The effect of macroeconomic variables on stock market return in Malaysia (2010 -2018)

This study investigates the relationship between four macroeconomic variables such as inflation rate, interest rate, exchange rate and money supply and Kuala Lumpur Composite Index from January 2010 to September 2018 which have a monthly data set of 105 observations. Besides that, the purpose of this study is to determine which macroeconomic variables are the most significant in influencing the stock market index by using time series data analysis. In this study, arbitrage pricing theory (APT) is used to construct our model to capture the relationship between macroeconomic variables and Malaysia security market performances over the period of January 2010 to September 2018. The data was analyzed using Econometric Views (E-views) and this study had been tested for several statistics. The findings reveal that among four of the independent variables, only three variables which are interest rate, exchange rate and money supply are significant with dependent variable. Besides that, only one independent variable which is inflation rate is insignificant with dependent variable (KLCI). In conclusion, money supply has positive relationship with stock price meanwhile inflation rate, interest rate and exchange rate show’s negative relationship among stock prices.