Oil price shock and Malaysian sectoral stock market return

Abstract

This research is aimed at studying the linkages between the movements of the oil prices with the Malaysian stock market return. Economic theories have established that oil price causes chain reaction effects on the real economic activities. Also, oil price changes and shocks is said to be one of the factors that influence the performance of the stock market. In this paper, Vector Autoregresssion (VAR) approach was used to determine the impact of the oil price changes on each Industry sector listed on Bursa Malaysia [formerly known as Kuala Lumpur Stock Exchange (KLSE)] by way of analysing the trend of the return on the Industry Indices, for the period 1 January 2003 to 8 April 2009. Daily data were used for the analysis. The result failed to show any significant impact of the stock market return on the eight (8) sectors in Bursa Malaysia given the shocks in the global crude oil price. Granger causality test also shows uni-directional causality from oil price to the market return on each respective sector.