MONETARY POLICY CHANGES AND STOCKS RETURN IN MALAYSIA: EMPIRICAL EVIDENCE USING ARDL MODEL

Abstract

ABSTRACT

This paper aims to examine the effect towards stock return if monetary policy changes in Malaysia. In order to answer this issue, we need to test for cointegration between stock market returns and monetary variable which only include interbank offering rate (IBOR) for the period 2004 until 2012 in Malaysia. The focus of the paper is to empirically investigate the link between the monetary policy variable and the stock returns. Using bounds testing approach (ARDL model), the empirical findings reveal that there exists a long run relationship among stock returns and monetary variable. Specifically, monetary variable namely interbank offering rates (IBOR) are found to play prominent roles in influencing the stock returns. 

Keyword: Stock returns, monetary variable, inter-bank offering rate (IBOR); ARDL