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THE RELATIONSHIP BETWEEN COMMODITY PRICES AND STOCK MARKET OF MALAYSIA TIMMY NG YAU FUNG THESIS SUBMITTED IN FULFILLMENT FOR THE DEGREE MASTER OF BUSINESS ADMIN SCHOOL OF BUSINESS AND ECONOMICS UNIVERSITY MALAYSIA SABAH 2011 'J UMS UNIVERSITI MALAYSIA SABA

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Page 1: UNIVERSITI MALAYSIA SABAH - eprints.ums.edu.myeprints.ums.edu.my/9434/1/mt0000000452.pdf · Komoditi seperti minyak mentah dan minyak kelapa sawit amat penting untuk negara-negara

THE RELATIONSHIP BETWEEN COMMODITY PRICES AND STOCK MARKET OF MALAYSIA

TIMMY NG YAU FUNG

THESIS SUBMITTED IN FULFILLMENT FOR THE DEGREE MASTER OF BUSINESS ADMIN

SCHOOL OF BUSINESS AND ECONOMICS UNIVERSITY MALAYSIA SABAH

2011

'J UMS ;-:-"";~\ UNIVERSITI MALAYSIA SABAH

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,-, , ;,.,: ': • '\. ., .... .0li0; • • • •

\ : , .. ~"

UNIVERsm MALAYSIA SABAH

BORANG PENGESAHAN STATUS DISERTASI

lUDUL : HUBUNGAN ANTARA HARGA KOMODITI DAN PASARAN

SAHAM MALAYSIA: MINYAK MENTAH DAN MINYAK

KELAPA SAWIT

DAZAH : SARJANA PENTADBIRAN PERNIAGAAN

SESI PENGAJIAN : 2010 - 2011

. Saya, TIMMY NG YAU FUNG mengaku membenarkan disertasi sarjana ini disimpan di

Perpustakaan Universiti Malaysia Sabah dengan syarat - syarat kegunaan berikut:

1. Disertasi adalah hak milik Universiti Malaysia Sabah.

2. Perpustakaan Universiti Malaysia Sabah dibenarkan membuat salinan untuk

tujuan pengajian sahaja.

3. Perpustakaan dibenarkan membuat salinan disertasi ini sebagai bahan

pertukaran Institusi Pengajian Tinggi.

4. TIDAK TERHAD.

Penulis: Timmy Ng Yau Fung Alamat: Lot 14, Taman Starland,

Jalan Penampang, Kota Kinabalu Sabah

Tarikh: 17 Ogos 2011

Disahkan oleh;

Penyelia: En. mer Azlan Abdul Jamal

UMS UNIVERSITI MALAYSIA SABAH

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DECLARATION

I hereby declare that the material in this thesis is my own except for quotations, excerpt, equations, summaries and references, which have been duly acknowledged.

24 June 2011

Timmy Ng Yau Fung

PE2010711SC

UMS UNIVERSITI MALAYSIA SABAH

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CERTIFICATION

nMMY NG YAU FUNG

PE2010 - 7115C

NAME

MATRIC NO

mLE THE RELATIONSHIP BETWEEN COMMODITY PRICES AND MALAYSIA STOCK MARKET

DEGREE

VIVA DATE

MASTER OF BUSINESS ADMINISTRATION (MBA)

11th JULY 2011

DECLARED BY

1. SUPERVISOR

DR. ZATUL KARAMAH BINTI AHMAD BAHARUL ULUM

2. SUPERVISOR

MR. AMER AlLAN ABD JAMAL

ii

SIGNATURE

UMS UNIVERSITI MALAYSIA SABAH

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ACKNOWLEDGEMENT

I would like to express my deepest and sincerest gratitude to my major supervisor,

Dr. Zatul Karamah Binti Ahmad Baharul Ulum and my co-supervisor, Mr. Amer

Azlan Abdul Jamal, for supervising my dissertation paper. Both of them have

provided me a lot of ideas and opinions during the process to complete my

dissertation.

Besides that, I would also like to thank my parents for their supports me to

pursue Master in Business Administration (MBA). They have supported me both

mentally and financial. Meanwhile, a sincere thank you to all my friends for helping

me in completing my dissertation, thanks to Mr. Sing Jia Cheng for willing to check

on grammar errors and Mr. Wong Yii Sing for teaching me about Eviews.

Finally, thank you to all people who gave me support and advice during the

process to complete my dissertation paper.

iii UMS UNIVERSITI MALAYSIA SABAH

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ABSTRACT

THE RELATIONSHIP BETWEEN COMMODITIES PRICE AND

MALAYSIA STOCK MARKET: CRUDE OIL AND PALM OIL

Commodities such as crude oil and palm oil are very Important for those emerging

country which depend on the income from commodity export, for example Malaysia.

Meanwhile, stock market is an important barometer or benchmark in measuring the

finance healthy and economic strength of a country. Thus, this paper is to examine

the relationship between commodities price and Malaysia stock market, while the

commodities are crude oil and palm oil. The purpose of this paper is to investigate

whether there is any significant relationship between Malaysia stock market with

monthly crude oil price and palm oil price since January 1997 until December 2008.

Johansen co-integration and Vector Error Correction Model are used to test the

significance of relationship. The result showed that there is inSignificant relationship

between stock market with crude oil price or palm oil price.

iv UMS UNIVERSITI MA~YSIA SABAH

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A BSTRAK

Hubungan antara harga komoditi dan pasaran saham Malaysia:

Minyak Mentah dan Minyak Kelapa Sawit

Komoditi seperti minyak mentah dan minyak kelapa sawit amat penting

untuk negara-negara yang sedang membangun/ di mana negara- Negara ini

bergantung kepada pendapatan dari aktiviti mengekspot komoditi,

contohnya Malaysia. Manakala, pasaran saham merupakan piawaian yang

penting untuk menganggarkan kekuatan ekonomi and kewangan dalam

sesebuah negara. Oleh itu, kajian ini adalah untuk mengkaji hubungan

antara haraga komoditi dan pasaran saham, dan komoditi yang dikajii

adalah harga minyak mentah and minyak kelapa sawit. Tujuan kajian ini juga

untuk membuat siasatan samada hubungan yang signifikasi antara pasaran

saham Malaysia dengan harga bulanan minyak mentah dan kelapa sawit

sejak Januari 1997 hingga Disember 2008. "Johansen" KO-integrasidan

"Vedor Error Corredion Model" telah diaplikasi untuk menguji hubungan

signifikasi. Keputusan kajian ini telah menunjukkan bahawa tiada hubungan

yang signifikasi antara pasaran saham Malaysia dengan harga minyak

mentah atau harga minyak kelapa sawit.

v UMS UNIVERSITI MAlAYSIA SABAH

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TABLE OF CONTENT

TITLE

DECLARATION

CERTIFICATION

ACKNOWLEDGEMENT

ABSTRACT

ABSTRAK

TABLE OF CONTENT

LIST OF TABLES

LIST OF FIGURES

LIST OF EQUATIONS

LIST OF APPENDIX

CHAPTER 1: INTRODUCTION

1.1 Overview

1.1.1 Commodity

1.1.2 Crude Oil

1.1.3 Palm Oil

1.2 Problem Statement

1.3 Objective of study

1.4 Research Question

1.5 Scope of Study

1.6 Significance of the Study

1.7 Structure of Study

CHAPTER 2: LITERATURE REVIEWS

2.1 Commodity Market

2.2 Malaysia Stock Market

2.3 The impact of commodities price on the economies

2.4 Crude Oil

2.5 Palm Oil

2.6 Previous Study

vi

PAGE

ii

iii

iv

v

vi-viii

ix

x

xi

xii

1-3

3-4

4-5

5-6

6-8

8

9

9

9-10

10

11-12

12

12-13

14

14-15

15

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2.6.1 Background Theory

2.6.2 Impact of crude oil price to stock market

2.7 Summary

Table of Summary

CHAPTER 3: METHODOLOGY

3.1 Introduction

3.2 Source of Data

3.3 Research Framework

3.4 Research Design

3.5 Research Hypothesis

3.6 Types of test

3.6.1 Unit Root Test

3.6.2 Co- integration test

3.6.3 VAR and VECM

3.6.3.1 Vector Auto Regression (VAR)

3.6.3.2 Vector Error Correction Model (VECM)

CHAPTER 4: RESULT

4.1 Augmented Dickey Fuller Unit Root Test

4.2 Johansen Co-Integration Test

4.3 Vector Error Correction Model

CHAPTER 5 DISCUSSION AND CONCLUSION

5.1 Discussion

5.2 Implications of the study

5.3 limitation

5.4 Suggestion for future study

5.5 Conclusion

BIBLIOGRAPHY

APPENDIX A- MONTHLY DATA

APPENDIX B- UNIT ROOT TEST- STOCK MARKET

vii

16

16-25

25

26-27

28

28

29

29

29

30

30

30-31

31

31-32

32

33-34

34-35

35

36-39

39-40

40

40

40-41

42-46

47-49

50-53

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APPENDIX C- UNIT ROOT TEST- CRUDE OIL PRICES

APPENDIX D- UNIT ROOT TEST- PALM OIL PRICES

APPENDIX E- EQUATION

APPENDIX F- JOHANSEN CO-INTEGRATION

APPENDIX G- VECTOR ERROR CORRECTION MODEL

viii

54-57

58-61

62

63-64

65

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Table 2.1

Table 4.1.1

Table 4.1.2

Table 4.2.1

Table 4.3.1

LIST OF TABLES

Summary of Literature Review

Augmented Dickey Fuller Unit Root Test in Constant

Augmented Dickey Fuller Unit Root Test in Constant

and Intercept

Johansen Co Integration Test

Vector Error Correction Model (VECM)

ix

PAGE

26-27

33

34

34-35

35

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Figures 3.3.1

LIST OF FIGURES

Relationship between commodities price and

Malaysia Stock Market

x

PAGE

29

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USTOF EQUATIONS

PAGE

Equation 2.1 Arbitrage Pricing Theory 16

Equation 3.6.1 Unit Root Test 30

Equation 3.6.2 Co- Integration Test 31

Equation 3.6.3.1 Vector Auto Regression (VAR) 31-32

Equation 3.6.3.2 Vector Error Correction Model (VECM) 32

Equation 5.1 Arbitrage Pricing Theory 37

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LIST OF APPENDIXES

PAGE

Appendix A Monthly Data 47-49

Appendix B Unit Root Test- Stock Market 50-53

Appendix C Unit Root Test- Crude oil prices 54-57

Appendix 0 Unit Root Test- Palm oil prices 58-61

Appendix E Equation 62

Appendix F Johansen Co-Integration 63-64

Appendix G Vector Error Correction Model 65

xii UMS UNIVERSITI MALAYSIA SABAH

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CHAPTER 1

INTRODUCTION

1.1 Overview

Among all the South East Asia countries, Malaysia is one of the countries that

enjoy the open and fast growth economics. Malaysian stock market plays an

important role and contributes to economic growth, especially in the development

of Malaysia financial sector (Baharom, Royfaizal & Habibullah, 2008).

The importance of Malaysia stock market in financial sector cannot be

ignored. Due to Asian Financial Crisis in 1997, Malaysia economic suffered a

serious recession owing to the depreciation value of Ringgit Malaysia. This crisis

led to the collapse of Kuala lumpur Stock Exchange (KLSE), whereby the KLSE

composite index was down 44.8% in 1997 (Azman, Habibullah, law, & Dayang,

2006). The collapse of financial sectors gave a serious downturn in Malaysia stock

market and led to decrease of stock return.

This crisis has shown how important is the role of stock market in Malaysia

financial sector. According to Nandha and Hammoudeh (2007), they mentioned

that 1997 Asian crisis gave a major negative impact to the Asian- Pacific countries.

Since stock market is important, then study should be conducted in examine what

global factor which can influence the movement of stock market besides currency

exchange. This will be an attractive point to study the change of stock market

movement or performance with global factor such as crude oil price (Nandha &

Hammoudeh, 2007).

This is an interesting topic for researchers to study the movement of stock

market. The movement of stock market can be increased or decreased; investors

can monitor the CompOSite Index of KlSE to follow the overall movement of stock

market. The interest in this study of stock market is not just about the market

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movement, but it is to investigate variables that give an impact to the stock

market movement or factor contributes to the stock market movement.

Previous studies have investigates the relationship between

macroeconomic variables and stock market. In some cases, many researchers had

studied on the relationship between stock price and exchanges rate (Baharom et

aI., 2008). For example, Bahmani and Sohrabian (1992), Nieh and Lee (2001)

have done a research on the long run relationship between stock market and

exchange rates, the results showed that exchange rate does not have a

relationship with the stock prices in United States and G7.

Meanwhile, the study on the relationship between macroeconomics factor

and stock market becomes an important research in the academic field (Adam &

Tweneboah, 2008). Normally macroeconomics variables include exchange rate,

interest rate, industrial production and inflation. Adam & Tweneboah (2008) also

have found out that there is a relationship between macroeconomics variables and

the Ghana's stock price.

Adam and Tweneboah (2008) believed that stock market is of one of the

economic activities, which will be highly influenced by the government monetary

poliCies and macroeconomics issues. The active relationship between

macroeconomics variable and stock market has encouraged many researchers to

study this topic (Adam & Tweneboah, 2008). Sadorsky (1999) mentions that the

interest of study in this topic is because all types of investment in an economy

can be changed due to the inflation which causes by the increases in crude oil

price.

This study will move to the focus of relationship between commodity prices

and stock market. Among the entire commodity, crude oil and palm oil will be

chosen as the commodity in this study. Whereby, the price of crude oil and palm

oil will be used to study the relationship between commodity price and stock

market. Justification of crude oil price, palm oil price and stock market will be

further discussed in Chapter 2, Literature Review.

2

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There is no previous research founded which directly study the relationship

between palm oil price or crude oil price and Malaysia stock market. This maybe

for the last few decades, crude oil price and palm oil price are not quite important

factors in influencing the movement of Malaysia stock market. However, study

should be conducted in investigating whether there is any significant relationship

between crude oil price or palm oil price with the Malaysia stock market.

This is because crude oil price has recorded to a new high price of

US$ 64.09 in 2005, while palm oil prices hit the new records of US$700 to US$800

in 2007. Any increment of crude oil price and palm oil price can increase the cost

or profit of business. Thus, new high price of crude oil and palm oil might

influence the movement of Malaysia Stock Market. So, research should be

conducted from time to time in examining and monitoring the impact of crude oil

price and palm oil price to Malaysia stock market.

1.1.1 Commodity

There are a few definitions explaining what is commodity. Referring to Geman

(2007), the author mentions that, an economist will define commodity as a

scarcity asset, which will give an important effect to the global and certain country

development.

Commodity can be tangible assets and raw materials, which is demanded

by people for toe purpose of daily usage (Frush, 2008). For example people

demand commodity for consumption, energy usage and production. Producers

need commodities as raw materials to produces the final end products for

consumers. Examples of commodities are gold, metal, lumber, energy fuel, wheat,

corn and many others. Commodities have divided into six major commodity

classes, which are metals, energy fuels, agricultural, livestock, exotics and

financials.

3

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Frush (2008) mentioned that all commodities have the three characteristics,

which are "Standardization", "Tradability" and "Deliverability". The description of

each characteristic is as below (Frush, 2008):

Standardization

- Tradability

: Same commodity can be measureable in unit.

: Buyers and Sellers are able to trade commodity in

a different market place.

Deliverability : Traders are able to exchange the tangible or actual

physicals commodity with each others. This rule is an exception for

financial commodity.

Commodity market price is fluctuating. The basic fundamental that give

impact on the commodity price is the supply and demand of a commodity in a

market (Somoye, Akintoye, & Oseni, 2009) • When the demand of a commodity is

higher than supply, commodity price will be increased, while commodity price will

decrease when the supply of commodity is higher than demand.

Traders can trade or exchange commodity through a future market.

Chicago Mercantile Exchange (CME) is one of the commodity and derivative

market in USA. It provides financial services, which allow public to trade

commodity globally. Chicago Mercantile Exchange (CME) partners with Bursa

Malaysia Berhad (KLSE) for the purpose in improving commodity trading since

2009.

1.1.2 Crude oil

Since the World War II, the fluctuation of the crude oil prices is more volatile

compared to other commodity prices. Among most of the energy sources in

commodity, crude oil is one of the most important energy (He, Wang, & Lai, 2010).

This is because of large demand of crude oil for transportation and economic

activity. Petroleum consumption also is the largest share in total energy

consumption, whereby reach 36.36% in 2006.

Referring to the historical data, crude oil prices reached around $40 per

barrel in the end of the 1970s and continue to rise since 1999. Between 2007 and

4

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June 2008, the crude oil prices had doubled and recorded a new high, which was

around $133 per barrel. High increase in crude oil prices can because of certain

issues, such as embargo by OAPEC in 1973, Iranian Revolution in 1978, Iraq War

in 1980 and first Persian Gulf War in 1990 (Chen, 2010). Nowadays, crude oil is

facing a fast change in price and unpredicted trend (due to the huge demand by)

China and India. For example, crude oil prices were just below US$100 in early of

2008 but rose to US$140 in middle of 2008 before dropping to US$40 in the end

of 2008.

According to Zarour (2006), global demand for crude oil has increased

between 2003 and 2004, due to the high demand for crude oil. Thus, increased

crude oil prices had given a negative impact to the economic development, mainly

affected the stock market (Zarour, 2006). Since crude oil is playing an important

role in an economic activity, therefore global economic and financial markets can

be affected by the higher crude oil prices.

1.1.3 Palm Oil

Palm oil is "derived from the flesh of the fruit of the oil palm species E. Guineensis.

In its virgin form, the oil is bright orange-red due to the high content of carotene.

Palm oil is nature gift to Malaysia, and Malaysia's to the World" (Malaysian Palm

Oil Council). In Malaysia context, palm oil is an important input or raw material

which is demanded by producer in producing final food or palm oil products such

as cooking oil margarine, soap and candles (Talib & Darawi, 2002).

Historically, animal fats were the major source of oil which was largely

demanded by the world. However, vegetables oil had overtaken the animal fats in

the past forty years and the price of palm oil had increased to a very high rank

(Gunstone, 2000). Gunstone (2000) mentioned that palm oil has ranked no 10th

with the total global production of 1.26 million tonnes between 1958 and 1962.

The palm oil has been rise to the 2nd rank with the total global production

of 17.93 million tonnes from 1996 to 2000. Soya bean oil is ranked first which is

the major competitor to palm oil. The increasing rank and production of palm oil

5

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has confirmed that palm oil is one of the major important commodities in the

world. Fast and high demand of palm oil is due to the expansion of the world

population (Basiron, 2001 ).

According to Talib and Darawi (2002), both researchers have found that in

the last three decades, Malaysia has the ability to increase the production of palm

oil and its global market shares. This is due to Malaysia has good requirement in

producing palm oil such as favourable natural environment, encouragement from

government and efficient management. In Malaysia, palm oil is one of the major

sectors in economy development and makes a significant contribution to Malaysia

agriculture industry (Basiron, 2002).

1.2 Problem Statement

Stock market composite index is an economic indicator, which reflects the

performance of overall stock market and the stability of finance sector.

Performance of stock market can be explained as the return of stock market or

price movement of stock. Stock is also known as equity share. Daily, stock market

index can be increased or decreased, due to the overall stock price movement.

Then what is the underlying force which makes the stock market index decrease

or increases?

Fundamentally, stock price is influenced by the theory of supply and

demand (Somoye, Akintoye, &. Oseni, 2009). When there are more investor buy or

demand stock, the price will increase. If people are selling the stock then the price

will decrease. However, Somoye, Akintoye and Oseni (2009) have mentioned that

equity can be influenced by two group variables which are macroeconomics and

microeconomics. Macroeconomics factor can be viewed as inflation, whereas

microeconomics is the earnings and dividend of equity share (Somoye, Akintoye, &.

Oseni, 2009)

According to Gomper, Joy and Metrick (2003), they have supported that

information about share dividend and earnings are giving significant impact to the

stock price. Negative or positive earnings information can give a significant impact

6

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on the stock price (Hartono, 2004). Correlations between stock price and dividend

also have been supported by Docking & Koch (2005). Therefore, micro-economic

factor such as share' dividend is giving impact on the stock market or price

movement.

In the study of AI-Qenae and others (2002) on Kuwait Stock Exchange,

they found that the macro- economic factors had given negative impact on stock

prices. In a study on Nigerian equity market which was done by Udegbunam and

Eriki (2001), they have obtained a result that inflation was uncorrelated with the

stock price movement. However, Adam and Tweneboah (2008) prove that

inflation gives a significant impact on the Ghana Stock Market movement. Same as

Japan stock, the stock return also significant influenced by inflation (Hamao, 1988)

In the context of Asian countries such as India, Japan, Korea, Malaysia and

Philippines, there is a study done by Habibullah, Baharom and Fong (2009), which

contributes to the impact of inflation on stock market return and volatility. They

have found out that stock market return is difficult to be predicted by inflation rate

but inflation rate gives significant impact to these countries stock market

movement and return.

According to Sadorsky (1999) and Papapetrou (2001) , both researchers

agree that most of the previous studies are focusing or studying on the

relationship between crude oil price shocks and macroeconomic variable, while

there is relatively little investigation on the relationship between crude oil price

shocks and financial markets.

Chen (2010) has mentioned that only relatively few previous literatures

which study on the dynamic relationship between crude oil prices and stock

market prices. Arouri and Nguyen (2010) agree that there are very few studies

which investigate the dynamic relationship between crude oil price variations and

stock market. Meanwhile, Fills, Degiannakis, and Floros (2011) also agree there

have been very few studies on the correlation between stock price and crude oil

prices, even though the literature studies in these markets are growing up.

7

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By going through above studies, we can understand that macroeconomics

and microeconomics give different impact on stock market price movement. While

economics factors influence the movement of stock market index, does the

commodity price play the same role as other economic variables?

Malaysia is one of the net exporters of crude oil (Nandha & Hammoudeh,

2007) and palm oil (Basiron, 2002) in the world. Besides that, no previous study

was found on looking at the relationship between crude oil prices or palm oil

prices and Malaysia stock market. So, we need to investigate whether the

fluctuation of crude oil price and palm oil price gives an impact on Malaysia stock

market. Palm oil is the main production in Malaysia, so there are numerous huge

amounts of commodity transactions done in Malaysia.

Thus, we can study that whether commodity price can become an indicator

and signal in predict the movement of Malaysia stock market. Besides that, we

will study the relationship or impact between commodity price and Malaysia stock

market movement. Finally, crude oil price and palm oil price will covered in study

the relationship between commodity price and stock market in Malaysia.

1.3 Objective of study

In general, the objective of this research is to study the relationship between

commodity prices and stock market. The specific objective of this study is as

below:

a) To investigate the relationship between crude oil price and Malaysia Stock

Market.

b) To investigate the relationship between palm oil price and Malaysia Stock

Market.

c) To investigate the significant impact between price of crude oil and palm

oil on Malaysia Stock Market.

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1.4 Research Question

In order to study on the relationship between commodity prices and stock market,

research question is important in understand the direction of this study. Research

question also provide a framework in complete this study. Thus, the research

questions are as below:

a) Does commodity price such as crude oil influence the movement of stock

market in Malaysia?

b) Does commodity price such as palm oil influence the movement of stock

market in Malaysia?

c) Between price of crude oil and palm oil, which one will give more

significant impact to the Malaysia Stock Market?

1.S Scope of study

This study will focus on the Malaysia Stock Market, which Is known as Kuala

Lumpur Stock Exchange. Malaysia has been chosen in this study because it is one

of the countries in South East Asia, which enjoys an open and fast growth

economics (Baharom, Royfaizal, & Habibullah, 2008).

In the same time, crude oil and palm oil have been chosen in this study

because Malaysia is the net exporter of crude oil (Nandha & Hammoudeh, 2007)

and also the main producer of palm oil (Basi ron, 2002). Consequently, this study

covers the impact of crude oil and palm oil prices in Malaysia, which is the

exporting and producer country. Meanwhile, the period of this study will be

covered from January 1997 until December 2008.

1.6 Significant of study

The contribution of this study can be split into two parts; the first part is the

academic contribution while the second part is the practical contribution.

The contribution of this study to the academic is the understanding of the

relationship between commodity prices and stock market. This study also will

contribute to the literature of study in the relationship between commodity price

and stock market since previous study in this matter is very few. The knowledge

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of this study is focusing on what the impact of commodity price on Malaysia stock

market, especially the crude oil and palm oil which are the major commodities

around the world.

In favour of practical purpose, this study provides a contribution to

investors in understanding the relationship between commodity price and stock

market. This is one of the objectives of an investor in predicting the movement or

behaviour of stock market (Johnson & Senen, 2009) in order to gain profit.

Perhaps investor can apply the relationship between commodity price and stock

market movement in predicting the trend of the stock market.

It is not just for the profit, but also about the risk of investing in stock.

Once investors understand the relationship between commodity price and stock

market, crude oil or palm oil price may be an indicator and signal for them to

make decision to buy or sell the equity. When there is any fluctuation in crude oil

price, perhaps investors can make an early decision to diversify the risk of equity.

1.7 Structure of study

In the beginning of this chapter, this study has begun with the overview of

Malaysia Stock Market, followed by the brief explanation on commodity. Further

discussion also had done on the crude oil and palm oil.

Chapter 2 will be focus on the literature review, which will discuss and

make justification on the relationship between commodities and stock market.

Discussion is based on the previous study and literature.

Chapter 3 will be the methodology used to investigate or study the

relationship between commodity price and stock market, while Chapter 4 will be

the result of this study. Chapter 5 will be the discussion on the result of the study

and the last chapter 5 will be the conclusion for the whole research.

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