## Chapter 1

The impact of globalisation has caused the transportations of financess and investing activities to be no longer limited in one state merely. Those activities are now expanded to all over the universe. Based on the stock rating theoretical account, macroeconomic forces may hold systematic influences on stock monetary values via their influences on expected discounted hereafter hard currency flows. Study by Nil Gunsel and Sadik Cukur et Al, ( 2007 ) the dealingss between them may be motivated utilizing the arbitrage pricing theory ( APT ) theoretical account developed by Ross ( 1986 ) .

Assorted empirical surveies focus on industrialised economic systems ; some recent surveies have extended the analysis to the instances of developing economic systems. Harmonizing to Mansor H. Ibrahim and Hassanuddeen Aziz et Al, ( 2003 ) , these surveies identify such factors as industrial production, hazard premiums, exchange rate, rising prices, involvement rate, money supply and so away as being of import in explicating stock returns. The intent of the present paper is to lend farther to the literature on stock market – macroeconomic factors on the stock return specifically for the instance of Malaysia.

## 1.1 BACKGROUND AND HISTORY

Macroeconomicss is about understanding the behaviour and public presentation of the economic system as a whole and the forces that later shape the concern environment. It focuses on employment, rising prices, monetary values, ingestion and the end product of the whole economic system. The significance of economic basicss utilizing the arbitrage pricing harmonizing text extracted from the Husam Rjoub, Turgut TuA?rsoy and Nil GuA?nsel ( 2009 ) the arbitrage pricing theory ( APT ) was propounded by Ross ( 1976 ) as a agency of associating alterations in returns on investings to unforeseen alterations in a scope of cardinal value drivers for these investings ( Kettell, 2001 ) .

Therefore, under the APT model, all investing have “ expected returns ” and affected by macroeconomic forces/factors ( the scope of these factors are non specified in the initial theory ) . Apt starts with the premise that security returns are related to an unknown figure of unknown factors ( Alexander et al. , 2001 ) . However, Roll and Ross ( 1980 ) stated four major factors ; these are the unforeseen alteration in the rising prices, hazard premiums, the footings construction of involvement rates and industrial production. Chen, Roll and Roll ( 1986 ) ( CR & A ; R ) examined the cogency of the APT in the US securities market. CR & A ; R ( 1986 ) analysis used the US macroeconomic variables as placeholders for the implicit in hazard factors that determine the stock returns. They found several of these macroeconomic variables to be important in explicating expected stock.

Surveies by Nil Gunsel, Sadok Cukur ( 2007 ) infusion from the diary had been composing that Chen, Roll & A ; Ross [ CRR ] ( 1986 ) hypothesized and tested a set of macroeconomic

informations series to explicate US stock returns. They investigate the sensitiveness of macroeconomic variables to stock returns. They employed 7 macro series ; term construction, industrial production, hazard premium, rising prices, market return, ingestion and oil monetary values. CRR assume that the implicit in variables are serially uncorrelated and all inventions are unexpected. In their research, they found a strong relationship between the macroeconomic variables and the expected stock returns. They note that industrial production, alterations in hazard premium, turn in the output curve, and step unforeseen rising prices and alterations in expected rising prices during period when these variables are extremely volatile, are important in explicating expected returns. Their grounds suggests that ingestion, oil monetary values and market index are non priced by the fiscal market. They conclude that stock returns are exposed to systematic intelligence that is priced by the market.

In the context of the Malayan economic system, the Malayan Central Bank has been extremely active in accomplishing multiple aims of stable monetary value degree, stable exchange rate, sustainable end product growing and low unemployment. Harmonizing to the surveies by Mansor H. Ibrahim and Hassanuddeen Aziz ( 2003 ) , the Central Bank has to switch policy stance. For illustration, Central Bank shifted to stabilising the exchange rate in 1986 and allowed the involvement rate to increase despite its expansionary stance in 1985 to get by with the recession. This active engagement may hold intended effects in the short tally but generates hazard premiums and uncertainness in the long term, motivating a negative relation between money supply and stock monetary values.

## 1.2 PROBLEM STATEMENT

There are several macroeconomic variables will consequence stock return in Malaysia. Surveies by Nil Gunsel and Sadik Cukur et Al, ( 2007 ) they examined seven macroeconomic variables which include: term construction of involvement rate, unforeseen rising prices, unforeseen sectoral industrial production, hazard premium, existent exchange rate, money supply ( M0 ) and sectoral unforeseen dividend output. Nowadays, stock return volatility in several fabricating company presents strong impact in Malaysia fabrication industry due to the environment of economic fluctuations. Therefore, the research worker interested to analyze on macroeconomic effects towards Malayan fabrication industry stock return. Based on the consequence on this research, it hopes that can be a guideline and mention to others in order to better and keeping a good cognition particularly for the investing and stock return.

## Research OBJECTIVES

1.3.1 General aim

To analyse the impact of macroeconomic factor and stock return in Malaysia fabrication industry concentrating in involvement rate, rising prices and money supply.

Specific aim

To place whether there is any consequence between stock return due to the uncertainness in rising prices.

To place whether there is any consequence between stock return due to the uncertainness in involvement rate.

To place whether there is any consequence between stock return due to the uncertainness in money supply.

To happen out what type of macroeconomic variable that will largely impact stock return in Malaysia.

## Scope OF STUDY

The chief intent of this survey, as reference earlier is to analyse the impact of macroeconomic factor and stock return in Malaysia fabrication industry. Since it would be about impossible to integrate every possible facet, the research worker limits this survey to choose macroeconomic variables such as rising prices, money supply and involvement rate all of which are standard variables in the literature. Data choice takes into consideration the handiness of informations and their consistence. The clip skyline of all the required monthly informations ranged from 2000 to 2009 stock index from KLCI.

## SIGNIFICANT OF STUDY

The survey conducted is to obtain every bit much as information as possible to understand the impact of macroeconomic factor and stock return in Malaysia fabrication industry to place the set of macroeconomic variables, which correspond most closely with the

stock market factors. In this research, research worker predicts a strong relationship between the macroeconomic variables and the expected stock returns.

This research is of import to the research worker, investor every bit good to the equity market. It is of import for the investor to utilize the consequence of the research as a guideline and mention in order to better and keeping a good cognition particularly for the investing and stock return.

## LIMITATION OF STUDY

In carry oning this survey, the research worker has to do some trade-offs between clip and cost efficiencies with truth efficiencies because of some restrictions as listed below.

A fiscal restraint due to it is difficult to acquire the information because about of informations need to paid.

Since most of the informations were used in this survey is obtain from the secondary beginnings, it truth and dependability were to the full depends on the published stuffs. An mistake occurs in the published beginnings will supply incorrect informations for this research. The information available on the Data- Stream is besides difficult to obtain due to the failure of connexion and limited subscribes.

## DEFINITION OF TERMS

## Stock return

In finance, rate of return ( ROR ) , besides known as return on investing ( ROI ) , rate of net income or sometimes merely return, is the ratio of money gained or lost ( whether realized or unrealized ) on an investing relation to the sum of money invested. The sum of money gained or lost may be referred to as involvement, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the plus, capital, chief, or the cost footing of the investing. ROI is normally expressed as a per centum instead than a fraction.

## Inflation

In economic sciences, rising prices is a rise in the general degree of monetary values of goods and services in an economic system over a period of clip. In pattern, the term pecuniary rising prices is used to specifically mention to an addition in the money supply. When the monetary value degree rises, each unit of currency bargains fewer goods and services accordingly rising prices is besides eroding in the buying power of money – a loss of existent value in the internal medium of exchange and unit of history in the economic system.

A main step of monetary value rising prices is the rising prices rate, the annualized per centum alteration in a general monetary value index ( usually the Consumer Price Index ) over clip.[ 1 ]

## Interest rate

An involvement is the monetary value a borrower pays for the usage of money he does non have, and the return a loaner receives for postponing his ingestion, by imparting to the borrower. It is besides rate that is charged or paid for the usage of money. An involvement rate frequently expressed as an one-year per centum of the principal. It is calculated by spliting the sum of involvement by the sum principal.[ 2 ]

## Money supply

Money supply is another name for money. In Malaysia, every bit good as in many other states, the Central Bank defines money into three classs which is M1, M2, and M3. Money supply can be defined as the sum of fiscal instruments within a specific economic system available for buying goods or services. The money supply is normally measured as three intensifying classs M1, M2 and M3. The classs grow in size with M1 being currency ( coins and measures ) and look intoing history sedimentations. M2 is currency, look intoing history sedimentations and nest eggs account sedimentations, and M3 is M2 plus clip sedimentations.

M1 includes merely the most liquid fiscal instruments, and M3 comparatively illiquid instruments. Another step of money, M0, is besides used, although unlike the other steps, it does non stand for existent buying power by houses and families in the economic system. M0 is basal money, or the sum of money really issued by the cardinal bank of a state.

It is measured as currency plus sedimentations of Bankss and other establishments at the cardinal bank. M0 is besides the lone money that can fulfill the modesty demands of commercial Bankss.[ 3 ]

## 1.8 Summary

This research motive is to find the effects of macroeconomic variables and stock return in Malaysia fabrication industry and to reply the job statement that been stated. To acquire more understanding about what are the purposes of this survey the following chapter will be explain in more deepness in.

## Chapter 2

## LITERATURE REVIEW

## 2.0 LITERATURE REVIEW

Surveies by Nil Gunsel and Sadik Cukur et Al, ( 2007 ) infusion from that diary Chen, Roll & A ; Ross [ CRR ] ( 1986 ) hypothesis and tested a set of macroeconomic informations series to explicate US stock returns. They examine the sensitiveness of macroeconomic variables to stock return and employed seven macro series ; term construction, industrial production, hazard premium, rising prices, market return, ingestion and oil monetary values. CRR assume that the implicit in variables are serially uncorrelated and all inventions are unexpected. In their research, they found a strong relationship between the macroeconomic variables and the expected stock returns. They explained that industrial production, alterations in hazard premium, turn in the output curve, and step unforeseen rising prices and alterations in expected rising prices during period when these variables are extremely volatile, are important in explicating expected returns. Their grounds suggests that ingestion, oil monetary values and market index are non priced by the fiscal market. They conclude that stock returns are exposed to systematic intelligence that is priced by the market.

Beside that survey from Mansor H. Ibrahim and Hassanuddeen Aziz et Al, ( 2003 ) . There are comparative few empirical probes viz. , concentrate on industrialised economic systems, some recent surveies have extended the analysis to the instances of developing economic systems.

An exemplifying list of surveies for developed economic systems includes Fama 1981, 1990 ; Chen et al. 1986 ; Hamao 1988 ; Asprem 1989 ; Chen 1991 ; Thornton 1993 ; Kaneko and Lee 1995 ; Cheung and Ng 1998 ; Darrat and Dickens 1999. These surveies identify such factors as industrial production, hazard premiums, incline of the output curve, rising prices, involvement rate, money supply and so away as being of import in explicating stock returns. The few noteworthy surveies for developing economic systems include Mookerjee and Yu 1997 and Maysami and Koh 2000 for Singapore, Kwon et Al. 1997 and Kwon and Shin 1999 for South Korea, and Habibullah and Baharumshah 1996 and Ibrahim 1999 for Malaysia.

On the other manus, Beenstock and Chan [ BC ] ( 1988 ) identified four hazard factors – viz. , involvements ‘ rates, money supply ( M3 ) , fuel and stuff cost, and the retail monetary value index, suggested by the informations. They conclude that unforeseen addition in involvement rate and fuel and stuff costs depress security returns. However, unforeseen addition in the money supply and the retail monetary value index raise security returns. They besides considered export volume and comparative export monetary values as hazard factors, but these were non important. Clare & A ; Thomas [ CT ] ( 1994 ) conclude that a figure of factors have been priced in the UK stock market and are ; oil monetary values, default hazard, and the retail monetary value index. UK private sector bank loaning, the current history balance and the salvation output on an index of UK corporate unsecured bonds and loans. Priestley ( 1996 ) prespecified the factors that may transport a hazard premium in the UK stock market. Seven macroeconomic and fiscal factors ; viz. default hazard, industrial production, exchange rate, retail gross revenues, money supply unexpected rising prices, alteration in expected rising prices, footings construction of involvement rates, trade good monetary values and market portfolio. For the APT theoretical account, with the factor bring forthing from the rate of alteration attack all factors are important.

Beside that survey from Nathan Lael Joseph, Panayiotis Vezos ( 2006 ) infusion from that diary. A few empirical surveies have besides examined the sensitiveness of FIs ‘ stock returns to foreign exchange ( FX ) rate alterations while others have jointly estimated the impact of FX rate and involvement rate alterations. Take first the empirical work that focus merely on FX rate sensitiveness. Here, Chamberlain et Al. ( 1997 ) study weak grounds of FX rate sensitiveness for US Bankss. Their cross-section arrested development consequences show that accounting steps can in fact explain the grade of FX rate sensitiveness. Nipponese Bankss do non look to be exposed to FX rate alterations and the grade of sensitiveness besides appears to change over clip ( see besides, Harris, et al. , 1991 ) . Other empirical surveies that jointly estimated involvement rate and FX rate sensitiveness provide assorted consequences. Choi et Al. ( 1992 ) study much stronger grounds of involvement rate sensitiveness than FX rate sensitiveness although the grade of sensitiveness varies by bank groups. In contrast, Choi and Elyasiani ( 1997 ) study much stronger grounds of FX rate sensitiveness than involvement rate sensitiveness for US banks.Most of the Bankss in their survey exhibited FX rate sensitiveness. Wetmore and Brick ( 1994 ) found similar consequences for US Bankss. They besides report that the extent of FX rate sensitiveness has increased over clip while involvement rate sensitiveness has decreased.

Sill ( 1995 ) paperss that the industrial production end product, T-bill rate and rising prices is statistically important in explicating the US stock market extra returns. In add-on, the conditional variance-covariances of the three macroeconomic factors are of import drivers of the conditional stock return volatility. Other recent surveies include Liljeblom and Stenius ( 1997 ) , Errunza and Hogan ( 1998 ) , Kearney and Daly ( 1998 ) , Cheung and Ng ( 1998 ) , Aylward and Glen ( 2000 ) , Hondroyiannis and Papapetrou ( 2001 ) , Bislon et Al. ( 2001 ) ,

Patro et Al. ( 2002 ) and Fifield et Al. ( 2002 ) . In the existent estate literature, Kling and McCue ( 1987 ) see the influences that macroeconomic factors have on the USA office building utilizing vector autoregressive ( VAR ) theoretical accounts that include monthly office building, money supply, nominal involvement rates and end product ( GNP ) .

## 2.1 Interest Rate

Interest rate is one of the influential macroeconomic variables harmonizing to Nil Gunsel and Sadik Cukur et Al, ( 2007 ) the value of a stock is straight influenced by the price reduction rate. It is common accepted that the involvement rate hazard factor must be included in plus pricing theoretical accounts. However, it may do jobs since involvement rates are extremely correlated with many other macroeconomic variables. Therefore, term construction of involvement rate can be used alternatively of involvement rate. The term construction is measured by the difference between long-run and short-run authorities involvement rates. In other words, the influence of term construction of involvement rates can be captured by the return difference between long-run Government Bond and Treasury Bills. The output spread represents the intertemporal alteration in the form of involvement rate term construction.

Survey by Nathan Lael Joseph and Panayiotis Vezos ( 2006 ) involvement rate hazards are of import fiscal and economic factors impacting the value of stock return. There are of import grounds why the stock returns of Bankss can be antiphonal to involvement rate. First, the volatility transportation hypothesis suggests that random dazes can bring on higher

volatility in fiscal markets and because of contagious disease effects which are highest in more volatile markets ( see King and Wadhwani, 1990 ) , investors every bit good as Bankss may look abroad to put in alternate fiscal assets. If international portfolio variegation besides consequences in an addition in the volatility of those returns ( see, Eun and Resnick, 1988 ) , so greater exposure to involvement rate hazards is like to impact the stock returns of Bankss if so such information is impounded into their stock monetary values.

## 2.2 MONEY Supply

There is significant empirical grounds that found an influence of money supply on stock returns for case, Fama ( 1981 ) and Jensen, Mercer and Johnson ( 1996 ) . Increased nominal money supply leads to a portfolio rebalancing toward other existent assets. This upward reallocation consequences in upward force per unit area on stock monetary values. Therefore, stock returns respond to unforeseen alterations in nominal money supply. On the other manus, strictly nominal additions in money supply may take to great rising prices uncertainness, and could hold an inauspicious effect on the stock market. Hence, money growing could be regarded as a prima index of future rising prices, which in bend affects stock returns.

Furthermore, addition in money supply leads to a falling in existent involvement rates. Furthermore, houses are faced with lower price reduction rates against future hard currency flows, and besides

respond to increasing income by seting their investings so as to bring forth greater gross revenues and net incomes ensuing in higher hereafter hard currency flows and higher stock monetary values. The above economic principle back uping the linkage between stock returns and money supply is sufficient to include money supply as a relevant economic force that can impact stock returns. In the analysis M0 is used as the pecuniary sum ( deflated by the retail monetary value index ) non out of any strong belief in a peculiar signifier of transmittal mechanism but because the M0 series is the longest lasting, moderately consistent, and most seasonably reported money supply series.

Surveies by Husam Rjoub, Turgut TuA?rsoy and Nil GuA?nsel ( 2009 ) finds that the importance of money supply on stock returns has been found by Fama ( 1981 ) and Jensen et Al. ( 1996 ) . The nominal additions in money supply may take to great uncertainness in rising prices and may hold an inauspicious effect on the stock market. Increased nominal money supply leads to portfolio rebalancing towards other existent assets. Stock returns respond to unforeseen alterations in nominal money supply. Addition in money supply leads to a bead in existent involvement rates. So companies face low-discount rate for their hereafter hard currency flow and besides respond to increasing income by seting their investings so as to bring forth more gross revenues and net incomes, ensuing in higher hereafter hard currency flows and higher stock monetary values.

## 2.3 Inflation

Beside involvement rate and money supply rising prices is one of the influential macroeconomic variables, which has negative impact on economic activity. Several surveies provide a negative relationship between existent stock returns and rising prices. Fama ( 1981 ) argues that stock returns are negatively related to rising prices because stock returns are positively related to existent activity.

Harmonizing to Roohi Ahmed and Khalid Mustafa ( 2003 ) , the negative relationship between existent returns and unexpected constituents of rising prices is more clearly explained in footings of relationship between existent returns and inflationary tendency. Surveies indicate that unexpected end product growing has negative and important effects in existent stock. However, anticipated rising prices has positive and undistinguished impact on stock return.

A survey by Floros.C ( 2004 ) applies assorted economic methods to analyze the relationship between stock return and rising prices in Greece. The research worker concludes that there is no correlativity between the current value and the past values, and hence the stock returns and rising prices are characterized as independent factors in Greece.

## 2.4 Summary

In decision, this chapter outlined selected literature analyzing that really utile for this research. It can steer on what variable that can be used to analyze the consequence of macroeconomic variables on the stock return in Malaysia. With the resources of the old survey it will assist researcher to explicate more item in the following chapter.

## Chapter 3

## RESEARCH METHODOLOGY

## 3.0 Introduction

The intent of this chapter is to explicate about the facets in the procedure and design of this survey. This involves the informations aggregation method and sample informations used in this survey every bit good as the development of the theoretical model and the hypotheses to be tested during the subsequent information analysis phase, the research design issues relevant in finishing this survey and besides the theoretical account used to prove the relationship between the dependant and the independent variables.

## 3.1 RESEARCH DESIGN

This research is designed to research the relationship between dependant and independent variables. This survey engages in hypothesis testing that clarify the correlativities and dealingss between macroeconomic variables and the stock return.

3.1.1 Purpose of the survey

The intent of this survey is to analyse the effects of macroeconomic factors on the stock return in Malaysia.

3.1.2 Types of Probe

This survey involved the correlativity and arrested development types of probe in order to happen out the consequence of macroeconomic factors on the stock return in Malaysia.

3.1.3 Unit of Analysis

In this survey, stock return, involvement rate, rising prices and money supply ( M3 ) are used as unit of analysis based on stock index KLCI.

3.1.4 Time Horizon

This survey used monthly footing informations from twelvemonth 2000 until terminal of 2009.

## 3.2 DATA SOURCE

For this research, research worker used secondary informations as the beginning of informations.

3.2.1 Secondary Data

Secondary informations refers to the statistical stuff which is non originated by the research worker himself but obtained from some one else ‘s records, or when Primary information is utilised for any other intent at some subsequent question it is termed as Secondary information. This type of information is by and large taken from newspapers, magazines, bulletins, studies, diaries etc. e.g. if the informations published by RBI on currency, National Income, Exports or Imports, is used in some other statistical question, it will

be termed as Secondary informations. For this survey, researcher gathered the secondary informations from DataStream, diaries ( www.emerald.com ) , cyberspace and articles from

World Wide Web ( World Wide Web ) and published informations beginnings. Secondary information is the informations collected for some intent other than the job at manus. Secondary informations helped researcher better defined job, formulate research design and construe more insightfully.

## 3.3 RESEARCH FRAMEWORK

Research model is developed for this survey to better understand about the effects of macroeconomic factors on the Malaysia stock return.

## Independent variable

## Dependent variable

Interest Rate

Inflation

## Stock Return

Money Supply

## Figure 3.1: Research Model

Figure 3.1 shows the research model for this survey. The independent variables for this survey are involvement rate, rising prices and money supply ( M3 ) . The dependent variable of this research is stock return.

## 3.4 DATA ANALYSIS AND TREATMENT

3.4.1 Multiple Linear Regression Model

The statistical tools use in the survey is Multiple Linear Regression Model. This theoretical account of analysis is designed to analyze the coincident effects of three macroeconomic variables on a stock return. In the arrested development theoretical accounts, stock return is used as dependent variable, while the macroeconomic variables are used as independent variable. In other used this theoretical account can explicate the correlativity between the dependant variable and independent variables.

## Ri = bi0 + bi1F1i + bi2Fi2 + bi3Fi3 + a‚¬

Where, Ri is the mean return and Bi: is the reaction coefficient mensurating the alteration in mean return for a alteration in hazard factor and Fi is the macroeconomic factor.

In the survey following factors are employed ;

F1: Interest rate

F2: Inflation

F3: Money supply ( M3 )

3.4.2 Coefficient of Correlation ( R )

By simple definition, coefficient of correlativity ( R ) is to mensurate the additive relationship between dependant variable ( Y ) and independent variable ( X ) . The value of R is ever lying between -1 and +1 no affair what the units of X and Y. Its mark ( negative or positive ) indicates the way of relationship between variables straight or reciprocally. The expression as stated below[ 4 ]:

## Correlation ( R ) = NI?XY – ( I?X ) ( I?Y ) / Sqrt ( [ NI?X2 – ( I?X ) 2 ] [ NI?Y2 – ( I?Y ) 2 ] )

3.4.3 Coefficient of Determination ( RA? )

It is the trial of goodness of tantrum. It is used to find how good the arrested development line fits the information. RA? measures the proportion of entire fluctuation in the dependent variables. The higher the value RA? , the higher explanatory power of the estimated equation and it is more accurate for calculating intents. It determines how good that all the arrested development line fits the information. It is a figure runing from 0 to 1 ( 1 & gt ; RA? & gt ; 0 ) and it represents the proportion of entire fluctuation in the dependant variable that is explained by arrested development equation. If RA? show the value of 1, it indicates that all the alterations in dependant variable used. it shows that there is a strong correlativity between dependant and independent variables, but if the RA? show the value of 0, it

indicates that the alterations of the fluctuation in dependant variable do non explained by the independent variables[ 5 ].

## rp = I±p + I?p * rindex

3.4.4 F-Test

It is besides the trial of overall explanatory power of arrested development. It analyzes he discrepancy ; this uses the F-statistics or F-ratio. The F-statistics is used to prove assorted statistical hypotheses about the mean of distribution from which a sample or a set

of sample has been drawn. If the deliberate F-value is higher, it shows there is important consequence between the independent and dependent variables.[ 6 ]

## 3.5 HYPOTHESIS STATEMENT

A hypothesis is a proposition that is stated in testable signifier and attempts to calculate a relationship between two or more variables. Some statement created in the hypothesis can be either supported or rejected through research.

Hypothesis 1:

H0: There is a no relationship between the degree of involvement rate and stock return.

H1: There is a positive relationship between the degree of involvement rate and stock return.

Hypothesis 2:

H0: There is a no relationship between the degree of rising prices and stock return.

H1: There is a positive relationship between the degree of rising prices and stock return.

Hypothesis 3:

H0: There is a no relationship between the degree of money supply and stock return.

H1: There is a positive relationship between the degree of money supply and stock return.

## 3.6 Summary

This chapter presents the research design that will be used in this survey. This survey aims to find the relationship between the independent variables and dependent variable.

This research will be done in conformity to the aim where there is any important correlativity between independent and dependent variables. This information was possibly can be utile by the investors, industry and other fiscal establishments during the investing determinations to be doing. Since survey focal points on the information from 2000 until 2009, it would give a better image on the determination consequence.

## Chapter 4

## FINDINGS AND ANALYSIS

## 4.0 Introduction

As mentioned earlier, the aims of this survey is to analyse the effects of macroeconomics factors and stock return in Malaysia fabrication industry. This chapter summarizes the empirical findings every bit good as the reading of the consequence. The reappraisal of the consequence obtained from the empirical methods used for the survey. The findings and analysis of the research been analyzed by utilizing the Microsoft Excel and Statistical Package for Social Sciences ( SPSS ) .

## 4.1 MULTIPLE LINEAR REGRESSION MODEL FOR THE Year 2000 – 2009

The multiple arrested development analysis has been adopted for the probe of this survey. It is a statistical method for analyzing and evaluates the relationship between a dependent variable and two or more independent variables. The SPSS end product for the multiple additive arrested development is the consequence of coefficient value of involvement rate, rising prices and money supply ( M3 ) towards stock return in Malaysia. The arrested development theoretical account is expressed as a log additive equation as follows:

Model Equation:

## Ri = bi0 + bi1F1i + bi2Fi2 + bi3Fi3 + a‚¬

The above equation is an equation for multiple arrested development theoretical accounts and can be explained as the followers:

Bi:

The reaction coefficient mensurating the alteration in portfolio returns for a alteration in hazard factor.

F1:

Interest rate

F2:

Inflation

F3:

Money supply ( M3 )

Fi is the macroeconomic factor. The coefficient of a bi0 is a called the y-intercept: it is the value of Y ( harmonizing to the arrested development line ) when ten is equal to zero, while the coefficient of F1, F2, and F3 are the incline of the arrested development line. Their numerical values give the alterations in dependant variable, Y ( either positive or negative ) .

## 4.2 THE Analysis

## 4.2.1 Descriptive Statisticss

## Table 4.1: Descriptive statistics

Average Stock

Tax return

Interest

Inflation

Money supply

( M3 )

Mean

1.5648

0.8013

2.1971

5.8012

Discrepancy

0.0560

0.0020

3.2410

0.0130

Minimum

1.0368

0.6839

-2.4000

5.6382

Maximum

2.2194

0.8910

8.5000

6.0075

Std. Dev.

0.2365

0.0463

1.8002

0.1155

Table 4.1 provides a sum-up of the descriptive statistics of the dependant and independent variables. The tabular array indicates the mean values of the stock return from the ten old ages fiscal statement. The mean stock return measured by mean reported as 1.5648 with standard divergence 0.2365. From the tabular array shows that mean for involvement rate is 0.8013 with standard divergence 0.0463, moreover the mean for the rising prices is 2.1971 with standard divergence 1.8002 and for the money supply ( M3 ) reported that mean for M3 as 5.8012 with standard divergence 0.1155. From the consequence research worker indicate that rising prices rate acquire the highest standard divergence meanwhile money supply show the highest mean.

## 4.2.2 Coefficients

## Table 4.2: Coefficients

Model

Unstandardized

Coefficients

Standardized Coefficients

T

Sig.

Bacillus

Std. Mistake

Beta

( Constant )

6.185

1.120

5.523

.000

INT

1.993

.360

.390

5.537

.000

INF

-0.21

.006

-.162

-3.365

.001

M3

-1.064

.152

-.519

-7.010

.000

From the above tabular array, this survey concludes that the consequence can be explained by the undermentioned equation:

## Ri = 6.185 + 1.993bi1 – 0.21 bi2 – 1.064bi3

Based on the above equation, in general we can see that merely the involvement rate has positive correlativity with the independent variable. Meanwhile, the others independent variable money supply ( M3 ) and rising prices show a negative correlativity with independent variable. Below is the reading about the relationship for each dependant variable with independent variable:

## Interest Rate

H0: There is a no relationship between the degree of involvement rate and stock return.

H1: There is a positive relationship between the degree of involvement rate and stock return.

The coefficient value of involvement rate is +1.993. This value of coefficient indicates that every one per centum addition in involvement rate, the dependant variable that is stock return expected to increase by 1.993 per centum presuming that other variables remain changeless. Due to the positive value, it indicates that there is appositional relationship between involvement rate and stock return. Therefore, any addition in the involvement rate will straight increase the stock return and frailty versa. With p-value at 0.001, which is less than 0.005, this survey rejects the void hypothesis and accepts the surrogate hypothesis which explained that, there is a important relationship between stock return and involvement rate.

## Inflation

H0: There is a no relationship between the degree of rising prices and stock return.

H1: There is a positive relationship between the degree of rising prices and stock return.

The consequence shows that the coefficient value for rising prices is negative. It means that there are negative relationship between rising prices and stock return in Malaysia market. The value of this coefficient is -0.2. This value indicates that, for every one per centum addition in rising prices, stock return will diminish by 0.21 per centum presuming that other variables are changeless. Since the P – value is 0.000, which mean less than 0.005 ( 5 per centum degree of significance ) , this survey rejects the void hypothesis and accepts the surrogate hypothesis which explained that there is positive relationship between stock return and rising prices rate.

## Money Supply

H0: There is a no relationship between the degree of money supply and stock return.

H1: There is a positive relationship between the degree of money supply and stock return.

For the money supply, the consequence shows that the value for this independent variable is negative. The coefficient value for this variable is negative. The coefficient value for this variable is -1.064. It means that

there are negative relationship between money supply and stock return in Malaysia market.

For every one per centum addition in money supply, stock return will diminish 1.064 per centum presuming that other variables are changeless. The p-value for money supply is same with p-value for rising prices that is 0.000. With p-value less than 0.05 ( 5 per centum degree of significance ) , this survey shows that there is important relationship between stock return and money supply.

## Model Summary

## Table 4.3: Model Summary

Roentgen

Roentgen Squared

Adjusted R Squared

Std. Mistake of the Estimate

F Change

Sig. F Change

0.897

0.805

0.800

0.106

158.053

0.000

Harmonizing to the tabular array 4.3, the consequence is explained as follow:

## 4.2.3.1 Coefficient of Correlation ( R )

The map of coefficient relation is to mensurate the additive relationship between dependant variable ( Y ) and independent variable ( X ) . The

value of R is ever lying between -1 and +1 no affair what the units of X and Y. From the end product consequence, the correlativity coefficient ( R ) is 0.897, bespeaking a really strong correlativity exists between the stock return with

macroeconomics variable. Therefore, if any alterations happen on macroeconomic variables, it will give strongly consequence towards stock return in Malaysia.

## 4.2.3.2 Coefficient of Determination ( RA? )

This is the trial of goodness of tantrum. It is used to find how good the arrested development line fits the information. RA? measures the proportion of entire fluctuation in the dependent variables. The higher the value RA? , the higher explanatory power of the estimated equation and it is more accurate for calculating intents. From the tabular array, it shows that RA? is 0.805. This value means that approximately 80.50 % of the fluctuation in dependent variable is explained by the independent variable viz. involvement, rising prices and money supply ( M3 ) . Another 19.50 % of the fluctuation could be determined by the other factors.

## 4.2.4 F-Test

## Table 4.4: Analysis of variance B

Model

Sum of Squares

df

Mean Square

F

Sig

Arrested development

5.313

3

1.771

158.053

0.000

Residual

1.289

115

0.110

Entire

6.602

118

Anova is a aggregation of statistical theoretical accounts. The trial statistics for Anova is good explained by the F trial which analyzes the discrepancy. F-statistics is used to prove assorted statistical hypotheses about the mean of distributions from which a sample or a set of sample has been drawn. F-test steps how good a additive theoretical account fits a set of informations to cognize the important of the whole theoretical account. If the deliberate F-value is higher, it shows there is important consequence between the independent and dependent variables.

The void hypothesis ( H0 ) and alternate hypothesis ( H1 ) for the F-test are as follow:

H0:

There is no relationship between stock return and macroeconomic variables.

H1:

There is a relationship between stock return and macroeconomic variables.

From the consequence, it shown that the F-value is 158.053 and it is important at 0.000 where it is less than 0.05 or 5 percent degree of significance hence void hypothesis

is rejected at 5 per centum significance degree. By accepting the surrogate hypothesis, it shows that all the macroeconomic variables have important relationship with the stock return.

## 4.3 Summary

The findings of this survey counter all inquiries in job statement that have been developed earlier. Based on the consequence, it shows that all the selected macroeconomic variables that are used as independent variable in this survey have a important consequence or important relationship with the dependant variable. This is supported by the significance value or p-value for each independent variable which is less than 0.05 ( 5 per centum degree of significance ) . Besides that, consequence from SPSS end product about coefficient of correlativity proves a strong correlativity between independent variable and dependent variable.

In this survey, the determination shows that merely the involvement rate has positive relationship with stock return in Malaysia. This consequence is consistent with the surveies by Kim Hiang Liow, Muhammad Faishal Ibrahim and Qiam Huang ( 2005 ) which found that higher involvement rate will increase the income to investors in money market financess and so in bend to excite the economic system and stock market.

Furthermore, harmonizing to the consequence, rising prices and money supply have negative relationship with the stock return. This consequence is consistent with Fama ( 1981 ) , Roohi Ahmed and Khalid Mustafa ( 2003 ) and Floros.C ( 2003 ) , the ground for this circumstance is because rising prices

diminish the value of money, which finally consequence on investing activities. Besides that harmonizing to the survey by Kim Hiang Liow, Muhammad Faishal Ibrahim and Qiam Huang ( 2005 ) there have economic principle to include money supply as a relevant macroeconomic factor. First alterations in money supply will alter the equilibrium place of money, thereby changing the composing and monetary value assets in an investors ‘ portfolio.

Second alterations in money supply may impact on existent economic variables and holding a lagged influence on stock returns. Both of these mechanisms suggest a positive relationship between alterations in money supply an extra returns on stocks. However, addition in money supply may besides give to greater rising prices uncertainness and therefore can hold an adverse on existent market.

Finally, among the choice of macroeconomic variables that are tested in this survey, the consequence was revealed that involvement rate give higher impact on the stock return in Malaysia. This have been proved by the consequence that are showed in the SPSS end product. The consequence shows that every one per centum addition in involvement rate, the dependant variable that is stock return expected to be increased by 1.993 per centum, presuming that other variables remain changeless. In drumhead, the consequence from this chapter can give clear images for research worker to do decisions and recommendations at the following chapter.

## Chapter 5

## CONCLUSIONS AND RECOMMENDATIONS

## 5.0 Decision

The chief aim of this research is to analyze the consequence of macroeconomic variables and stock return in Malaysia fabrication industry. From the research, the research worker needs to happen out the important correlativity and relationship between independent variable ( involvement rate, rising prices and money supply ) with the dependant variable ( mean stock return ) . Since the survey is taken by mentioning the old surveies, hence all the indexs or variables selected are strongly believed that the independent variables have a relationship between stock return. This survey assists the research worker to better general cognition on the issue related to alterations in economic variable.

The map of arrested development analysis is to mensurate the information. Since the informations are empirical informations these methods are suited to prove and analyse the important relationship between the variables. The natural information collected is processed utilizing the Statistical Package of Social Science ( SPSS ) plan. Harmonizing to the analysis and findings in chapter four, it is proved that all the variables have strong relationship among them. Furthermore, all selected macroeconomic variables have a important consequence and important relationship with the dependant variable ( mean stock return ) .

From the consequences merely involvement rate has positive correlativity or relationship with stock return. Meanwhile, the others independent variable ( rising prices and money supply ) shows a negative relationship with the stock return in Malaysia. This survey besides found that involvement rate give higher impact on the stock return in Malaysia. The more uncertainness in involvement rate will do higher volatility on stock return in Malaysia market.

To turn out the consequence obtained, harmonizing to Husam Rjoub, Turgut TuA?rsoy and Nil GuA?nsel ( 2009 ) there is a important pricing relationship between the stock return and the tried macroeconomic variables ; viz. , unforeseen rising prices, term construction of involvement rate, hazard premium and money supply have a important consequence in explicating the stock market returns in assorted portfolios. However these consequences shown a weak explanatory power based on the findings because through their research it has other macroeconomic factors impacting stock market returns in Istanbul Stock Exchange other than the tried 1s.

## 5.1 RECOMMENDATIONS

In order to acquire significant consequence, there are few recommendations that can be considered for the following research. Below are the recommendations:

Extent the clip frame – It is recommended to the other possible hereafter research workers to build a elaborate survey by adding more old ages such as a 15 old ages or 20 old ages clip period. This may colourise up and supply attraction of possible hereafter research worker ‘s findings of survey.

Add more macroeconomic variables- The possible hereafter research workers may include the other types of macroeconomic variables as the independent variable such as Growth Domestic Profit ( GDP ) , hazard premium, foreign exchange and many others. By look intoing more variables, future research workers may happen out other new impact on this survey.

Extent the survey to the other Asiatic states – By implementing a comprehensive survey in other Asiatic states such as Singapore and China, the research will be more attractive and valuable because the consequences will be more accurate and about shows the existent economic images.

Use assorted methods – It is suggested to the hereafter research worker to utilize other methods on this survey such as clip series analysis such as exponential smoothing, fast Fourier transmutations and seasonal decomposition. By utilizing that analysis, the research worker may see the tendency of the old, current even future economic fortunes.