The economic conditions were not that favourable during the financial crisis in 1997. Instability in the international financial markets in turn spilled over into the domestic financial markets. Continued waves of adjustment in both the currency and stock markets, coupled with the decline in domestic and export demand subsequently prompted a shift to more growth promoting policies. One of the institutions that affected was Malaysian stock market. In general, Malaysia stock market contributes to the best allocation of capital resources among numerous users. The roles of the stock market are mainly to facilitate and encourage the mobilization of funds, direct them towards efficient economic activities, provide adequate liquidity for investors and encourage the creation of large-scale enterprises, The Kuala Lumpur Stock Exchange Index (CI) is the most popular indicator of the Kuala Lumpur stock market performance. The CI represents share prices of 100 Corporations. These companies are chosen because their operations cover a broad spectrum of economic performance in Malaysia and more significantly reflect stock market activities with fair accuracy, Stock prices depend on the supply and demand for the stock, it causes by the factors that stock prices to be more volatile is limited supply of new issues despite of strong demand for the stocks. This restriction of supply leads to more price fluctuations, which are common to all stock markets. However, two things prevent an infinite price increase in the stock market. Firstly, the amount of money available in any country is finite. As the bull market proceeds, more and more of the country’s savings are invested in the stock market and eventually the people involved might face liquidity... ... middle of paper ... ...economic variables for emerging economies. At all, the studies have shown the existence of a weak form of market efficiency among the EMFs for respective periods of study and countries. Recently the studies done examine the cointegration between macroeconomic variables and stock prices in order to test for the informational efficient market hypothesis. All the studies are covering on the period before the financial crises in July 1997. However, there is no attempt to study the cointegration between the variables and the stock market after the financial crisis. Hence, this study investigate the relationship between stock market returns and underlying macroeconomic variables, for the Malaysia as country known as a member of ASEAN for the period after the Asian financial crises, to determine whether or not the weak form of market efficiency to exist in Malaysia.
Markets can be efficient even if stock prices exhibit greater volatility than it can be explained by fundamentals such as earnings and dividends. Chapter 11: Potshots at the Efficient –Market Theory and Why They Miss, presents an argument of stock market fluctuations that stock prices show far too much variability to be explained by an efficient-market theory of pricing. It also talks about how one must look to behavioral considerations and to crowd psychology to explain the actual process of price determination in the stock market. I agree with Malkiel’s proclaim about the demise of the efficient-market theory and how it reasons to show that market prices are indeed predictable. Such arguments are exaggerated and the extent to which the stock market is predictable is greatly overstated because market valuation rests on both logical and psychological
I introduce the research result on the market volatility and efficiency in the Korean market. Two approaches have been used to analyze the effect of index futures trading on stock market volatility and market efficiency. One approach is to compare the change on stock price volatility and efficiency before and after futures trading is introduced. The other approach is to compare stock price volatility differences and efficient trading between KOSPI 200 stocks and non-KOSPI 200 stocks.
The efficient market hypothesis has been one of the main topics of academic finance research. The efficient market hypotheses also know as the joint hypothesis problem, asserts that financial markets lack solid hard information in making decisions. Efficient market hypothesis claims it is impossible to beat the market because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information . According to efficient market hypothesis stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments . In reality once cannot always achieve returns in excess of average market return on a risk-adjusted basis. They have been numerous arguments against the efficient market hypothesis. Some researches point out the fact financial theories are subjective, in other words they are ideas that try to explain how markets work and behave.
Secondly, as one of the most well developed stock market, UK market locates in the similar developing stage as US market does, adequate data ensure the reliability of the research. Finally, both USA and UK market play a critical role in modern financial system, experience from these two markets could be contributive.
There is a connection between the stock market and the economy. It is noticeable how economic activity influences stock prices. The current state of the economy has major influence over how much money is being deposited into the economy as well as a consumer's confidence in their income. Whether an individual invests in the stock market or not, it will have an impact on everybody and every company. Every investor’s goal is to gain the most money from the stock market. To do so, much knowledge is needed which can help predict the outcome. There are techniques used by forecasters to predict whether the stock will go up or down. However, it will not be an exact approximation because no one can perfectly predict what the firm will do next.
According to Perold (2004), ‘CAPM can be served as a benchmark for understanding the capital market phenomena that cause asset prices and investor behavior to deviate from the prescript...
The project is done to find out the impact of stock split on the stock market. In our project, we have made use of event study methodology to assess the accuracy of stock price reaction of 39 public listed Indian companies in National Stock Exchange (BSE) in the year 2006 and onwards. The abnormal returns (actual returns-returns from regression line) results were taken for 20 days before and after the announcement date to test whether the result is significant or not (Level of significance=5%). The project shows that there is no significance difference in the price level before the announcement date while after the announcement date, there was a significant difference in the price level for few days(level of significance being 5%) The project supports the hypothesis that Indian stock market is semi strong efficient.
More and more acholars believe that the theory of portfolio and the assumption of CAPM model are not match with real market condition, it cannot explain the pricing of capital assets comprehensively. There are large number of empirical studies have show that, the CAPM model is incompleted, because CAPM assume that variance of β is the only factor can affect the future rate of return. However, there are other factors that influnce the pricing of capital assets are emerging, such as book value, market price ratio and so on. Among them, CAPM was seriously called into question in the 1990s by Famar Fama and Franche (1992), they highligt that “beta is dead”. In Fama and Franche’s (1992) studies, they mainly focus on the relationship between the ratio of the book value of a firm’s common stock (BE) to its market value (ME) with rate of retrun of the stock. Fama and Franche (1992) concludes that there are two related points from the research. First, they conclude that BE/ME can basically explain the changes in stock retrun and it have better explanatory power than β. Because the report clear shows that during the period from 1941 to 1990 the relationship between β and average return is weak, moreover, there virtually have no link between β and average retrun from 1963 to 1990. Second, although CAPM model asserts that β is the only factor affect expected retruns on stocks, Fama and Franche (1992) also discovered that there is a negative relationship between the average return on a security with both the market-to-book of the firm ratio (M/B) and the price-earnings of the firm ratio (P/E). It can be seen that, β might not the only factor can affect the expected rate of
Macroeconomic factors, like Gross Domestic Product, exchange rate, interest rate, inflation rate, money supply, economic crisis and economic liberalization affects the stock market returns in Malaysia. Stock market is critically important to our economy as it channels funds and capital from those who have excess to firms, corporations or individual that can use them more effectively. Several analysis were used to determine the accurate stock market returns and their relationships with the macroeconomic determinants in Malaysia. Precise information about the stock market returns volatility is crucial for decision making by firm from different industry to understand deeper about how Malaysia stock market works to be able to build the right strategy in handling their funds and creating better management portfolio and financial plans. Leverage effects, which stated that negative news and announcements brings bigger volume of shocks to stock market compared to positive news, causing volatility in stock market was found to be exist in Malaysia stock market. Several analysis such as dynamic stock returns volatility estimation, Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH), generalized least squares (GLS) regressions and Random effects (Feasible Generalized Least Squares)
Total Shareholder Return (TSR) is a critical key performance indicator (KPI) to measure portfolio performance as well as evaluate investment decision in firms which forms the crux of the research presented in this paper. TSR is a compounded and annualised measure including dividends paid to shareholders by Temasek however, it does not include capital injections by shareholders. Temasek is a long term investor and tracks its TSR over various time periods. Following gives Temasek’s portfolio performance
Chapter 11 closes our discussion with several insights into the efficient market theory. There have been many attempts to discredit the random walk theory, but none of the theories hold against empirical evidence. Any pattern that is noticed by investors will disappear as investors try to exploit it and the valuation methods of growth rate are far too difficult to predict. As we said before the random walk concludes that no patterns exist in the market, pricing is accurate and all information available is already incorporated into the stock price. Therefore the market is efficient. Even if errors do occur in short-run pricing, they will correct themselves in the long run. The random walk suggest that short-term prices cannot be predicted and to buy stocks for the long run. Malkiel concludes the best way to consistently be profitable is to buy and hold a broad based market index fund. As the market rises so will the investors returns since historically the market continues to rise as a whole.
In turn everything in the present and the future is judged through the stocks as they hold a high importance in industrialized economies showing the healthiness of said countries economy. As investing discourages consumer spending over all decreases, it lead...
A number of macroeconomics factors of any country influence the performance of the stock market which is working within the country. Investors consider macroeconomics factors very important when they invest in stock market. Inflation rate, interest rate and exchange rate are the most important variables between these macroeconomic factors which affects the performance of the stock market.
The performances of Current market price of the public sector and private sector banks are analyzed in this section. The Weekly movement of Current market p...
Following the trend of economy, it is important to investors to understand that strong economy creates strong stock market. To elaborate further, as stock prices are increased by current and future expectations of earnings, thus without a strong economy it would be difficult for the companies to increase and sustain their earnings (Kong 2013). The economy development is usually calculated using the gross domestic product of a countries. On the other hand, a change is the stock price can also cause a major impact to the consumers and investors directly. Hence, a loss in confidence by investors can cause a downturn in consumer spending in the long term, which will also affect the economy’s output (Aysen 2011). The graph below shows the relationship of stock market price (KLCI) and the GDP of Malaysia in 2009. Thus, it can be concluded that the economy and the stock market has a positive relationship.