Paper Title
Factorsaffecting Kuala Lumpur Composite Index (KLCI) In Malaysia
Abstract
This paper studies the relationship between Kuala Lumpur Composite Index Stock Market Return with four macroeconomic determinants, namely interest rate, exchange rate, money supply and oil price from January 1997 to December 2015 on monthly basis with total of 228 observations. Stock market is a place for firms to raise capital for their businesses and it plays a significant role in stimulating a nation�s economy and improving the overall lifestyle of a society. Skyrocketing inflation coupled with depreciation of local currency against foreign currencies have forced more investors to venture into stock market to seek for greater return in order to preserve their wealth. However, stock market is notoriously known for its volatility and the market often reacts to changes in macroeconomic determinants and sometimes for some illogical reasons. As the result, investors and firms may fail to obtain their desired return from their investments. Statistics in DALBAR�s Quantitative Analysis of Investor Behaviour show that average equity mutual fund investors can only achieve 3.79% annualized return over the past 30 years. Although this is higher than the average inflation rate of 2.7%, the real return after adjusting for inflation rate is relatively inferior compared to the amount of risk taken(Bell, 2015). In worst case scenario, it will crash a nation�s economy and pull the entire country into crisis such as Asian Financial Crisis in 1997.However, most of the studies are carried out in developed countries and large economic nations instead of in emerging markets such as Malaysia. Thus, this study aims to extend the existing studies to include the impact of several macroeconomics determinants namely interest rate, exchange rate, money supply and oil price on KLCI stock market return.This paper employed Multiple Linear Regression to examine the statistical relationship and to test the hypotheses. The data was analysed using Statistical Package for Social Science, SPSS. For diagnostic checking, there is existence of autocorrelation problem which is typically found in time-series data. Results indicated that there is negative relationship between exchange rate and stock market return and positive relationship between money supply and stock market return. Interest rate and oil price are found to have insignificant relationship with stock market return.