Munich Personal RePEc Archive

Interdependence of international stock markets: Malaysian case

Cheah, Ping Yean and Masih, Mansur (2017): Interdependence of international stock markets: Malaysian case.

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The focus of this paper is to investigate the relationship between Malaysia’s stock market and the five largest international markets. The methodology employed uses various unit root tests, and Johansen’s cointegration test to determine if all variables move together in the long run. This is followed by the vector error correction modeling, variance decompositions, and impulse response functions to determine the direction of Granger-causality and relative exogeneity. Initial findings indicate limited benefits of international diversification for the Malaysian investor. Further analysis of the Granger-causal chain seems to point towards the European markets as bellwether indices for the Malaysian investor. While recognising the common fact that the US market is exogenous, as evidenced by various other studies, the Malaysian investor should monitor closely the French and German markets. Other than the US market, the French and German markets are likely to be more exogenous than the UK FTSE100 market, and therefore, should be considered as bellwether indices for the Malaysian investors

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