The impact of macroeconomic factors on stock market volatility

This study provides a comprehensive examination of stock market volatility in Malaysia from 2004 to 2024 by analysing impact of market sentiment and key macroeconomic indicators, utilizing advanced econometric models such as Vector Autoregression (VAR) and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) to capture volatility clustering and asymmetric effects. It explicitly incorporates geopolitical risk, foreign portfolio investment, interest rates, foreign exchange rates, and structural breaks triggered by major global events, revealing persistent volatility clustering and that negative shocks have a stronger impact on volatility, particularly during crisis periods like the Global Financial Crisis. The research contributes novel insights by demonstrating that while interest rate and exchange rate fluctuations significantly influence volatility, geopolitical risk has an insignificant effect, and structural breaks improve model fit without altering core relationships. These findings offer critical implications for investors, portfolio managers, and policymakers by enhancing volatility prediction accuracy and informing more effective risk management and policy strategies tailored to Malaysia’s emerging market context amid ongoing global uncertainties.