Malaysian Stock Exchange

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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.

1.3 Research Questions

What is the relationship between interest rate and KLCI stock market return?

What is the relationship between exchange rate and KLCI stock market return?

What is the relationship between money supply and KLCI stock market return?

What is the relationship between oil price and KLCI stock market return?

1.4 Research Objectives

The main objective of this research paper is to identify and examine the factors that affect Malaysia stock market return. This paper emphasizes on the following:

To investigate the relationship between interest rate and KLCI stock market return.

To investigate the relationship between exchange rate and KLCI stock market return.

To investigate the relationship between money supply and KLCI stock market return.

To investigate the relationship between oil price and KLCI stock market return.

1.5 Significance of the Study

The findings will redound to the benefit of the society considering that equity investment plays a significant role in our life, ranging from insurance purchases to retirement planning. The results can be utilized by market participants and portfolio managers to forecast the behaviour and direction of the stock market. This certainly allows them to minimise probable future losses in the volatile market and maximise their return by way of investing at the right timing. By analysing and controlling necessary macroeconomic determinants, policy makers are able to strategize to prevent potential economic crises such as 1973 Oil Crisis and 1997 Asia Financial Crisis which was caused by quadrupled oil price (Oil embargo, n.d.) and massive depreciation of Asia currencies respectively.

1.6 Scope of Study

Despite the fact that there are 912 companies listed in Malaysia as at October 2015, 813 in Main Market (Bursa Malaysia, n.d.) and 108 in Ace Market (Bursa Malaysia, n.d.), this study only focuses on the return of Bursa Malaysia KLCI which is the main index of Bursa Malaysia. This index is formulated from the prices of 30 largest capitalised listed companies using the market capitalisation weighted method (Bursa Malaysia, n.d.). In addition, KLCI is heavily weighted towards a few sectors such as banks, telecommunications, utilities, industrial goods and services, oil and gas and food and beverages which make up of 81.97% of the KLCI weightage as at 30 September 2015 (FTSE, 2015). Sectors such as technology, construction, aviation and real estate sectors are excluded from this study due to their exclusion from KLCI despite of their popularity among the local investors.