Examining the relationship between stock market development and economic performance in Malaysia

Abstract

This study aims to examine the impact of stock market performance on economic growth using time series data from 2002 to 2018, analyzed on a quarterly basis. The study evaluates performance through key measures, including standard deviation as an indicator of volatility, total value traded and turnover ratio as measures of liquidity, and stock market capitalization ratio as a measure of market size. The research specifically focuses on the Malaysian stock exchange. Real GDP is employed as a proxy for economic growth, while exchange rates and interest rates serve as control variables. To analyze the relationship, the study applies the Vector Autoregressive (VAR) model and the Granger causality test to determine the directional link between stock market performance and economic growth. The findings reveal that the variables are statistically insignificant, indicating no substantial relationship between stock market performance and economic growth.

Keywords: Stock Market, Economic Growth, Vector Autoregressive, Granger Causality.