Examining the pre-and post-effects of financial crises on the stock market in Malaysia using wavelet approach

• Main Author: Waris, Muhammad
• Format: Thesis
• Language: English; English
• Published: 2023
• Subjects: HG Finance
• Online Access: https://etd.uum.edu.my/11079/1/deposit%20permission.pdf; https://etd.uum.edu.my/11079/2/s904821_01.pdf; https://etd.uum.edu.my/11079/

The fluctuations in stock market prices are a significant cause for concern, both domestically and globally, given the substantial reliance of a country's economy on these market dynamics. In particular, Malaysia's stock market has felt the impacts from numerous global socioeconomic upheavals and crises, making it one of the most affected stock markets in recent years. This study aims to examine the relationship of co-integration of risk and causality between Malaysia's stock market and those of its trading partners, while also elaborating the pivotal role played by the Malaysian government in guiding the nation during key financial upheavals, such as the Asian Financial Crisis (1997-1998), the Global Financial Crisis (2008-2009), and the COVID-19 pandemic (2020-2021). To achieve these research objectives, this study utilized the wavelet approach, analysing Morgan Stanley Capital International (MSCI) daily indices derived from the DataStream database. Stock markets of selected countries were examined, including Malaysia, China, India, Pakistan, Singapore, Indonesia, UK, USA, Germany, and France. The research findings reveal a noticeable high-frequency co-integration pattern between Malaysia’s stock markets and those of its trading partners during the periods of the crises. Moreover, strong evidence from various methodologies validates the hypothesis that Malaysia has successfully achieved economic integration with its trading partners, including emerging markets and Organisation for Economic Co-operation and Development (OECD) countries, across distinctive time horizon. Moreover, this study shows that all Worldwide Governance Indicators (WGI) are positively correlated with the Malaysian stock market, except for Voice and Accountability. Pertaining to Voice and Accountability, the intervention role of the Malaysian government has a negative impact on the stock market. Additionally, the results of the portfolio analysis suggest that by constructing an effective portfolio for Malaysia, incorporating investments in China, Germany, France, Pakistan, Indonesia, the UK, and Japan, investors can attain favourable risk-adjusted returns in the short run due to stable dynamic condition correlation. Meanwhile, in the long run, Malaysia’s portfolio involving investments in the USA and India is subject to the influence of an unstable dynamic conditional correlation existed between these stock markets. This study argues that the USA serves as strong safe haven and hedge opportunity, while China, France, Germany, Singapore, Pakistan, and the UK act as diversifiers for the Malaysian market during the turmoil period.