The Relationship Between Gross Domestic Product, Inflation Rate and Crude Oil Price and KLCI Index

摘要

There are many major issues may affect the stock market index in Malaysia. In this research, the main objective of our study is to examine and determine the relationship between Malaysia stock market index, inflation rate, Gross Domestic Product (GDP) and WTI crude oil price. This study adopted the unit root test, Johansen and Juselius co-integration, granger causality, Vector Error Correction Model (VECM) diagnostic test and variance decomposition to investigate the quarterly data from 2003-2013. Empirical results indicated that stock index of Malaysia is positively related with GDP and WTI crude oil price while inverse linkage with inflation rate in the long run. Furthermore, granger causality result shows that there are two bidirectional relationship links between inflation rate and stock market index as well as crude oil price and stock market index. Moreover, inflation rate has the propensity to have greater influence towards the Malaysia stock market performance compare to others variables.