An investigation on stock market performance of Asean plus three

Abstract

The objective of this thesis is to explore the equilibrium relationship and short-run dynamics between stock market performance and crude oil price and the three selected macroeconomic variable (Consumer price index, exchange rates and money supply) of ASEAN plus three. Efficient market hypothesis is the primary theoretical framework used, where stock market prices are hypothesized to be fully reflective of all available information and hence could not be forecasted by any macroeconomic variable. This thesis employs both time series analysis and panel data analysis to ensure robust findings in studies of the selected countries of Malaysia, Indonesia, Thailand, Singapore, japan, South Korea, and China; and the ASEAN and ASEAN plus three regions in their entirely. In using multivariate vector autoregressive model on monthly data from January 1988 to December 2013, this study reveals a long-term relationship between individual ASEAN plus three stock market performance and four tested independent variables of crude oil price, consumer price index, exchange rate, and money supply. Statistical result from the granger causality test also showed a presence of dynamic short-term relationship between the independent variables and the stock market. These result are consistent with analysis of dynamic interaction over post-sample period, where findings of impulse-response functions and variance decomposition show that stock price are relatively exogenous in relation to other variables. Long-run co-integration was established for all the stock markets of Malaysia, Indonesia, Thailand, Singapore, japan, South Korea, and China, but short-run granger causality exists only for Indonesia, Singapore and South Korea. In using static and dynamic panel data analysis on the same dataset, result show that the independent variables are co-integrated with ASEAN and ASEAN plus three stock market performance, and as such compromises the validity of efficient market hypothesis for this region taken as a whole: both ASEAN and ASEAN plus three regions are semi-strong from inefficient. Further study of structural breaks arising from the both the Asian Financial Crisis and Global Financial Crisis yielded result that are unique to each country.