Determinants of Malaysian environmental, Social and Governance (ESG) stock market index

This study investigates the interlinkage between the selected macroeconomic variables and the ESG index price for the case of Malaysia in a restricted VAR (VECM) framework. The conventional econometric techniques and methodology used with a complementary test to detect both long run and short run dynamics co-integration. Based on the tests that have been carried out the findings have shown that changes in interest rate, exchange rate and consumer price index have a co-integration relationship with a positive long-term relationship between the interest rate and the consumer price index, however the exchange rate is inverse. Also, based on the results, it showed that there is no co-integration between the macroeconomic variables and stock market price in the short run. With that, it is representing that Malaysian stock market, specifically those grouped in the ESG index, is sensitive to the changes in the macroeconomic variables in the long run. As the index consists of a major industry in Malaysia, any decision making towards the macroeconomic variables must be adhered with cautious as it will affect the stock market. Apart from that, the model used in the paper has been proved by statically diagnostic that it is stable and dynamic in the long run.