Linear Vector Error Correction Model Versus Markov Switching Vector Error Correction Model To Investigate Stock Market Behaviour
The stock market can reflect the economy of a country. The movement of the stock market index may imply the economic condition in general. The 1997 Asian Financial Crisis and the 2008 Global Economic Crisis are examples of share depressions that impacted countries’ inflation, unemployment rates a...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Asian Academy of Management (AAM)
2014
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| Subjects: | |
| Online Access: | http://eprints.usm.my/40019/1/AAMJAF_10-1-6-G1_%28133-149%29.pdf http://eprints.usm.my/40019/ http://web.usm.my/journal/aamjaf/10-1-6-2014.html |
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| Summary: | The stock market can reflect the economy of a country. The movement of the stock market
index may imply the economic condition in general. The 1997 Asian Financial Crisis and
the 2008 Global Economic Crisis are examples of share depressions that impacted
countries’ inflation, unemployment rates and gross national product (GNP). This study
investigates how oil and gold prices impact the stock exchange using a linear vector
error correction model (VECM) and a Markov switching vector error correction model
(MS-VECM). The results show that oil and gold prices affect the stock market returns for
the four selected countries, namely Malaysia, Singapore, Thailand and Indonesia. The
MS-VECM is able to capture every change in the transition probabilities of the financial
time series data and is more reliable than the linear VECM for examining the effect of oil
and gold prices on the stock market. |
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