Nikmanesh, Lida and Mohd Nor, Abu Hassan Shaari
(2016)
Macroeconomic Determinants Of Stock
Market Volatility: An Empirical Study Of
Malaysia And Indonesia.
Asian Academy of Management Journal (AAMJ), 21 (1).
pp. 1-20.
ISSN 1394-2603
Abstract
The present study examines the relationship between stock market volatility and the
volatility of macroeconomic variables in Malaysia and Indonesia. The relationship is
examined through the analysis of the monthly data concerning stock indices and
macroeconomic variables in Malaysia and Indonesia for the period of 1998 until 2013.
Firstly, in order to estimate the conditional volatility of each series, GARCH family
models are employed. Secondly, a Seemingly Unrelated Regression (SUR) is utilized to
determine whether any significant relationship exists between stock volatility and
macroeconomic volatility. The results of the present study provide evidence of a
significant relationship between the volatility of stock markets and macroeconomic
variables in both countries. In particular, the results indicate that macroeconomic
volatility and trade openness explain 81% of stock market volatility in Malaysia; and
75% of stock market volatility in Indonesia. The results of the present study provide more
precise information for investors making decisions relating to asset allocation.
Additionally, the findings are beneficial for managers and policy makers seeking to
reduce the negative effects of stock market volatility on economic performance.
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