysian stock price is more sensitive to changes
in money supply followed by crude oil price. Therefore, investors should prioritize the changes in
money supply followed by fluctuations in crude oil price as money supply has a greater correlation
with Malaysian stock price than money supply. Investors should review the monthly money supply
which can be obtained from the Monthly Bulletin published by Bank Negara.

Furthermore, based on Table 3.0, the correlation coefficient between money supply and crude oil
price is 0.8194 > 0.8. Thus, there is serious multicollinearity problem while developing the
regression model. However, the correlation coefficient from the correlation matrix is not strong
evidence of the presence of a severe multicollinearity issue. Therefore, a variance inflation factor
(VIF) test as shown in Table 4.0 is carried out.

Centered
Variable VIF

LOIL 3.042616
LM3 3.042616
C NA

Table 4.0 Variance Inflation Factor (VIF)

Based on Table 4.0, the centered VIF of crude oil price and money supply are 3.0426 < 5.0. Thus,
the multicollinearity problem can be ignored as it is not severe. It is crucial to test for
multicollinearity because if there is severe multicollinearity problem, the individual p-values can be
distorted whereby the p-value can be high albeit the independent variable is actually imperative in
explaining the dependent variable or the p-value can be low although the independent variable is
actually not significant in explaining the dependent variable (Paul, no date; Berry and Feldman,
1985). This is because both independent variables basically express the identical information.
Consequently, none of the variables will explain the model imperatively after the other one is take
account into the regression. Yet, both highly correlated variables will explain the dependent
variable significantly if both variables are included in the regression and the fit will worsen if both
variables are removed from the regression. Hence, this will cause the overall regression to have a
good fit but neither independent variable can explain the regression significantly. They also stated
that the coefficients of the estimated equation coefficient and its sign will change intensely due to
multicollinearity problem.
 Variable Coefficient Std. Error t-Statistic Prob.

LOIL 0.448111 0.066306 6.758235 0***

LM3 0.542234 0.101608 5.336537 0***
C -2.845486 1.131746 -2.514244 0.0148**

R-squared 0.87674
Adjusted R-squared 0.872415
S.E. of regression 0.065004
F-statistic 202.7189
Prob(F-statistic) 0***
Durbin-Watson stat 0.432225

Table 5.0 Multiple Regression Analysis

Notes: *** implies significant at 1% level, ** implies significant at 5% level and * implies
significant at 10% level.

FBM CI . 9 595 I .5 9 M - . 5 59

(6.7582) (5.3365) (-2.5142)

Notes: The t-statistics are given in brackets.

Based on equation FBM CI every one percent increase in crude oil price would yield a 0.4481%
increase in Malaysian stock price, holding money supply constant. Every one percent increase in
money supply would yield a 0.5422% increase in Malaysian stock price, holding crude oil price
constant. Therefore, this proves that crude oil price and money supply have a positive impact on
Malaysian stock price. This is consistent with the findings of Richards and Safar (2013), Arouri and
Rault (2012), Valdés, Vázquez and Fraire (2012), Wang and Chen (2011), Lai, Narayan and Narayan
(2010) and Arouri and Fouquau (2009) stating that crude oil price have a positive impact on stock
price. Oil price fluctuations in net oil-exporting countries increase company production and earnings
leading to a rise in the price of its stocks as the price of stocks depends on the performance of a
company. This is also in line with the findings of Naik (2013), Caginalp and Desantis (2011),
Srinivasan (2011), Yu (2011), Rasiah (2010), Sohail and Hussain (2009), Som Sankar and Ghosh
(2008) and Ratanapakorn and Sharma (2007) affirming that money supply have a positive impact on
stock price. According to the Monetary Portfolio Hypothesis and Stock Valuation Model, an increase
in money supply causes a fall in interest rates which consequently leads to an increase in stock prices.
Besides, the portfolio theory states that an increase in money supply will lead investors to shift their
portfolio from non-interest bearing money to financial assets. This is due to the falling interest rates
caused by the increase in money supply. Consequently, the demand for stock increases, pushing the
stock prices higher. Moreover, an increase in money
supply causes an increase in available investment funds which tends to push up stock prices
through the liquidity impact.

The standard error for crude oil price and money supply are 0.0663 and 0.1016 respectively which
are close to zero. This implies that the sample crude oil price and money supply mean are relatively
accurate as they have little spread when compared to the population mean. This indicates that the
crude oil price and money supply data are accurate. This implies that investors can rely on the
results of this research in understanding the general influence of crude oil price and money supply
on Malaysian stock price as the sample mean is relatively close to the population mean.

The t-statistic for crude oil price and money supply are 6.7582 > 2.0 and 5.3365 > 2.0 respectively. Therefore,
crude oil price and money supply are significant. The p-value for crude oil price and money supply are 0 < 0.05.
Thus, crude oil price and money supply are important predictors of Malaysian stock price. Investors can basically
estimate Malaysian stock price using FBM CI because crude oil price and money supply which are in the equation
are important predictors of Malaysian stock price. Hence, investors will only have to include the values for crude
oil price and money supply to determine the right price to purchase a Malaysian stock.

The R-squared of the regression is 0.8767, which is 87.67%. This indicates that 87.67% of the
variation in Malaysian stock price is explained by the variation in crude oil price and money supply
prior to any adjustments. The remaining 0.1233, which is 12.33% of the variation in Malaysian
stock price is explained by other macroeconomic variables such as consumer price index, exchange
rate, gold price, industrial output inflation, interest rate, GDP growth rate and others. Investors
should not only take into account of crude oil price and money supply when determining Malaysian
stock price, they should also take into account of other macroeconomic variables as 12.33% of
Malaysian stock price is explained by these variables. However, crude oil price and money supply
are two of the reliable predictors of Malaysian stock price generally in this research.

The adjusted R-squared is 0.8724, which is 87.24%. This indicates that 87.24% of the variation in
Malaysian stock price is explained by the variation in crude oil price and money supply after
adjustments. The remaining 0.1276, which is 12.76% of the variation in Malaysian stock price is
explained by other macroeconomic variables such as consumer price index, exchange rate, gold
price, industrial output inflation, interest rate, GDP growth rate and others. Investors should not
only take into account of crude oil price and money supply when determining Malaysian stock
price, they should also take into account of other macroeconomic variables as 12.76% of Malaysian
stock price is explained by these variables. Nonetheless, crude oil price and money supply are two
of the dependable predictors of Malaysian stock price generally in this research.

The standard error of the regression is 0.0650 which is close to 0 indicating that the observations
are close to the fitted line. This implies that the average distance of crude oil price and money
supply data points from the fitted line is about 0.0650% of Malaysian stock price. Therefore,
investors can depend on the results of this research in understanding the general impacts of crude
oil price and money supply on Malaysian stock price.

The F-statistic is 202.7189 > 1 and the probability of F-statistic is 0 < 0.05. Thus, crude oil price
and money supply are important predictors of Malaysian stock price as both crude oil price and
money supply explains Malaysian stock price significantly. Therefore, investors can solely predict
Malaysian stock price by just using crude oil price and money supply.

The Durbin-Watson statistic is 0.4322 which is lesser than its .5 a k an n indicating

that there is a possibility of first order serial correlation. Serial correlation still produces OLS
estimates that are unbiased and consistent but they are not Best Linear Unbiased Estimator (BLUE).
Besides, serial correlation causes the exaggeration of the goodness of fit of the model and
underestimation of standard errors due to the underestimation of residual variance resulting in an
overestimation of R-squared. This causes the variances of the OLS estimates for regression
coefficients to be biased. Hence, it is inefficient. Consequently, the original specification is
modified to take into account of the serial correlation. This is done by using the Cochrane-Orcutt
two-step method.
 Variable Coefficient Std. Error t-Statistic Prob.

LOIL-0.766484*LOIL(-1) 0.009214 0.074901 0.123016 0.9025

LM3-0.766484*LM3(-1) 0.846521 0.138267 6.122358 0***
C -1.06891 0.411352 -2.598527 0.0119

R-squared 0.475918
Adjusted R-squared 0.4572
S.E. of regression 0.031582
F-statistic 25.42671
Prob(F-statistic) 0***
Durbin-Watson stat 1.9822

Table 6.0 Cochrane-Orcutt two-step method

Notes: *** implies significant at 1% level, ** implies significant at 5% level and * implies
significant at 10% level.

FBM
FBM CI . CI . 9 55 I . I
(0.1230)

. 5 5 59 M . M . 9

(6.1224) (-2.5985)

Notes: The t-statistics are given in brackets.

Based on equation FBM CI- . FBM CI - every one percent increase in crude oil
price would yield a 0.0092% increase in Malaysian stock price, holding money supply constant.
Every one percent increase in money supply would yield a 0.8465% increase in Malaysian stock
price, holding crude oil price constant. Therefore, this proves that crude oil price and money supply
have a positive impact on Malaysian stock price. Crude oil price has a smaller positive influence on

Malaysian stock price in FBM CI- . FBM CI - than in FBM CI . On the

other hand, money supply has a bigger positive impact on Malaysian stock price in

FBM CI- . FBM CI - than in FBM CI.

The standard error for crude oil price and money supply are 0.0749 and 0.1383 respectively which
are close to 0. This implies that the sample crude oil price and money supply mean are relatively
accurate as they have little spread when compared to the population mean. However, the sample
mean of money supply have more spread when compared to its population mean as compared to
crude oil price. This indicates that money supply is less accurate than crude oil price. The standard
 oil price and money supply in FBM CI- . FBM CI - is
error for both crude
bigger than in FBM CI indicating that they are further away from the population mean.

The t-statistic for crude oil price is 0.1230 < 2.0 and the t-statistic for money supply is 6.1224 > 2.0.
Therefore, crude oil price is not significant whereas money supply is significant. The p-value for
crude oil price is 0.9025 whi h is e han α . 5 an he p-value for money supply is 0 which
is esse han α . 5. Thus ue i p i e is n an i p an p e i f Ma aysian s k p i e
but money supply is an important predictor of Malaysian stock price. Crude oil price is significant

in FBM CI- . FBM CI - but not significant in FBM CI . On the contrary,

money supply is significant in both FBM CI- . FBM CI - and FBM CI.

The R-squared of the regression is 0.4759, which is 47.59%. This indicates that 47.59% of the
variation in Malaysian stock price is explained by the variation in crude oil price and money supply
prior to any adjustments. The remaining 0.5241, which is 52.41% of the variation in Malaysian
stock price is explained by other macroeconomic variables such as consumer price index, exchange
rate, gold price, industrial output inflation, interest rate, GDP growth rate and others. The variation
in Malaysian stock price is less explained by the variation in crude oil price and money supply

prior to any adjustments in FBM CI- . FBM CI - than in FBM CI.

The adjusted R-squared is 0.4572, which is 45.72%. This indicates that 45.72% of the variation in
Malaysian stock price is explained by the variation in crude oil price and money supply after
adjustments. The remaining 0.5428, which is 54.28% of the variation in Malaysian stock price is
explained by other macroeconomic variables such as consumer price index, exchange rate, gold
price, industrial output inflation, interest rate, GDP growth rate and others. The variation in
Malaysian stock price is less explained by the variation in crude oil price and money supply after

adjustments in FBM CI- . FBM CI - than in FBM CI.

The standard error of the regression is 0.0316 which is close to 0 indicates that the observations are
close to the fitted line. This implies that the average distance of crude oil price and money supply
data points from the fitted line is about 0.0316% of Malaysian stock price.

The F-statistic is 25.4167 > 1 and the probability of F-statistic is 0 < 0.05. Thus, crude oil price and
money supply are important predictors of Malaysian stock price as both crude oil price and money
supply explains Malaysian stock price significantly.

The Durbin-Watson statistic is 1.9822 which is greater than its .5 a k an n

indicating that there is no first order serial correlation after the Cochrane-Orcutt two-step method is conducted on FBM CI
In short, FBM CI- . FBM CI - is preferred over FBM CI although the
statistical tests of FBM CI- . FBM CI - consisting of standard error, significance,

R-squared, adjusted R-squared and F-statistic is not as good as FBM CI . This is mainly
because FBM CI- . FBM CI - does not have any first order serial correlation
which implies that FBM CI- . FBM CI - is Best Linear Unbiased Estimator
(BLUE) and the variances of the OLS estimates for regression coefficients are accurate as

compared to FBM CI which contains first order serial correlation. Therefore,

FBM CI- . FBM CI - can explain the impact of crude oil price and money
supply on Malaysian stock price more accurately.
5. Conclusion

This research was carried out to examine the impact of crude oil price and money supply on
Malaysian stock price. The application of multiple regression technique provides evidence that
crude oil price and money supply has a positive impact on Malaysian stock price in this research.
The findings of this result were in line with the expected results. Besides, the findings of this
research is consistent with the findings of Richards and Safar (2013), Arouri and Rault (2012),
Valdés, Vázquez and Fraire (2012), Wang and Chen (2011), Lai, Narayan and Narayan (2010) and
Arouri and Fouquau (2009) stating that crude oil price have a positive impact on stock prices and
Naik (2013), Caginalp and Desantis (2011), Srinivasan (2011), Yu (2011), Rasiah (2010), Sohail
and Hussain (2009), Som Sankar and Ghosh (2008) and Ratanapakorn and Sharma (2007)
affirming that money supply have a positive impact on stock prices. Moreover, the findings are
consistent with monetary portfolio hypothesis and stock valuation model stating that money supply
causes a fall in interest rates which consequently leads to an increase in stock prices. Furthermore,
this research supports the portfolio theory affirming that an increase in money supply will lead
investors to shift their portfolio from non-interest bearing money to financial assets. In addition,
this research supports real activity theorists claiming that money supply have a positive influence
on stock prices. Nonetheless, this is inconsistent with the findings of Bhar and Nikolova (2009) and
Miller and Ratti (2009) affirming that crude oil price have a negative impact on stock prices and
Asmy et al (2009) and Daya Tahan Ekonomi Negara: Dasar dan Strategi Pengukuhan (Universiti
Kebangsaan Malaysia) concluding that money supply has a negative impact on stock prices.
Furthermore, this research is not in line with Keynesian economists statement of money supply has
a negative influence on stock prices.

One of the limitations of this research is the accuracy of the data. This is because it is fully reliant
on the accuracy of the secondary data obtained from the sources available. Besides, the
generalization of findings is another limitation of this research. This is because the concentration on
FTSE Kuala Lumpur Composite Index (FBM KLCI) as a sample for the whole Malaysian stock
market might not represent the whole population characteristics indicating that my findings cannot
be generalized and used for all sectors. Moreover, there are only two independent variables
included in this research. There are other macroeconomic variables that can explain the dependent
variable. Furthermore, there are some limitations on the methodology used. Multiple regression
cannot be applied if multicollinearity exists among the variables, the variables are not linear and the
presence of serial correlation among the variables.

These are some of suggestions for future research on this area. Supplementary work can be
conducted on diverse stock markets such as other developing countries and include other crucial
macroeconomic variables that can contribute to prevailing literature. Besides, other stock indices of
Malaysia should be added in to increase the sample size to achieve more accurate results. The panel
data yields more accurate results for the research that represents all the stock indices in Malaysia.
Moreover, future research should include lengthier period of examination to enhance the results.
Furthermore, essential disruptions during the economic crisis phase can be incorporated in the
research and the subsequent impacts can be explored.
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