The Impact of Macroeconomic Forces on Stock Returns in Malaysia

The objective of this paper is to investigate the relationship between macroeconomic factors namely, inflation, interest rates, money supply and exchange rates towards FTSE Bursa Malaysia stock markets price index for the period of 2000-2009 as monthly. The study develops four prespecified macroeconomic variables consist of inflation, interest rate, money supply and exchange rate. Using Unit Root Test to compute the presence of stationarity, followed by Johanssen and Juselius Cointegration Test to examine the long run relationship and Pairwise Granger Causality Test to investigate the causal relationship between each factors. The macroeconomics factors do have relationships in long run and each macroeconomics variable causal to stock markets.