Puah, Chin-Hong and Habibullah, Muzafar Shah and Lim, Kian-Ping (2006): Testing long-run neutrality of money: evidence from Malaysian stock market. Published in: The ICFAI Journal of Applied Economics , Vol. V, No. 4 (July 2006): pp. 15-37.
Download (879kB) | Preview
This paper presents the empirical evidence on the long-run neutrality (LRN) of money in the stock market in Malaysia using seasonal adjusted monthly data from 1978:1 to 1999:12 based on the bivariate ARIMA framework developed by Fisher and Seater (1993). Besides the main stock index, the sectoral stocks indexes also have been tested by different measurements of money supply, namely M1, M2, and M3. Generally, the findings support the LRN of money in Malaysia’s stock market and the results are robust to the sensitivity tests of different monetary aggregates. This would imply that the permanent stochastic changes in money supply do not have influential effect towards the real stock returns in Malaysia.
|Item Type:||MPRA Paper|
|Original Title:||Testing long-run neutrality of money: evidence from Malaysian stock market|
|Keywords:||Stock markets; Neutrality of money; ARIMA model|
|Subjects:||C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models; Multiple Variables > C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C12 - Hypothesis Testing: General
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General
G - Financial Economics > G1 - General Financial Markets > G10 - General
|Depositing User:||Chin-Hong Puah|
|Date Deposited:||27. Mar 2012 12:59|
|Last Modified:||15. Feb 2013 03:46|
Backus, D.K. and Kehoe, P.J. 1992. International evidence on the historical properties of business cycles. American Economic Review 82: 864-88.
Bae, S.K. and Ratti, R.A. 2000. Long-run neutrality, high inflation, and bank insolvencies in Argentina and Brazil. Journal of Monetary Economics 46: 581-604.
Bank Negara Malaysia. Monthly Statically Bulletin, various issues.
Barro, R.J. 1977. Unanticipated money growth and unemployment in the United States. American Economic Review 67: 101-15.
Barro, R.J. 1978. Unanticipated money, output and the price level in the United States. Journal of Political Economy 86: 549-80.
Bhanumurthy, N.R. 1999. Testing long-run monetarist propositions in developing economies. Saving and Development 23(2): 171-91.
Boschen, J.F. and Otrok, C.M. 1994. Long-run neutrality and superneutrality in an ARIMA framework: Comment. American Economic Review 84: 1470-3.
Bullard, J.B. 1994. Measures of money and the quantity theory. Federal Reserve Bank of St. Louis Review 76: 19-30.
Coe, P.J. and Nason, J.M. 1999. Long-run monetary neutrality in three samples: The United Kingdom, the United States, and the small. University of Calgary, Department of Economics, Discussion Paper 99-06.
Copper, R. 1974. Efficient capital markets and the quantity theory of money. Journal of Finance 19: 887-908.
Duck, N.M. 1988. Money, output and prices: An empirical study using long-term cross country data. European Economic Review 32: 1603-19.
Duck, N.M. 1993. Some international evidence on the quantity theory of money. Journal of Money, Credit and Banking 25: 1-12.
Dwyer, G.P. and Hafer, R.W. 1988. Is money irrelevant? Federal Reserve Bank of St. Louis Review 70: 3-17.
Ermini, L. and Chang, D. 1996. Testing the joint hypothesis of rationality and neutrality under seasonal cointegration: The case of Korea. Journal of Econometrics 74: 363-86.
Fisher, M.E. and Seater, J.J. 1993. Long-run neutrality and superneutrality in an ARIMA framework. American Economic Review 83: 402-15.
Friedman, M. and Schwartz, A.J. 1982. Monetary trends in the United States and the United Kingdom. Chicago: University of Chicago Press.
Fung, H.G. and Lie, C.J. 1990. Stock market and economic activity: A causal analysis. In S.L. Rhee and Chang, R.P. (eds.), Pacific-Basin Capital Markets Research. Amsterdam: Norht-Holland.
Geweke, J. 1982. Measurement of linear dependence and feedback between multiple time series. Journal of the American Statistical Association 77: 304-13.
Geweke, J. 1986. The superneutrality of money in the United States: An interpretation of the evidence. Econometrica 54: 1-21.
Han, S. and Handa, J. 2000. Testing monetary neutrality and rational expectations for Canada: Seasonally unadjusted versus adjusted data. Paper presented in Canadian Economics Association Meetings, University of British Columbia, Vancouver.
Haug, A.A. and Lucas, R.F. 1997. Long-run neutrality and superneutrality in an ARIMA framework: Comment. American Economic Review 87: 456-9.
Ho, Y.K. 1983. Money supply and equity prices: An empirical note on Far Eastern countries. Economics Letters 11: 161-5.
Homa, K.E. and Jaffee, D.W. 1971. The supply of money and common stock prices. Journal of Finance 27: 1045-66.
Hsing, Y. 1990. International evidence on the non-neutrality of money. Journal of Macroeconomics 12: 467-74.
Ibrahim, M. H. 2002. Volatility interactions between stock returns and macroeconomic variables: Malaysian evidence. Savings and Development 26(2): 183-95.
Kwiatkowski, D., Phillips, P.C.B., Schmidt, P. and Shin, Y. 1992. Testing the null hypothesis stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? Journal of Econometrics 54: 59-78.
Leong, K. and McAleer, M. 2000. Testing long-run neutrality using intra-year data. Applied Economics 32: 25-37.
Lin, S.M. 1993. Stock returns and money supply: A comparison among three Asian newly industrialized countries. In K.A. Wong, F. Koh and K.G. Lim (eds.), Proceedings of the Third International Conference on Asian-Pacific Financial Markets. Singapore: National University of Singapore.
Loef, H. E. 1993. Long-run monetary relationships in the EC countries. Weltwirtschaftliches Archiv 129: 33-54.
Lothian, J.R. 1985. Equilibrium relationship between money and other economic variables. American Economic Review 75: 828-35.
Lucas, R.E., Jr. 1980. Two illustrations of the quantity theory of money. American Economic Review 70: 1005-14.
Malliaropulos, D. 1995. Testing long-run neutrality of money: Evidence from the UK. Applied Economics Letters 2: 347-50.
McGee, R. and Stasiak, R. 1985. Does anticipated monetary policy matter? Another look. Journal of Money, Credit and Banking 17, 16-27.
Mills, T.C. 1982. Signal extraction and two illustrations of the quantity theory. American Economic Review 72: 1162-8.
Mishkin, F.S. 1982. Does anticipated monetary policy matter? Another look. Journal of Political Economy 90, 22-51.
Newey, W.K. and West, K.D. 1987. A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix. Econometric 55: 703-8.
Olekalns, N. 1996. Some further evidence on the long-run neutrality of money. Economics Letters 50: 393-8.
Palmer, M. 1970. Money supply, portfolio adjustments and stock prices. Financial Analysts Journal 26, 19-22.
Phillips, P.C.B. and Perron, P. 1988. Testing for a unit root in time series regression. Biometrika 75(2): 335-46.
Said, S.E. and Dickey, D.A. 1984. Testing for unit root in autoregressive-moving average of unknown order. Biometrika 71: 599-607.
Schwert, G.W. 1987. Effects of model specification tests for unit root in macroeconomic data. Journal of Monetary Economics 20: 73-103.
Serletis, A. and Krause, D. 1996. Empirical evidence on the long-run neutrality hypothesis using low-frequency international data. Economic Letters 50: 323-7.
Sorensen, H.E. 1982. Rational expectations and the impact of money upon stock prices. Journal of Financial and Quantitative Analysis 17(5): 659-62.
Sprinkel, B.W. 1964. Money and Stock Prices, Illinois: Richard D. Irwin.
Thornton, J. 1993. Money, output and stock prices in the UK: Evidence on some (non)relationships. Applied Financial Economics 3: 335-8.
Wallace, F.H. 1999. Long-run neutrality of money in the Mexican economy. Applied Economics Letters 6: 637-9.
Weber, A.A. 1994. Testing long-run neutrality: Empirical evidence for G7 countries with special emphasis on Germany. Carnegie-Rochester Conference Series on Public Policy 41: 67-117.
Yamak, R. and Kucukkale, Y. 2000. Anticipated money growth and stock prices in Turkey. In First International Joint Symposium on Business Administration. Turkey: Gokceada-Canakkale.