OIL PRICE SHOCK

AND MALAYSIAN
SECTORAL STOCK MARKET RETURN

NOOR SYAHIRA SURYA NOORDIN

Oil Price Shock and Malaysian Sectoral

Stock Market Return

Noor Syahira Surya Noordin

Bachelor of Law (Honours)

University of Kent at Canterbury
United Kingdom
1999

Submitted to the Graduate School of Business

Faculty Business and Accountancy
University of Malaya, in partial fulfillment
of the requirements for the Degree of
Master of Business Administration
July 2009

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.

ii

AKNOWLEDGEMENT

In the name of Allah, the Beneficent, the Merciful

I would like to express my deepest and sincere gratitude to my supervisor, Dr Gucharan
Singh for his detailed, constructive comments and kind words. He had also selflessly
sacrificed his Sundays to review and discuss the concept as well as the framework of this
thesis.

This thesis would not have been possible if it had not been for Ms Marliana Abbas, Dr
Ahmad Rafdi and Mr Aidil Zulkifli, who had provided assistance in numerous ways that
eventually led to the completion of this paper. I would like to thank all of them for their
help and I am truly grateful for their friendship and selflessness.

I wish to express my warm and sincere thanks to all the lecturers, course-mates and staff of
Graduate Business School, University Malaya for all the assistance given. I also sincerely
thank Dr. M. Abessi for his advice during the initial stages of this paper.

I dedicate this thesis to my parents, Datuk Dr Noordin Razak and Datin Siti Aminah
Ahmad who had unwearyingly poured their love and support in cheering me on to complete
the daunting task of completing this MBA programme.

iii

TABLE OF CONTENTS

ABSTRACT......................................................................................................................... II
AKNOWLEDGEMENT....................................................................................................III
LIST OF TABLES ........................................................................................................... VII
LIST OF FIGURES ........................................................................................................... IX
LIST OF APPENDICES .....................................................................................................X
LIST OF SYMBOLS AND ABBREVIATIONS ...............................................................X
INTRODUCTION................................................................................................................ 1
1.1 BACKGROUND OVERVIEW .......................................................................................... 1
1.1.1

OIL AS SOURCE OF ENERGY AND ITS PRICE MOVEMENTS ....................................... 1

1.2 PROBLEM STATEMENT ................................................................................................ 3

1.3 RESEARCH OBJECTIVES ............................................................................................... 4
1.4 SCOPE OF THE STUDY .................................................................................................. 4
1.5 LIMITATIONS TO THE STUDY ....................................................................................... 5
1.6 SIGNIFICANCE OF THE STUDY...................................................................................... 6
LITERATURE REVIEW ................................................................................................... 8
2.0 INTRODUCTION ........................................................................................................... 8
iv

2.1 OIL AND THE ECONOMY .............................................................................................. 8

2.2 WORLD OIL PRICES................................................................................................... 10
2.3 OIL AND MALAYSIAN ECONOMY .............................................................................. 12
2.4 MALAYSIAN OIL MARKET LANDSCAPE .................................................................... 14
2.6 OIL, STOCK MARKET AND INDUSTRY SECTORS STOCK RETURNS............................ 17
2.5 CONCLUSION ............................................................................................................. 25
DATA AND METHODOLOGY ...................................................................................... 27
3.0 INTRODUCTION ......................................................................................................... 27
3.1 THE DATA ................................................................................................................. 27
3.2 RESEARCH METHODOLOGY ...................................................................................... 28
3.2.1

Initial Regression Process ............................................................................... 28

3.2.2

Unit Root Test ................................................................................................. 28

3.2.3

Cointegration ................................................................................................... 29

3.2.4

Vector Autoregressive ...................................................................................... 30

3.2.5

Impulse Response Function and Variance Decomposition.............................. 32

3.2.6

Granger Causality ........................................................................................... 34

RESEARCH FINDINGS................................................................................................... 36
4.0 INTRODUCTION ......................................................................................................... 36
4.1 INITIAL FINDINGS ON THE RELATIONSHIP BETWEEN OIL PRICES AND MARKET
RETURNS ...............................................................................................................................

4.2 STATIONARY TEST UNIT ROOT TESTS ..................................................................... 37

4.3 COINTEGRATION ....................................................................................................... 39
4.4 VAR, IRF AND VD RESULT AND ANALYSIS ............................................................. 42
4.5 GRANGER CAUSALITY .............................................................................................. 53
4.6 CONCLUSION ............................................................................................................. 56
SUMMARY AND CONCLUSION .................................................................................. 58
5.1 INTRODUCTION ......................................................................................................... 58
5.2 SUMMARY AND CONCLUSION ................................................................................... 58
5.3 FURTHER RESEARCH ................................................................................................. 60
REFERENCES................................................................................................................... 62
APPENDIX I.. 71
APPENDIX II. 72

vi

LIST OF TABLES

Table 1.1

: Total number of Listed companies in each Sector Index

Table 2.1

: List of Malaysian Major Exports (2008)

Table 2.2

: List of Malaysian Oil Exports and Imports (2008)

Table 4.1

: Initial Regression on the Relationship between Returns on Sectors,

KLCI and Oil Prices

Table 4.2

: Unit Root: Level Term

Table 4.3

: Unit Root: First Difference

Table 4.4

: Co-Integration Rank of variable LNKLCON, LNKLCI and LNOILP

Table 4.5

: Co-Integration Rank of variable LNKLCSU, LNKLCI and LNOILP

Table 4.6

: Co-Integration Rank of variable LNKLFIN, LNKLCI and LNOILP

Table 4.7

: Co-Integration Rank of variable LNKLIND, LNKLCI and LNOILP

Table 4.8

: Co-Integration Rank of variable LNKLPLN, LNKLCI and LNOILP

Table 4.9

: Co-Integration Rank of variable LNKLPRO, LNKLCI and LNOILP

Table 4.10

: Co-Integration Rank of variable LNKLPRP, LNKLCI and LNOILP

Table 4.11

: Co-Integration Rank of variable LNKLSER, LNKLCI and LNOILP

Table 4.12

: Co-Integration Rank of variable LNKLTEC, LNKLCI and LNOILP

Table 4.13

: VAR Estimates for Construction Sector

Table 4.14

: VAR Estimates for Consumer Products Sector

Table 4.15

: VAR Estimates for Finance Sector

vii

Table 4.16

: VAR Estimates for Industrial Sector

Table 4.17

: VAR Estimates for Plantation Sector

Table 4.18

: VAR Estimates for Industrial Products Sector

Table 4.19

: VAR Estimates for Trading and Services Sector

Table 4.20

: VAR Estimates for Technology Sector

Table 4.21

: Granger Causality Test for Construction Sector

Table 4.22

: Granger Causality Test for Consumer Products Sector

Table 4.23

: Granger Causality Test for Finance Sector

Table 4.24

: Granger Causality Test for Industrial Sector

Table 4.25

: Granger Causality Test for Plantation Sector

Table 4.26

: Granger Causality Test for Industrial Products Sector

Table 4.27

: Granger Causality Test for Trading and Services Sector

Table 4.28

: Granger Causality Test for Technology Sector

viii

LIST OF FIGURES
Figure 2.1

: World crude oil price from 1.1.2003 to 31.12.2008

Figure 2:2

: Malaysian Retail Fuel Price Movement 2003 2008

Figure 4.1

: Movements of the indices from 31 December 2002 to 8 April 2009

Figure 4.2

: Impulse Response for Construction Sector

Figure 4.3

: Impulse Response for Consumer Products Sector

Figure 4.4

: Impulse Response for Finance Sector

Figure 4.5

: Impulse Response for Industrial Sector

Figure 4.6

: Impulse Response for Plantation Sector

Figure 4.7

: Impulse Response for Industrial Products Sector

Figure 4.8

: Impulse Response for Trading and Services Sector

Figure 4.9

: Impulse Response for Technology Sector

Figure 4.10

: Variance Decomposition for Construction Sector

Figure 4.11

Variance Decomposition for Consumer Products Sector

Figure 4.12

Variance Decomposition for Finance Sector

Figure 4.13

Variance Decomposition for Industrial Sector

Figure 4.14

Variance Decomposition for Plantation Sector

Figure 4.15

Variance Decomposition for Industrial Products Sector

Figure 4.16

Variance Decomposition for Trading and Services Sector

Figure 4.18

Variance Decomposition for Technology Sector

ix

LIST OF APPENDICES

Appendix I

: List of companies in each Sector Index

Appendix II

: Normal Distribution at first difference diagrams

LIST OF SYMBOLS AND ABBREVIATIONS

USD

: US Dollars

MYR

: Malaysian Ringgit

KLSE

: Kuala Lumpur Stock Exchange (now known as Bursa Malaysia)

GNP

: Gross National Product

GDP

: Gross Domestic Product

CPI

: Consumer Price Index

CHAPTER 1
INTRODUCTION

1.1

Background Overview

1.1.1

Oil as Source of Energy and its Price Movements

Oil represents the most important macroeconomic factor in the world economy. It is one
of the main natural resources that fuel energy in the world. The price of oil and
petroleum products are determined by the international market based on the forces of
demand and supply. When there is a large increase in oil prices in the world market, it
affects the price of petroleum products across the world including Malaysia.

The price of oil has generally been relatively stable over the years with prices of crude
oil floating at an average of USD 30 to USD 40 from mid- 1980s to 2004.
Notwithstanding that, there are a number of price fluctuations during certain periods due
to the several factors such as oil price shock in 1975 and Gulf War in 1992.

July 2008 saw the price peaked to USD 147 per barrel. Many theories have been put
forward that contribute to the escalating crude oil price, which include increase in world
demand especially by the United States, China, India and other developing countries,
decline in petroleum reserves, unstable geopolitics conditions in several Organization of
the Petroleum Exporting Countries (OPEC countries), tension in the Middle East as
well as oil price speculations in the futures trading market.

Market analysts and even people on the streets believes that the fuel price hike
experienced by the world at large in late 2007 until mid-2008 posed as a challenge
1

especially to businesses that rely heavily on fuel as a source of energy. In fact, other
businesses were also indirectly affected including the consumers where they were of the
notion that the increase in the price of the retail petroleum products could cause a
general increase in the price of goods and services in the market.

Due to the large increase in the world crude oil price, Malaysia who has been enjoying
relatively cheap fuel prices over the years had to succumb to a substantial price increase
in petroleum products, including petrol and diesel. In June 2008, Malaysian
Government increased the petrol price from RM 1.92 per liter to RM 2.70 per liter,
almost a 41% price hike. Diesel was increased by over 60% from RM 1.58 to RM 2.58
per liter. The hefty price hike was a result of the ballooning increase in the crude oil
prices which was hovering at a production rate of more than $100 per barrel in May
2008. The crude oil price increase had forced the Malaysian government to eventually
pass the escalating cost to the consumers. The new price provoked strong reactions from
both the corporations and consumers.

In August 2008, the world crude oil price began to decline. Consequently, Malaysian
government effectively reduced the retail price of both petrol and diesel seven times
between 23 August 2008 and 16 December 2008 from RM 2.70 per litre and eventually
rested at RM 1.90 per liter for petrol, whilst diesel price dropped from MYR 2.58 to
MYR 1.70 per liter. The decision was made by the Government in line with lower
global crude oil price and also due to the public and political pressures.

There have been numerous studies in both finance and energy literature on the
relationship between the oil price shock and the economy as well as the stock market in
many developed countries. However, studies focusing on developing countries or
2

emerging markets are rather limited and there has yet to be any study conducted on the
Malaysian stock market.

This study aims at investigating whether the movements of oil prices have an impact on
the Malaysian stock market. In addition to that, it is also aimed at looking into the
impact of the oil price movements in individual industry sectors in Malaysia.

1.2

Problem Statement

Over the centuries, oil has been regarded as the major source of energy. Businesses rely
on petroleum products to fuel energy especially for transportations and the running of
machineries for their day to day operations and activities.

Due to the immense oil price hike in the world which affected the Malaysian retail fuel
prices in mid-2008, businesses and companies feared that the price hike would
negatively impact their businesses and the consumers feared that there would be a
general increase in prices of consumer goods and services.

The question that arises is whether the oil price shock will affect the performance of the
return on the stock market that will eventually translate the performance on the
businesses. Many analyst has predict that given the state of volatility in the oil price
movement in recent years, the movement in the stock market return will be also
affected. However, the question remains on how this price movement will affect the
stock market return for individual sectors in Bursa Malaysia. Given various opinions by
analyst in Malaysia and a lack of empirical studies, this research will aim to answer this
question.

1.3

Research Objectives

This study aspires to validate the public and investors perceptions that the oil price hike
does essentially affect the stock market return. It will also analyse the industry sectors in
Malaysia stock market movement that will be affected by the movement in oil price by
world crude oil price. Thus, the objectives of this research are as follows:

(a)

To determine the effect of global oil price shock on the growth in the stock
market return.

(b)

To validate the theories and perceptions that oil price movements will affect
stock returns on the sectors in Bursa Malaysia, regardless of whether fuel is
directly or indirectly used as main input in the business operations and value
chain.

1.4

Scope of the Study

This study is focused at analysing the impact of oil price movements on individual
industry sector listed on the Bursa Malaysia stock market. This will be done by studying
the indices, which are regarded as the indicator that represents the entire group of which
it represents. Each index comprises companies that have large market capitalization. A
portfolio encompassing all possible securities would be too broad to measure. Hence,
proxies such as stock indices have been developed to serve as indicators of the overall
market's performance.

For the purpose of this analysing the industry sectors, concentration is on the daily
indices of the following respective industry sector:
4

Table 1.1: Total number of listed companies in each Sector Index

No

Sectors

No of companies

Construction

42

Consumer Products

86

Finance

40

Industrial

26

Plantation

40

Industrial Products

152

Property

87

Trading/Services

144

Technology

22

Source: Authors compilation

The detailed list of the companies is as shown in Appendix I.

1.5

Limitations to the Study

Despite objective of determining and recognizing the relationship between the oil price
changes and industry sectors stock returns, this study is subject to several limitations.

Firstly, the study only considered the industry sector indices in Bursa Malaysia. It does
not study individual company listed on the stock exchange or private companies. Thus,
the research does not indicate which company that was badly affected by the oil price
crisis.

Secondly, the industry indices comprise of companies from an array of principal

activities and business. For example, the Trading/Services Index comprise companies
involve in a diversity of business that vary from transportation to media. Thus, it cannot

be established for certain how the oil price shock impact which sector specific.

Thirdly, there are other factors that can be attributed to the volatility of the stock
market. These factors include political stability. Malaysia experienced political turmoil
in the years 2003 to 2008 where there was a change of Prime Minister and cabinet lineup in October 2003. The 12th general election was held in March 2008 and the ruling
party had lost many parliamentary seats as well as control over several states. This
could also be one of the reasons that impede investors confidence.

Finally, the United States was experiencing an economic financial crisis due to subprime issue during the periods of 2007 and 2008. This could also impact investors
confidence especially when the Malaysian export market and several financial
institutions can be said to be partly affected. The deteriorating investor confidence could
negatively affect the Malaysian stock market.

1.6

Significance of the Study

This study analyses the impact of the oil price changes on various industry indices listed
on the Malaysian stock market. The result of this study will assist the management of
the companies in Malaysia to be sufficiently prepared for any recurrence of oil price
crisis that will impact the world economy. The companies may redirect their business
model in preparation for the economic volatility. The company may also have a headstart in making decisions in operational and capital expenditure by using best industry
practices without the need to reinvent the wheel. The success of every business entity
depends very much on its strategic plan.

Secondly, the policy makers may formulate measures in times of economic turmoil due
to oil price shocks which may include adopting both monetary and fiscal policies to
spur economic growth, stabilize inflation and unemployment rate.

Thirdly, the outcome of this study will assist investment decision making of equity
investors in choosing counters or companies on the Malaysian stock exchange during
economic downturn due to oil price crisis. In addition to that, it will also assist the
private equity companies and venture capitalist in choosing the industry sector they opt
to invest in.

The rest of the paper is organized as follows:

Chapter 2 lays out a review of past relevant literatures, which covers the importance of
oil to the economy in general, the price movements of oil over the years, an overview of
oil landscape in Malaysia and the impact of oil price shock on the stock market. Chapter
3 outlines the research model as well as the types of data collected and used for the
study. The data analysis and findings are presented and discussed in Chapter 4, whilst
the discussion and conclusion of the findings are laid out in Chapter 5.

CHAPTER 2
LITERATURE REVIEW

2.0

Introduction

Oil is one of the most vital macroeconomic factors. There have been numerous studies
and discussions on the relationship of macroeconomic factors and its volatility impact
on the world economy. The interrelation between economic variables, in particular oil
has received considerable exposure.

2.1

Oil and the Economy

Oil plays a major role in determining the economic condition of a country, be it

developed or developing country. A large number of researches have been conducted on
developed country such of U.S and found that its economy had been largely affected by
oil price shocks. Using a seven-variable VAR system, Hamilton (1983) examined the
impact of oil price shocks on the U.S economy from 1949 to 1972. He found that oil
price increase was the main cause of U.S post World War II recession. He also found a
statistically significant correlation between oil shock and that there is an asymmetric
relationship between oil prices and economic activity. Granger causality test was
conducted and found that changes in oil prices Granger-caused changes in GNP
whereby oil price increases are much more influential than oil price decreases. Various
researches supported Hamiltons findings, which include Burbridge and Harrison
(1984) and Gisser and Goodwin (1986).

With regards to developing countries, as modernization combs through a country and

transform it into a more urban landscape, the need for oil and energy increase. This is
8

especially if the country leaps into industrial production as one of its main source of
income. Basher & Sadorsky (2006) investigated the relationship between oil price risk
and emerging stock market returns and found that oil price has more impact on
emerging markets than on developed countries. Emerging economies tend to be more
energy intensive than more advanced economies and are therefore more exposed to
higher oil prices. Eryigit (2009) concurred with the findings and also found that the oil
price changes affect emerging market economies more than the developed markets.
They opined that this was because, developed countries are more aware of the danger in
air pollution and tend to switch to alternative technologies that do not use oil as the
main source of energy. Another contributing factor was because developed countries
had moved their production sites to developing or under-developed countries.

Energy, financial markets and the economy are all explicitly linked together on a
country's path of economic growth (Sadorsky, 2006). In a more recent study,
McSweeney and Worthington (2008) revealed that crude oil as an energy source is a
vital component that determines the condition of the world economy. Its price
movement impacts all industry sectors whether directly or indirectly, be it in banking,
energy, retailing or transportation industries.

Cologni and Manera (2009) however found that the role of oil shocks in explaining
recessions has decreased over time in G7 countries. The change in the relationship
between oil prices and real activity in recent years from earlier decades is attributed to
several causes including improvements in energy efficiency and in the conduct of
monetary and fiscal authorities.

2.2

World Oil Prices

Basher & Sadorsky (2006) regarded oil as lifeblood of modern economics. It was stated
that if there is an increase in oil demand but there are no increases in supply, there will
be an increase in oil prices. This is the basis of the power of demand and supply.
Hamilton (2009) had conducted a study to investigate the factors that caused oil prices
to rise so spectacularly in 2007 to 2008 and subsequently declined even more
dramatically afterwards, which he had presented the paper at the Brookings Conference.
One of the factors was the high in demand that is associated with high growth and
stagnating supply. He revealed that the world real GDP increased by 9.4% between
2003 and 2005. That growth in world income was the primary cause behind an increase
in world petroleum consumption of 5 million barrels per day between 2003 and 2005, a
6% increase over the two years. The next two years (2006 and 2007) saw even faster
economic growth (10.1% cumulative two-year growth), with Chinese oil consumption
alone increasing 870,000 barrels per day. Yet between 2005 and 2007, global oil
production stagnated. The fall in the oil prices was a result of fall in demand. For
example, between the third quarter of 2007 and the third quarter of 2008, U.S.
petroleum consumption fell by 8.8%. The said drop in U.S. petroleum consumption
unambiguously represented the combined effects of lower income and price-induced
changes in use.

According to the statistics recorded by the United States Department of Energy, the
crude oil price has been maintained at the range of USD 25 per barrel from the mid1980s to 2003. In late 2003, the price increased to USD 30 per barrel and reached USD
60 per barrel by August 2005. Eventually, it peaked at USD 147 in July 2008. As stated

10

in Chapter 1, many factors were theorized to have contributed to the escalating crude oil
price.

Set below is the diagram that shows the movement of world crude oil price from
January 2003 to December 2008.

Figure 2.1:
World crude oil price from 1.1.2003 to 31.12.2008

Source: United States Department of Energy http://tonto.eia.doe.gov/dnav/pet/hist/wtotusaw.htm

Higher energy or fuel costs have been speculated and theorized to drive up operating
costs of companies and most industries braced for erosion in earnings. There will be a
definite increase in transportation costs and import costs and this will ultimately cause a
spiral effect of increase in overall prices of goods and services. This is because the
operators or suppliers will pass on the costs to the consumers. The high fuel prices will
also pose as deterrent factor for consumers to spend. This is due to the fact that

11

consumers may find ways to find cheaper alternatives and change their lifestyles to save
a portion of what is left of their disposable income.

2.3

Oil and Malaysian Economy

There has not been much study done with regards to oil price shock and the Malaysian
economy. Malaysia which can be regarded as an emerging economy endowed with rich
natural resources including oil. It is a significant exporter of petroleum in the South East
Asia region.

Past researchers have found that developing countries tend to demand oil more than
developed countries. Like most developing countries, Malaysia had started out as an
agro-based economy after its independence in 1957. By mid-1980s, manufacturing had
overtaken agriculture as the main contributor towards the countrys GDP.
Manufacturing has long been recognised for its role as an engine of growth in the
development process. The rapid expansion of manufacturing sector contributes to the
high demand for oil in developing countries.

Malaysia is both an exporter and importer of oil. Crude petroleum accounts for the third
major exports of an average of 18 million metric tons annually. This can be seen in
Table 2.1 and Table 2.2 below.

Based on the UN Data and Malaysian Department of Statistics records, Malaysia is

also an importer of oil with an average of 7.9 million metric tons per year. In other
words, Malaysia is the net exporter of oil in the world.

12

Table 2.1:
List of Malaysian Major Exports (2008)

Table 2.2:
List of Malaysian Oil Exports and Imports (2008)
Year

IMPORTS

EXPORTS

2003

7,861

18,288

2004

7,885

18,354

2005

7,685

18,596

2006

8,197

19,401

Source: http://data.un.org

The reason as to why the country opts to export its oil rather than consuming it for
own use is because of the premium quality of the oil produced. The oil extracted from
13

the Malaysian soil has low sulphur content of less than 0.5%. It made more economical
sense to sell it and make profits for the country and in return buy a different quality of
oil with lower costs. Notwithstanding the fact that Malaysia in one of the exports for oil,
it is still relatively a small player in the industry with not more than 1% market share.
Hence, Malaysia is not in a position to influence the world oil price and therefore has to
succumb to the world oil price changes.

Global oil prices have risen markedly over the past 18 months. Cities that are highly
dependent on petroleum for urban transportations are likely to be most adversely
affected by the rising oil prices. Malaysia especially is highly dependent on petrol and
diesel as source of energy for transportation. The majority of the people rely heavily on
own personal vehicles due to the poor public transportation services in the country.

The petrol and diesel price hike fueled inflationary pressures that affected an array of
sectors of the economy, from consumers to the automotive, plantation and banking
sectors as well as highway industry. Malaysian Consumer Price Index (CPI) for January
to July 2008 increased by 4.4 per cent to 109.8 compared with that of 105.2 in the same
period last year. Compared with that of the same month in 2007, the CPI increased by
8.5% from 105.7 to 114.7 and when compared with the previous month, the CPI
increased by 1.1%. Among the contributing factors for this increase were the substantial
rise in the electricity tariff announced by the Government commencing 1 July 2008 and
the knock-on effect from the price increase of petrol and diesel (DOS, 2008).

2.4

Malaysian Oil Market Landscape

Since 1983, the government of Malaysia has strived to ensure that the prices of
petroleum products such as petrol, diesel and gas were kept low. The government has
14

been maintaining relatively low fuel prices compared to other countries in the South
East Asia region.

Both the supply and prices of these items have been declared as controlled items under
the Control of Supplies Act 1961. An Automatic Pricing Mechanism was introduced in
1983 to stabilise the fuel prices and to maintain it at low retail prices by way of subsidy
and exempting sales taxes on the items. The retail prices will only be changed at the
discretion of the government, if the difference in price exceeds the threshold of the tax
and subsidy.

Subsidy is a common method used by developing countries to spur economic growth

and to curb inflation. To ease the burden on consumers and motorists, Malaysian
government resorted to fuel subsidies. Malaysia has been subsidising diesel since
October 1999 and petrol since June 2005. For the year 2007, fuel subsidy cost the
government RM 8.77 billion with crude oil price averaging USD 79.00 per barrel.

Malaysia in general does not experience retail price fluctuations due to the forces of
consumers demand and producers supply as experienced by other countries. Australia
for example, its petrol price fluctuates in accordance to consumer behaviour. Mitchell
et. al (2000) found that retail petrol price has some relationship with the weather
whereby Australians prefer to use motor vehicles on sunny days and this consequently
increases the demand for petrol.

The prices of petrol and diesel in Malaysia were reviewed from time to time by the
government by using the price of the world crude oil as a benchmark. When the world
oil prices began to increase, the government announced that it would have to review the

15

fuel price subsidy if the world crude oil price hit above USD 100 per barrel. The crude
oil price hit USD 94.00 per barrel late 2007.

In 2008, the fuel subsidy rose to RM 18.31 billion based on the assumption that price
remained at USD 105 per barrel. However, the first week of June 2008 saw the crude oil
price reached USD 127 per barrel. Hence, the government had under-budgeted the
subsidy allocation. With that, Malaysian Government was no longer able to sustain the
subsidy over the petrol and diesel price, and therefore was forced pass the costs to
consumers.

In June 2008, the nation was stunned when the Malaysian Government increased the
petrol price from RM 1.92 per liter to RM 2.70 per liter, almost a 41% price hike. Diesel
was increased by over 60% from RM 1.58 to RM 2.58 per liter. The hefty price hike
was a result of a ballooning increase in the crude oil prices which was hovering at a
production rate of more than $100 per barrel in May 2008. The crude oil price increase
had forced the Malaysian government to eventually pass the escalating cost to the
consumers. The new price provoked strong reactions from both the corporations and
consumers.

In August 2008, the world crude oil price began to decline. Consequently, Malaysian
government effectively reduced the retail price of both petrol and diesel seven times
between 23 August 2008 and 16 December 2008 from RM 2.70 per liter and eventually
rested at RM 1.90 per liter for petrol, whilst diesel price dropped from RM 2.58 to RM
1.70 per liter. The decision was made by the Government in line with low global crude
oil price and also due to the public and political pressures.

16

Set below is the diagram that shows the movement of Malaysian retail petrol and diesel
prices from 1 January 2003 to 31 December 2008.

Figure 2.2:
Malaysian Retail Fuel Price Movement 2003 - 2008

Source: Malaysia Energy Database and Information System

2.6

Oil, Stock Market and Industry Sectors Stock Returns

Economic theories and past researchers have found that there is a linkage between oil
price and the stock market whereby oil price shock affects the macroeconomic and
ultimately equity returns. This is because, oil price shocks adversely affect real output
and thereby have an adverse effect on corporate profits where oil is used as an input.
Jones (2004, pp. 24) stated:

17

Ideally, stock values reflect the market's best estimate of the future profitability of
firms, so the effect of oil price shocks on the stock market is a meaningful and useful
measure of their economic impact. Since asset prices are the present discounted value
of the future net earnings of firms, both the current and expected future impacts of an
oil price shock should be absorbed fairly quickly into stock prices and returns without
having to wait for those impacts to actually occur.

Like any other goods and services, the simple demand and supply rule is also applicable
for oil prices. If there is a demand surplus for oil, this leads to higher oil prices. Basher
& Sadorsky (2006) states that if price of oil increases, it will act similar to inflation tax.
Accordingly two scenarios will emerge, firstly consumers strive to find cheaper
alternative energies, and secondly, costs of non-oil producing companies will increase
and this increases risks and uncertainties which in turn will negatively affect the stock
prices and reduces wealth and investment. Basher & Sadorsky (2006) linked the
relationship of oil shock and stock prices by assessing the impact on non-oil producing
companies which were not able to fully pass the increasing costs to consumers, and they
found that reduction of profits and dividends due to increase on costs were the key
drivers that affected stock prices.

Cong, Wei, Jiao and Ying Fan (2008) investigated the interactive relationships between
oil price shocks and the Chinese stock market using multivariate vector auto-regression.
Chinas role in the world oil market is said to have become more important. Since 2003,
China has taken the place of Japan to be the second world oil consumer. They found
that oil price shocks do not show statistically significant impact on the real stock returns
of most Chinese stock market indices, except for manufacturing index and some oil
companies. Some important oil price shocks depressed oil company stock prices.
18

Increase in oil volatility may have increased speculations in mining index and
petrochemicals index, which raise their stock returns.

Nandha & Faff (2008) conducted a study that examined the impact of oil price changes
on 35 industry sectors based on the standard FTSE Global Classification System. They
found that oil price changes have a negative impact on equity returns from all industries,
with the exception of mining, and oil and gas. They were of the opinion that the broad
oil price impacted across industries, because crude oil has a huge array of by-products,
which find applications from aviation fuel through to shampoo and shoes. Moreover,
higher oil prices might have an impact on interest rates and discourage consumer
confidence, creating indirect channels for reflecting higher oil prices into equity prices.
Their analysis had demonstrated that oil price increases and decreases have a symmetric
impact on the equity markets.

Huang (1996) however found evidence that suggested that oil futures returns do lead to
individual oil company stock return but oil future returns do not have impact on general
market indices. His study had examined the link between daily oil future returns and
daily United States stock return.

Those countries which are highly dependent on oil such as the Gulf States may feel the
direct impact of oil prices. They may be at an advantage due to increase in the world
price. For Gulf Cooperation Council (GCC) countries, oil exports largely determine
their foreign earnings and their governments budget revenues and expenditures. The
risk from price changes plays a key role in the development of these countries and their
financial markets. In a study conducted by Maghyereh and Al-Kandari (2007), they
disputed prior findings which stated that oil prices and GCC stock markets are not
19

related which is not justifiable given the importance of oil prices on the economy of
these countries. They argued that the findings of previous studies failed to detect the
relationship because only linear linkages were examined.

Maghyereh and Al-Kandari (2007) had used alternative tests whereby they had adopted
application of rank tests for a nonlinear cointegration relationship between oil price and
the stock markets in GCC countries. Their empirical analysis supported that oil price
impacts the stock price indices in GCC countries in a nonlinear fashion. This analysis is
consistent with some authors, such as Mork (1989), Mork et al. (1994), and Hamilton
(1996, 2000). The significance of the result of their study had given insight to the policy
makers of the GCC countries, whereby they should therefore keep an eye on the effects
of changes in oil price levels on their own economies and stock markets. For individual
and institutional investors, the nonlinear relationship between oil and stock markets
implies predictability in the GCC stock markets.

Using multivariate vector autoregressive model (VAR analysis) and monthly time-series
data to test the dynamic relations between macroeconomic variables and stock returns in
Greece, Papapetrou & Hondroyiannis (2001) had found a positive oil price shock
depresses real stock return. The macroeconomic variables such as industrial production,
interest rate, exchange rate and oil prices were examined to study the causal relationship
between the economic activity movements and the performance of the stock market of
Greece. The major finding of the research was the domestic macroeconomic activity
affects the performance of the domestic stock market. It was also found that oil price
changes are also important in explaining stock price movements. The initial test
conducted to examine for the presence of unit root based on Dickey Fuller, was to
investigate the degree of integration of the variables used in the empirical analysis.
20

The Johansen maximum likelihood approach was also applied to test for cointegration
among the variables.

Jones and Kaul (1996) studied the reaction of the stock markets to oil shocks during the
postwar period in Canada, Japan, United Kingdom and United States of America. They
had used current and future changes of the real cash flows and/or changes in expected
returns in conducting their research. Their findings was that, for United States of
America and Canada, the reaction of stock prices to oil shocks can be completely
accounted for by the impact of these shocks on real cash flows alone. Whereas, in
United Kingdom and Japan, changes in the oil prices seem to cause larger changes in
stock prices than can be justified by subsequent changes in real cash flows or by
changing expected returns. It was also found that there is a negative relation between
changes in oil price and stock returns. In other words, their findings indicate that oil
price changes have a detrimental impact on output and real stock returns in all four
countries.

The findings by Jones and Kaul were concurred by Sadorsky (1999) where the dynamic
interaction between oil prices and other economic variables including stock returns.
Four-variable unrestricted VAR framework using monthly time series data for the
period 1947 to 1996 were used. The four-variables include the natural logarithms of
industrial production as a measure of output, 3-month T-bill rate as interest rates, real
oil prices as an oil measure.

Sadorsky had the sample period split at 1986. He had investigated the oil price shock
prior to 1986 and after 1986. He had used variance decomposition and found that oil
price shocks account for a larger portion of the stock return forecast error variance in
21

the second sub-sample (1986 1996). He indicated that this suggested that there might
have been a change in oil price dynamics. Upon analyzing the data, Sadorsky
acknowledged that the real oil price had been fairly stable price trend, started to increase
in the mid-1970s and marked a major decline in 1986. The early 1990s marked oil
price decreases, possibly due to the Gulf War.

Faff and Brailsford (1999) studied the sensitivity of oil price factor and the Australian
stock market during the period of 1983 to 1996. They had hypothesize that there are
four industries in which oil price changes are expected to have a net impact on revenue
of the companies. The industries are gold, solid fuels, oil and gas, and diversified
resources. They found that there is significant positive oil price sensitivity in the Oil and
Gas and Diversified Resources industries. They had also found that negative oil price
sensitivity is be greatest in industries with a relatively high proportion of their costs
devoted to oil-based inputs such as Transportation industries. However, they had
predicted the negative sensitivity may be due to the fact that the companies may have
passed on higher fuel costs to their customers by increasing prices of their goods and
services.

The findings of positive and negative effect of oil price changes on specific industry
basis implied that analysis at the aggregate market level may hide industry sector
effects. Although the oil prices may impact the industry sector, other factors contributed
to the well being of the industry. Countries that are rich in natural resources and not
dependent on imports of these resources may be at an advantage over those countries
that lack such resources. Markets with different concentrations of particular natural
resources and industrial sectors may experience differential aggregate effects (Faff and
Brailsford, 1999). In conducting their studies, the data that was used were
22

continuously compounded monthly returns of 24 Australian companies, over the period

of July 1983 to March 1996. The companies were grouped based on Australian Stock
Exchange (ASX) industry groupings. Returns are calculated from the Price Relatives
File of the Center for Research in Finance (CRIF) at the Australian Graduate School of
Management. The proxy for the market portfolio used is a value-weighted domestic
index supplied by CRIF and a value-weighted global index supplied by Morgan
Stanley.

Jones and Kaul (1996) concurred with Faff and Brailsford whereby they discovered that
Canada which has a relatively high proportion of natural resource companies has the
weakest overall negative relationships between oil price shocks and stock returns. Japan
however, has a very low natural resources based. Hence, it was found that the overall
negative relationship between oil price shocks and stock return is strongest for Japan.

Eryigit (2009) also found that the price changes of oil or energy affect emerging
economies markets more than developed markets. He had studied the impact of oil
prices changes in both US Dollars and Turkish Lira on sub-sector indices in Istanbul
Stock Exchange. He had found that oil price changes are statistically significant positive
effects on trading and services, consumer products, industrial products, manufacturing
and financial sector covering insurance but do not have significant impact on
transportation and other financial sectors.

Grammenos and Arkoulis (2002) studied the relationship of global macroeconomic

factors, which includes oil prices with a specific industry that is shipping stock returns
internationally for the period 1989 to 1998. They had included 36 shipping companies
which are listed on 10 stock exchanges worldwide. The objective of the research is to
23

examine the long-run impact of several sources of global risk on international shipping
stock returns. They had formed a multi factors model using macroeconomic factors of
namely, exchange rates, global inflation, changes in oil prices, industrial production
growth and laid up tonnage, a factor specific to the shipping industry. In deriving the
returns of a company, the risk free interest rates were taken into account. It was found
that oil price and laid up tonnage are negatively related to shipping stock returns,
whereas the exchange rate exhibited a positive relationship. No significant relationship
was detected regarding the global measures of inflation and industrial production.

Choe (2002) studied how oil price shocks on another perspective i.e. oil price impact on
large and small firms between the periods of 1950 to 2000. The companies were divided
into sizes depending on the market capitalization of the companies. The empirical
results showed that the oil price shocks in general affect the stock returns of large firms
more than the smaller firms. The asymmetric analyses also showed that positive oil
price shocks have more significant effect on both large and small firms than do negative
shocks. Thus, in conducting this research, the market capitalization of the sample
companies is an essential consideration.

Sadorsky (2008) agreed with findings by Choe when he investigated the empirical
relationship between firm size, oil prices, and stock prices. The empirical results
showed that increases in firm size or oil prices reduce stock price returns. They also
found that changes in oil prices have an asymmetric effect on stock prices. Increases in
oil prices have a greater effect on stock returns than decreases in oil prices. It is also the
case that when asymmetric oil price changes are considered, the effect of firm size
shows up most pronounced for medium-sized firm. He had given an example of being
the middle child in a family; it is tough being a medium-sized firm. Medium-sized
24

firms do not enjoy the production efficiency and financial leverage of large firms nor do
they have the flexibility and responsiveness of small firms. Thus, medium-sized firms
are more likely to be more adversely affected, in terms of stock prices, by changes in oil
prices.

Notwithstanding the impact of increase in oil prices on the economy and industries, the
increase in crude oil prices poses as advantage to alternative energy companies. This is
because the industries will switch to more lucrative alternatives as source of energy.
Past researchers find that rising oil prices are good for the financial performance of
alternative energy companies. Henriques and Sadorsky (2008) studied the alternative
energy and oil and how they impact the financial performance of the alternative
companies. However, they argued that, although it is widely accepted that rising oil
prices are good for the financial performance of alternative energy companies, there are
no measurement on just how sensitive the financial performance of alternative energy
companies are to changes in oil prices. They then developed four (4) variable vector
autoregression models and estimated in order to investigate the empirical relationship
between alternative energy stock prices, technology stock prices, oil prices, and interest
rates. His findings showed that technology stock prices and oil prices each individually
Granger cause the stock prices of alternative energy companies. He also found that a
shock to technology stock prices has a larger impact on alternative energy stock prices
than does a shock to oil prices.

2.5

Conclusion

Although the majority of past researchers studied the relation of macroeconomic factors
including oil prices and the economic activity and the general stock market or oil
25

price shock on the returns of selective companies, to date no research have been
conducted on the specific impact of global crude oil change on Malaysian financial
market or specifically on the Malaysian stock market performance. The objective of this
research is to study the impact of global crude oil prices on various industries in
Malaysia which aims to become developed countries by the year 2020.

26

CHAPTER 3
DATA AND METHODOLOGY

3.0

Introduction

In this research, we shall examine the impact of oil price changes and shocks on the
sector returns on the KLCI and its component in the main board. In doing so, the
following chapter will outline the data and methods in carrying out the examination.

3.1

The Data

The first step in developing a VAR model is to make a choice of variables that are
essential for analysis. The key variables; sector indices from the main board oil prices,
and KLCI indices are used in this research. Sector indices comprise of index from nine
(9) different sectors namely construction, consumer product, finance, industrial,
plantation, industrial product, property, trading and services and technology. These
indexes are obtained from the main board in Bursa Malaysia [previously known as
Kuala Lumpur Stock Exchange (KLSE)].

Crude oil commodity prices is classified under world oil prices which is the average real
oil price obtained from three main benchmark oil prices used in world trade, namely
West International or WTI, Brent of Europe and Dubai of Middle East. The data were
obtained from Bloomberg through these channels.

This Kuala Lumpur Composite Index is derived from 100 companies that Bursa
Malaysia has chosen from a cross section of the total listed companies in Malaysia. This
Index is taken to be representative of Malaysian stock market's performance and thus
27

provides us with a benchmark that reflects the growth of Malaysia's economy. The data
were obtained from Bursa Malaysia and Bloomberg.

3.2

Research Methodology

3.2.1

Initial Regression Process

The initial regression process to check on the significance of the impact of oil price is
modeled following Eryigit (2009). He uses a simple OLS regression to check on the
viability of the model. The sector indices ( Yi ) are calculated from the difference logs of
the indices. Likewise, oil price (lnoilp) is calculated from the log difference of the world
oil prices at Malaysia ringgit (RM) and KLCI (lnklci) is calculated from the difference
log of KLCI respectively.

The purpose of this regression of the 5-days daily data is to provide an overall picture of
the relationship between the 9 sector indices and oil price shocks and KLCI. The
regression is stated as follows:

ln(yit ) ln(yit 1 ) = i + 1t [ln(klci)it ln(klci)it 1 ]+ 2t [ln(oilp)it ln(oilp)it 1 ]+ i (3.1)

where: yit = index of sector i at time t

klci = index of Bursa Malaysia
oilp = Daily oil price (in RM)

3.2.2

Unit Root Test

Granger & Newbold (1974) asserted that for any time series to be used in econometrics
application, the time series must be stationary, whereby the notion of a spurious
28

regression which they argued produces statistically significant results between series
that contain a trend and are otherwise random was introduced. In other words,

regression in which the variables are non-stationary can lead to spurious result where
variables may share the same time trend even though they are not really related.

The unit roots test that is used in this study is Augmented Dickey-Fuller (ADF) test.
This is to determine whether the sample series (or its first or second difference) is
stationary. To confirm the unit root property of the sample data, Phillips-Perron (PP)
test shall also be employed to confirm the results of ADF test. The null hypothesis of
unit root test is the series contain a unit root. If the t-statistics is smaller than the critical
value, the null hypotheses is rejected i.e. the data has no unit root and is stationary.

3.2.3

Cointegration

Variables will be deemed to be cointegrated if they have a long term, or equilibrium

relationship between them. This means that the variables move together is similar trend
and do not wander off in opposite directions for very long without coming back to a
mean distance eventually. Gujarati in his book quoted Granger (1986) as saying:

A test for cointegration can be thought as a pre-test to avoid spurious regression

situations.

If residuals are stationary, the two variables are said to be cointegrated and there is a
long run relationship between the two variables. However, if residuals are random walk,
the variables are not cointegrated. The notion of cointegration arose out of the concern
about spurious or nonsense regressions in time series. If economic time series variables
behave individually as nonstationary random walks, it often produces empirical
29

results in which the R2 is quite high, but the Durbin-Watson statistic is quite low. The
results may be misleading and often result in misinterpretation.

Johansens (1988) cointegration testing framework is used in this study to determine the
absence or the presence of the cointegrating relationship among all test variables.
Although there exists a number of cointegration tests, such as the Engle and Granger
(1987) method and the Stock and Watson (1988) test, Johansens test has a number of
desirable properties, including the fact that all test variables are treated as endogenous
variables. This test is based on the null of no cointegration between oil prices and the
considered series. If the series are found to be cointegrated, Granger causality tests can
be implemented. If there is existence of a cointegrating relationship between two
variables, it means that at least one of the two variables Granger-causes the other.

3.2.4

Vector Autoregressive

Vector Autoregressive (VAR) is frequently used, although with considerable

controversy, for analysing the dynamic impact of different types of random disturbances
on systems of variables. The VAR is a linear model used for forecasting, impulse
responses and variance decomposition. The VAR technique is appropriate because its
ability to characterise the dynamic impact and/or structure of the model as well as its
ability to avoid imposition of excessive identifying restrictions associated with different
economics and finance theory. In other words, VAR does not require any explicit
econometric theory to be estimated.

30

A system of vector autoregressive is written as:

A(L)Z(t) = (t)

(3.2)

where Z(t) is a n 1 vector or covariance stationary non-deterministic variables. A(L)

is a n n matrix polynomial in the lag operator, that is:

A(L) = 1 1 L ... n Ln

(3.3)

(t) is a n 1 vector of random shocks or innovations with zero means and covariance
matrix . The elements of are assumed to have properties that of cov( it , it s ) = 0 for

i = 1,..., n and for t = s , and cov( it , jt s ) = 0 for i = j and t = s , i = 1,..., n

The VAR model specified here focuses on three variables for the 9 sectors: sector
market return ( yi ), KLCI market return ( klci ) and oil price ( oilp ). All variables
are in the log form. A general VAR formation is as follows:

j=0

j=0

j=0

yi = c0 + byy, j yit 1 j + byk, j klcit 1 j + byo, j oilpt 1 j

j=0

j=0

j=0

j=0

j=0

j=0

klci = c0 + bky, j yit 1 j + bkk, j klcit 1 j + bko, j oilpt 1 j

oilp = c0 + boy, j yit 1 j + bok, j klcit 1 j + boo, j oilpt 1 j

(3.4)

(3.5)

(3.6)

The optimal lag order is chosen based on SIC. From the highest possible lag order, we
perform sequential testing to find minimum SIC values. SIC is given by:
31

 e2
SIC = n log t + k log(n)
n

(3.7)

where et2 = sum square of residuals , k = number of parameter

The optimal lag chosen is subjected to the residual test to ensure the nonexistence of
serial autocorrelation. Number of lags should be long enough to capture the dynamics of
the system but not too long in order to save degree of freedom. The optimal lag order
will also used in the Granger Causality test.

3.2.5

Impulse Response Function and Variance Decomposition

To interpret the estimated coefficients of a VAR, impulse response function (IRF) and
variance decomposition (VD) are used. IRF allows us to analyse dynamics behaviour
while VD shows us the relative importance of each shock. The impulse response
functions give the dynamic response of each endogenous variable to a shock in the
system that is by generating a moving average representation of the system. The VAR
equation of (3.2) has a moving average representation:

Z(t) = [A(L)] (t)

= B(L) (t)

(3.8)

= Bs (t s)
s=0

where the normalisation of A(L),B is an identity matrix.

Rewriting the moving average representation of equation (3.8) in term of othogonalised

innovations yield the following equation:

32

Z(t) = H s v(t s)

(3.9)

s=0

The ith equation of system (4.9) is:

Z it = hij (s)vij (t s)

(3.10)

s=0

The term

h (s)
ij

represents the impulse response function of Zi with respect to an

s=0

innovation in Z j .

An impulse response function traces and the response of an endogenous variable to a

change in one of the innovations. Simulations for each of the aggregates are solved in
response to a 1 percent innovation of the respective aggregate. In other words, the IRF
is able to trace out the dynamic effect adjustments for the purpose of comparative
stability of the index market return, KLCI market return and oil prices.

IRF is also useful in providing the means to analyse the dynamic behaviour of the target
variables. If the innovations are not correlated with each other, interpretation is
straightforward. For a series with a unit root, the IRF never dies out; however, for a
trend stationary series, the IRF does die out. In any event, whether an individual time
series is trend stationary or has a unit root, the relative magnitude of the IRF across
different time horizons indicates the extent of the persistence of shocks to the individual
series.

The variance decomposition (VD) of a VAR gives information about the relative
importance of the random innovation. Various software has various calculations on
33

VD but the main component is the forecast error of the variable for different forecast
horizons. The source of the forecast error is variation in the current and future values of
the innovations. One period ahead, all of the variation in a variable comes from its own
innovation. Again, this composition of variance depends critically on the ordering of
equations.

3.2.6

Granger Causality

The general definition of Granger Causality is defined as follows:

The Granger approach to the questions whether X causes Y is to see how much the
current Y can be explained by past values of Y and then to see whether adding lagged
values of X can improve explanation. Y is said to be Granger-Caused by X if X helps in
the prediction of Y, equivalently if the coefficients on the lagged Xs are statistically
significant

(E-views Guide)

In other words, the variable X does not Granger cause Y if and only if the past values
of X do not explain Y. In terms of equation, in a regression of Y on other variables
(including its own past values), if we include past or lagged values of X, and it
significantly improves the prediction of Y, then we can conclude that X Granger causes
Y. The same applies if Y Granger causes X.

Granger causality test requires the null hypothesis of no causality being tested on a joint
test that the coefficients of the lagged causal variable are significantly different from
zero. The null hypothesis is that X does not Granger causes Y in the first regression
34

and that Y does not Granger causes X in the second regression. There are four possible
causal relationships:

1.

Independence is suggested when the set of X and Y coefficients are not

statistically significant in both regressions.

2.

Unidirectional causality from X and Y exist if the estimated coefficients on the

lagged Y in equation (3.8) are statistically different from zero as a group (i.e.
i =0) and the set of estimated coefficients on the lagged X in equation (3.9) is
not statistically different from zero (i.e. j =0).

3.

Unidirectional causality from Y to X is indicated if the set of the lagged X in

equation (3.8) are statistically different from zero as a group (i.e. i =0) and
the set of estimated coefficients on the lagged Y in equation (3.9) is not
statistically different from zero (i.e. j =0).

35

CHAPTER 4
RESEARCH FINDINGS
4.0

Introduction

This chapter presents the results of the Ordinary Least Square (OLS) of the nine (9)
sector sample data, unit root test, Johansen cointegration test, and temporal relationship
results. This chapter will also show whether there are any granger causality.

4.1

Initial Findings on the relationship between oil prices and market returns

The results of the OLS for each sectors market return, market return for the KLCI and
oil prices are shown in Table 4.1 below.

Based on the result produced by E-Views, it is found that high R2 of all the regression
which ranging from 0.33 to 0.68 for all the sectors. In other words, around 33% to 68%
variation in the changes in the market return for each sectors are explained by the oil
prices and market return. In the regression, the return to KLCI is highly significant for
all sectors at 5% level. The oil price, on the other hand is only significant at 5% level
for plantation and industrial product and both of it is positively related to the sectors.

36

Table 4.1: Initial Regression on the Relationship between Return on Sectors, KLCI and Oil Prices

ln klcon ln klcsu ln klfin

ln klind ln klp ln ln klpro ln klprp ln klser

ln kltec

Constant

-0.00
(0.41)

0.00
(0.04)

-0.00
(0.88)

0.00
(0.29)

0.00
(0.09)

-0.00
(0.19)

-0.00
(0.22)

-0.00
(0.31)

-0.00
(0.00)

ln klci

1.29
(0.00)**

0.58
(0.00)**

1.05
(0.00)**

0.81
(0.00)**

1.08
(0.00)**

0.81
(0.00)**

0.96
(0.00)**

0.97
(0.00)**

0.76
(0.00)**

ln oilp

0.02
(0.13)

0.00
(0.58)

0.00
(0.90)

-0.01
(0.33)

0.03
(0.00)**

0.01
(0.03)**

0.001
(0.89)

0.00
(0.48)

0.01
(0.64)

R2

0.65

0.58

0.80

0.70

0.56

0.68

0.59

0.91

0.33

1405.52

1059.55

3135.80

1766.64

496.18

1652.01

1113.71

7544.88

372.55

(0.00)

(0.00)

(0.00)

(0.00)

(0.00)

(0.00)

(0.00)

(0.00)

(0.00)

2.06

2.06

1.99

2.14

1.77

2.08

1.81

2.11

1.86

F-stat
DW
** significant at 5% level

38

4.2

Stationary Test Unit root tests

Before identifying the potential long-run relationship among the variables included in
the model, the ADF and PP tests of unit root are conducted to verify the order of
integration of the time series involved. The lag length of the test (m) is set at 5 days.
The sample data collected for the purpose of this study have been plotted in Figures 4.1
from 31 December 2002 to 8 April 2009, for a total of 1544 observations. As can be
seen from the graphs, the movements of the indices are volatile with a majority of it
being at the peak between the ranges of 1200th to 1500th observations except for
technology sector, which illustrated a downward trend.

Figure 4.1:
Movements of the indices from 31 December 2002 to 8 April
2009
LNKLCON

LNKLCSU

6.0
5.8

LNKLFIN

6.0

9.4

5.8

9.2

5.6

9.0

5.4

8.8

5.2

8.6

5.0

8.4

LNKLIND
8.2
8.0

5.6

7.8

5.4

7.6

5.2

7.4

5.0
4.8
250

500

750

1000

1250

250

1500

500

LNKLPLN

750

1000

1250

7.2
7.0
250

1500

500

LNKLPRO

9.2

5.0

8.8

4.8

8.4

4.6

750

1000

1250

250

1500

500

LNKLPRP

750

1000

1250

1500

1250

1500

LNKLSER

7.2

5.4

7.0

5.2

6.8
5.0
6.6
8.0

4.4

4.8
6.4

7.6

4.2

7.2

4.0
250

500

750

1000

1250

6.0
250

1500

500

LNKLTEC

750

1000

1250

4.0

6.0

7.2

3.5

5.6

7.0

3.0

5.2

6.8

2.5

4.8

6.6

2.0

4.4
1000

1250

1500

750

1000

1250

1500

1250

1500

250

500

750

1000

LNKLCI
7.4

750

500

LNOILP
6.4

500

4.4
250

1500

4.5

250

4.6

6.2

6.4
250

500

750

1000

1250

1500

250

500

750

1000

37

The test results for the time series variables on both levels and first difference are shown
in Table 4.2 and 4.3 respectively.

Table 4.2
Unit Root: Level Term
ADF

Variables

PP

T-Stat

Lag-length

T-Stat

Bandwidth

lnklcon

-1.40

-1.43

lnklcsu

-1.65

-1.51

lnklfin

-0.78

-2.06

lnklind

-1.27

-1.39

lnklpln

-0.95

-0.99

lnklpro

-0.50

-0.57

10

lnklprp

-1.15

-0.89

lnklser

-0.69

-0.65

lnkltec

-1.48

-1.29

* Represents significance level at 5%

Table 4.3
Unit Root: First Difference
ADF

Variables

PP

T-Stat

Lag-length

T-Stat

Bandwidth

lnklcon

-35.86*

-36.04*

lnklcsu

-36.09*

-36.08*

lnklfin

-34.84*

-34.93*

lnklind

-36.97*

-36.97*

lnklpln

-32.89*

-33.00*

lnklpro

-34.88*

-35.25*

lnklprp

-17.89*

-33.23*

lnklser

-35.30*

-35.31*

lnkltec

-24.36*

-35.59*

* Represents significance level at 5%

38

The number of the lags for included was determined using the automatic selection of
Schwarz Information Criterion (SIC). As for the application of the PP test, the
bandwidth will have to be chosen as the parameter needed for estimating the residual
spectrum at frequency zero. The NeweyWest (1994) data-based automatic bandwidth
parameter method was chosen for this study.

For each of the series, the levels of the series are considered first. The ADF test result
indicate that null hypothesis of a unit root ( H 0 : = 0 ) cannot be rejected in any series
at 5% level, thereby indicating that all series are non stationary on levels. This result has
been confirmed by PP test, which indicates consistency with the ADF test.
Subsequently, the ADF and PP tests are computed using first difference of the same
variables. The results of both tests indicate that all series are individually significant at
the 5% level, thus suggesting that null hypothesis of a unit root is rejected and that
series is stationary. Since all the series are found to be stationary at first difference, it is
concluded that the log of each sectors, log of KLCI (lnklci) and log of oil prices (lnoilp)
are integrated at order one, I(1).

4.3

Cointegration

After establishing the order of integration, i.e. all the series are I(1), the Johansen
cointegration test is therefore applied on these series to examine whether or not
cointegration exist among the variables for each sector. Since there three variables in
each of the sector, there can be at most two cointegrating vectors (r), so r could be equal
to 0, 1 or 2. Given the data used in the study are daily times series, up to 5 lags have
been included for the cointegration test. The results of Johansen test for cointegration is
presented in Table 4.4 to 4.12 for each sector.
39

Based on the value of Trace and Eigenvalue statistics, the null hypothesis of no
cointegrating vector (r=0) cannot be rejected at 5% level for construction, consumer
product, finance, industrial plantation, industrial products, trading and services and
technology sector. As for property sector, the null hypothesis of one cointegrating
vector (r=1) cannot be rejected. The selection of the optimal lag length is based on VAR
for the Johansen procedures, the Schwanz Information Criteria (SIC), for a system of
equation are used.

Table 4.4: Co-Integration Rank of variable LNKLCON, LNKLCI and LNOILP

Trace

Eigenvalue

Ho

H1

Statistics

95%

Ho

H1

Statistics

95%

r=0

r1

27.45

29.79

r=0

r1

17.76

21.13

r1

r1

9.69

15.49

r1

r1

5.73

14.26

r2

r2

3.96

3.84

r2

r2

3.97

3.84

* indicates significant at 5% level

Table 4.5: Co-Integration Rank of variable LNKLCSU, LNKLCI and LNOILP

Trace

Eigenvalue

Ho

H1

Statistics

95%

Ho

H1

Statistics

95%

r=0

r1

19.36

29.80

r=0

r1

14.25

21.13

r1

r1

5.11

15.50

r1

r1

5.07

14.26

r2

r2

0.05

3.84

r2

r2

0.05

3.84

* indicates significant at 5% level

Table 4.6: Co-Integration Rank of variable LNKLFIN, LNKLCI and LNOILP

Trace

Eigenvalue

Ho

H1

Statistics

95%

Ho

H1

Statistics

95%

r=0

r1

27.00

29.80

r=0

r1

13.74

21.13

r1

r1

13.26

15.50

r1

r1

9.59

14.26

r2

r2

3.67

3.84

r2

r2

3.67

3.84

* indicates significant at 5% level

40

Table 4.7: Co-Integration Rank of variable LNKLIND, LNKLCI and LNOILP

Trace

Eigenvalue

Ho

H1

Statistics

95%

Ho

H1

Statistics

95%

r=0

r1

23.99

29.80

r=0

r1

14.54

21.13

r1

r1

9.45

15.50

r1

r1

7.35

14.26

r2

r2

2.09

3.84

r2

r2

2.09

3.84

* indicates significant at 5% level

Table 4.8: Co-Integration Rank of variable LNKLPLN, LNKLCI and LNOILP

Trace

Eigenvalue

Ho

H1

Statistics

95%

Ho

H1

Statistics

95%

r=0

r1

24.02

29.80

r=0

r1

16.99

21.13

r1

r1

7.02

15.50

r1

r1

6.83

14.26

r2

r2

0.19

3.84

r2

r2

0.19

3.84

* indicates significant at 5% level

Table 4.9: Co-Integration Rank of variable LNKLPRO, LNKLCI and LNOILP

Trace

Eigenvalue

Ho

H1

Statistics

95%

Ho

H1

Statistics

95%

r=0

r1

20.42

29.80

r=0

r1

13.12

21.13

r1

r1

7.304

15.50

r1

r1

6.09

14.26

r2

r2

1.21

3.84

r2

r2

1.21

3.84

* indicates significant at 5% level

Table 4.10: Co-Integration Rank of variable LNKLPRP, LNKLCI and LNOILP

Trace

Eigenvalue

Ho

H1

Statistics

95%

Ho

H1

Statistics

95%

r=0

r1

32.46*

29.79

r=0

r1

22.16*

21.13

r1

r1

10.30

15.49

r1

r1

7.34

14.26

r2

r2

2.96

3.84

r2

r2

2.96

3.84

* indicates significant at 5% level

41

Table 4.11: Co-Integration Rank of variable LNKLSER, LNKLCI and LNOILP

Trace

Eigenvalue

Ho

H1

Statistics

95%

Ho

H1

Statistics

95%

r=0

r1

22.86

29.80

r=0

r1

14.81

21.13

r1

r1

8.05

15.50

r1

r1

5.21

14.26

r2

r2

2.84

3.84

r2

r2

2.84

3.84

* indicates significant at 5% level

Table 4.12: Co-Integration Rank of variable LNKLTEC, LNKLCI and LNOILP

Trace

Eigenvalue

Ho

H1

Statistics

95%

Ho

H1

Statistics

95%

r=0

r1

21.19

29.79

r=0

r1

14.79

21.13

r1

r1

6.40

15.49

r1

r1

6.41

14.26

r2

r2

0.00

3.84

r2

r2

0.00

3.84

* indicates significant at 5% level

4.4

VAR, IRF and VD Result and Analysis

Based on the unit root and the cointegration tests, we did find that all the variables are
integrated at order one, I(1) and there is no cointegration for most of the sectors except
for property sector. Given this, to estimate VAR, the variables are required to be
transformed in a first difference. It is desirable for the variables to do so in VAR models
to gain an asymptotic efficiency of the VAR.

The estimates of the VAR for all the sectors (excluding the property sector) and the
respective t-values are presented in table 4.13 to 4.20. The property sector is excluded
from the analysis due to the fact that cointegration does exist in the model. Although
42

the estimate of individual coefficient in VAR does not have straightforward

interpretation, a glance at the table generally shows that most of the past values of oil
prices do contribute in explaining the sector market returns.

Table 4.13: VAR Estimates for Construction Sector

lnklcon(-1)
lnklci(-1)

lnoilp(-1)

lnklcon

lnklci

lnoilp

0.026
[0.61]
0.16
[ 1.69]
0.04
[ 2.24]*

0.04
[ 1.70]
0.06
[ 1.50]
0.05
[ 4.51]*

-0.03
[-0.54]
0.079
[ 0.79]
-0.028
[-1.08]

Notes: Figures in parentheses in the t-statistics

*significant at 5% level

Table 4.14: VAR Estimates Consumer for Product Sector

lnklcsu(-1)

lnklci(-1)
lnoilp(-1)

lnklcsu

lnklci

lnoilp

-0.02
[-0.4]
0.10
[ 3.26]*
0.03
[ 3.17]*

0.03
[ 0.55]
0.10
[ 2.69]*
0.05
[ 4.57]*

-0.26
[-2.17]*
0.19
[ 2.04]*
-0.03
[-1.07]

Notes: Figures in parentheses in the t-statistics

*significant at 5% level

Table 4.15: VAR Estimates for Finance Sector

lnklfin(-1)
lnklci(-1)
lnoilp(-1)

lnklfin

lnklci

lnoilp

0.06
[1.13]
0.06
[0.96]
0.05
[3.86]*

0.06
[1.29]
0.05
[0.97]
0.05
[4.57]*

-0.16
[-1.43]
0.21
[ 1.55]
-0.03
[-1.10]

Notes: Figures in parentheses in the t-statistics

*significant at 5% level

43

Table 4.16: VAR Estimates for Industrial Sector

lnklind(-1)
lnklci(-1)
lnoilp(-1)

lnklind

lnklci

lnoilp

-0.13
[-2.90]
0.22
[4.92]*
0.04
[4.0]*

-0.08
[-1.60]
0.18
[3.97]*
0.05
[4.54]*

-0.00
[-0.04]
0.04
[0.36]
-0.03
[-1.10]

Notes: Figures in parentheses in the t-statistics

*significant at 5% level

Table 4.17: VAR Estimates for Plantation Sector

lnklpln(-1)
lnklci(-1)
lnoilp(-1)

lnklcpln

lnklci

lnoilp

0.11
[ 3.04]
0.09
[ 1.55]
0.15
[ 9.33]*

-0.01
[-0.61]
0.14
[ 3.70]*
0.05
[ 4.61]*

-0.06
[-1.02]
0.10
[ 1.15]
-0.03
[-1.03]

Notes: Figures in parentheses in the t-statistics

*significant at 5% level

Table 4.18: VAR Estimates for Industrial Product Sector

lnklpro(-1)
lnklci(-1)
lnoilp(-1)

lnklpro

lnklci

lnoilp

0.02
[0.48]
0.11
[2.57]*
0.04
[3.88]*

0.08
[1.71]
0.06
[1.30]
0.05
[4.48]*

0.11
[1.02]
-0.05
[-0.50]
-0.03
[-1.16]

Notes: Figures in parentheses in the t-statistics

*significant at 5% level

44

Table 4.19: VAR Estimates for Trading and Services Sector

lnklser(-1)
lnklci(-1)
lnoilp(-1)

lnklser

lnklci

lnoilp

0.19
[2.28]
-0.09
[-1.09]
0.03
[2.77]*

0.25
[3.09]
-0.12
[-1.48]
0.045
[4.54]*

0.356
[1.89]
-0.31
[-1.62]
-0.03
[-1.14]

Notes: Figures in parentheses in the t-statistics

*significant at 5% level

Table 4.20: VAR Estimates for Technology Sector

lnkltec(-1)
lnklci(-1)
lnoilp(-1)

lnkltec

lnklci

lnoilp

0.089
[2.87]
0.11
[3.61]*
0.03
[0.63]

0.03
[1.38]
0.06
[2.54]
0.06
[3.08]*

-0.17
[-2.35]
0.04
[0.79]
0.16
[2.14]

Notes: Figures in parentheses in the t-statistics

*significant at 5% level

The estimated coefficient of a VAR, however, is difficult to interpret. Hence, the

impulse response functions (IRF) and variance decomposition (VD) of the system were
analyzed to draw conclusion about the VAR. The impulse response functions of one
innovation measures the effect of one standard deviation shock today on current and
future values of endogenous variables. Meanwhile, the variance decomposition of the
VAR gives information about the relative importance of the random innovation.

45

Figure 4.2: Impulse Response Function for Construction Sector

Figure 4.3: Impulse Response Function for Consumer Product Sector

Figure 4.4: Impulse Response Function for Finance Sector

46

Figure 4.5: Impulse Response Function for Industrial Sector

Figure 4.6: Impulse Response Function for Plantation Sector

Figure 4.7: Impulse Response Function for Industrial Product Sector

47

Figure 4.8: Impulse Response Function for Trading and Services Sector

Figure 4.9: Impulse Response Function for Technology Sector

48

Figures 4.2 to 4.9 present the IRF results for the 10-lag ahead forecasts for all the
sectors. The IRF for all the sectors declines at a faster speed and directly towards zero
and eventually dies out at four lags ahead. The response of the oil price on one standard
deviation innovation dies out quickly for all sector sectors and the main board on KLCI.

The response for each sectors varies where returns on plantation has the highest
response to the innovation to the oil price shocks while the construction sectors has the
lowest response to its return on the innovation of the oil prices. This may be due to
higher demand on the alternatives fuels that triggers the return to its market return. Any
increase in oil prices will only respond to a higher cost to the sector and thus provides
for an impetus for a slower response to its return. We can conclude from the IRF that
the oil price movement does not reflect the movement in the market return for all the
sectors.

Figure 4.10: Variance Decomposition for Construction Sector

Variance Decomposition of DLNOILP
100

80

60

40

20

0
1

DLNKLCON

6
DLNKLCI

10

DLNOILP

Figure 4.11: Variance Decomposition for Consumer Products Sector

49

Variance Decomposition of DLNOILP

100

80

60

40

20

0
1

DLNKLCSU

DLNKLCI

10

DLNOILP

Figure 4.12: Variance Decomposition for Finance Sector

Variance Decomposition of DLNOILP
100

80

60

40

20

0
1

DLNKLFIN

6
DLNKLCI

10

DLNOILP

Figure 4.13: Variance Decomposition for Industrial Sector

50

Variance Decomposition of DLNOILP

100

80

60

40

20

0
1

DLNKLIND

DLNKLCI

10

DLNOILP

Figure 4.14: Variance Decomposition for Plantation Sector

Variance Decomposition of DLNOILP
100

80

60

40

20

0
1

DLNKLPLN

DLNKLCI

10

DLNOILP

Figure 4.15: Variance Decomposition for Industrial Product Sector

Variance Decomposition of DLNOILP
100

80

60

40

20

0
1

DLNKLPRO

6
DLNKLCI

10

DLNOILP

51

Figure 4.16: Variance Decomposition for Trading and Services Sector

Variance Decomposition of DLNOILP
100

80

60

40

20

0
1

DLNKLSER

DLNKLCI

10

DLNOILP

Figure 4.17: Variance Decomposition for Technology Sector

Variance Decomposition of DLNOILP
100

80

60

40

20

0
1

DLNKLTEC

6
DLNKLCI

10

DLNOILP

The variance decomposition in Figures 4.10 to 4.17 shows that the oil price variables in
explaining the variance of the market return of all sectors is very small. It goes the same
for the KLCI main board. This evidence further enhanced the support of the argument
earlier that oil price does not have any significant impact on the movement of the
market return on all the sectors within the main board of KLCI.

52

4.5

Granger Causality

The Granger causality test is carried out to find the causal direction between market
returns on all sectors and oil prices as well as KLCI returns. Since the result from
cointegration tests found that all the sectors market (excluding the property sector) are
not cointegrated, the standard Granger-Causality test is appropriate to analyse the data
further. The results of the test can be seen in Tables 4.21 to 4.28 below and the Fstatistics reveal that the oil price movement does Granger cause the market return on all
sectors but the market return does not Granger cause any movement in the oil prices.
Therefore, it can be said that there is a uni-directional causality from oil prices to
market return on each sector in the main board of Bursa Malaysia.

Table 4.21: Granger Causality Test for Construction Sector

Null Hypothesis:

Obs F-Statistic

Prob.

DLNKLCI does not Granger Cause DLNKLCON

DLNKLCON does not Granger Cause DLNKLCI

1542

3.01736
3.46844

0.0826
0.0627

DLNOILP does not Granger Cause DLNKLCON

DLNKLCON does not Granger Cause DLNOILP

1542

5.18929
0.02573

0.0229
0.8726

DLNOILP does not Granger Cause DLNKLCI

DLNKLCI does not Granger Cause DLNOILP

1542

20.9600
0.36070

5.E-06
0.5482

Table 4.22: Granger Causality Test for Consumer Product Sector

Null Hypothesis:

Obs F-Statistic

Prob.

DLNKLCI does not Granger Cause DLNKLCSU

DLNKLCSU does not Granger Cause DLNKLCI

1542

11.6267
0.37184

0.0007
0.5421

DLNOILP does not Granger Cause DLNKLCSU

DLNKLCSU does not Granger Cause DLNOILP

1542

11.0894
0.91003

0.0009
0.3403

DLNOILP does not Granger Cause DLNKLCI

1542

20.9600

5.E-06

53

DLNKLCI does not Granger Cause DLNOILP

0.36070

0.5482

Table 4.23: Granger Causality Test for Finance Sector

Null Hypothesis:

Obs F-Statistic

Prob.

DLNKLCI does not Granger Cause DLNKLFIN

DLNKLFIN does not Granger Cause DLNKLCI

1542

1.21476
1.67931

0.2706
0.1952

DLNOILP does not Granger Cause DLNKLFIN

DLNKLFIN does not Granger Cause DLNOILP

1542

15.1827
0.00982

0.0001
0.9211

DLNOILP does not Granger Cause DLNKLCI

DLNKLCI does not Granger Cause DLNOILP

1542

20.9600
0.36070

5.E-06
0.5482

Table 4.24: Granger Causality Test for Industrial Sector

Null Hypothesis:

Obs F-Statistic

Prob.

DLNKLCI does not Granger Cause DLNKLIND

DLNKLIND does not Granger Cause DLNKLCI

1542

26.9672
2.90303

2.E-07
0.0886

DLNOILP does not Granger Cause DLNKLIND

DLNKLIND does not Granger Cause DLNOILP

1542

18.7231
0.23068

2.E-05
0.6311

DLNOILP does not Granger Cause DLNKLCI

DLNKLCI does not Granger Cause DLNOILP

1542

20.9600
0.36070

5.E-06
0.5482

Table 4.25: Granger Causality Test for Plantation Sector

Null Hypothesis:

Obs F-Statistic

Prob.

DLNKLCI does not Granger Cause DLNKLPLN

DLNKLPLN does not Granger Cause DLNKLCI

1542

2.67892
0.08921

0.1019
0.7652

DLNOILP does not Granger Cause DLNKLPLN

DLNKLPLN does not Granger Cause DLNOILP

1542

87.4424
0.06606

3.E-20
0.7972

DLNOILP does not Granger Cause DLNKLCI

1542

20.9600

5.E-06

54

DLNKLCI does not Granger Cause DLNOILP

0.36070

0.5482

Table 4.26: Granger Causality Test for Industrial Product Sector

Null Hypothesis:

Obs F-Statistic

Prob.

DLNKLCI does not Granger Cause DLNKLPRO

DLNKLPRO does not Granger Cause DLNKLCI

1542

6.67855
3.81653

0.0098
0.0509

DLNOILP does not Granger Cause DLNKLPRO

DLNKLPRO does not Granger Cause DLNOILP

1542

15.1024
1.14733

0.0001
0.2843

DLNOILP does not Granger Cause DLNKLCI

DLNKLCI does not Granger Cause DLNOILP

1542

20.9600
0.36070

5.E-06
0.5482

Table 4.27: Granger Causality Test for Trading and Services Sector

Null Hypothesis:

Obs F-Statistic

Prob.

DLNKLCI does not Granger Cause DLNKLSER

DLNKLSER does not Granger Cause DLNKLCI

1542

1.11790
9.92177

0.2905
0.0017

DLNOILP does not Granger Cause DLNKLSER

DLNKLSER does not Granger Cause DLNOILP

1542

7.62132
1.32350

0.0058
0.2501

DLNOILP does not Granger Cause DLNKLCI

DLNKLCI does not Granger Cause DLNOILP

1542

20.9600
0.36070

5.E-06
0.5482

Table 4.28: Granger Causality Test for Technology Sector

Null Hypothesis:

Obs F-Statistic

Prob.

DLNKLCI does not Granger Cause DLNKLTEC

DLNKLTEC does not Granger Cause DLNKLCI

1541

1.88065
3.73803

0.1528
0.0240

DLNOILP does not Granger Cause DLNKLTEC

1541

1.47553

0.2290

55

DLNKLTEC does not Granger Cause DLNOILP

DLNOILP does not Granger Cause DLNKLCI
DLNKLCI does not Granger Cause DLNOILP

4.6

1541

1.34839

0.2600

10.4791
3.55785

3.E-05
0.0287

Conclusion

In the initial regression, it was found that the oil price do not have any significant
relationship with all the sectors market return save for plantation and industrial product
sectors, which are significant at 5% level. The KLCI market returns have significant
positive relationship with each sectors understudy at 5% level.

The VAR analysis was performed to analyze whether there are any further relationship.
It was found that oil price innovations do not contain any significant information about
the variation of the oil prices. A study on the impulse response functions shows that the
response of oil price on one standard deviation of innovation dies out almost quickly in
all sectors. In addition, through variance decomposition, it is observed that the impact of
oil price shock contribute a little on explaining the variance of the market returns on the
sectors. Causality test, however, saw a different view where it was found that the oil
price shock shows a uni-directional causality from oil price to the market return on all
sectors.

Overall, the result confirms the assertion that oil price does not contribute much in
supporting the role of supplementing about the current and future market return
movement. This research also failed to find any significant difference between the
impacts of oil price shocks on the market returns on the 9 sectors in the Malaysias

56

Bursa Malaysia.

57

CHAPTER 5

SUMMARY AND CONCLUSION

5.1

Introduction

This study sets out with the primary objective to examine the effect of oil price shock
on the stock return for industry sectors listed on Bursa Malaysia. The coefficient was
calculated using 5-day daily data from 1 January 2003 to 8 April 2009. This chapter will
summarizes this paper including the results obtained in Chapter 4. Also, the factors that
contribute to the high price in oil and impact to the economic growth will be discussed
and finally, suggestions for further research will be detailed out in this chapter.

5.2

Summary and Conclusion

The world had recently witnessed the volatility of oil prices which had wide coverage in
the daily news and also by observing the movements of petroleum products such as
petrol, diesel and gasoline that continued to fluctuate greatly throughout the year of
2008. The greatest single factor influencing petroleum product prices is the cost of
crude oil.

As with any commodity, the movement of oil prices and petroleum products are due to
a variety of factors. The largest indicator is the forces of the global demand and supply.
Surging crude oil demand over the year was being fueled by strong economic growth,
particularly in the industrialized countries such as the United States and Asia. The
supply factor is largely affected by the powers of large oil producing countries such as

58

the OPEC countries. Other factors include political stability and weather conditions in
certain oil producing regions.

In conclusion, the uncertainty of supply due to the fact that a majority of oil producers
are the Middle East countries where there is blatant political instability together with the
continuous increase in demand had placed tremendous pressure on pricing. These were
the main cause of the volatility of the world crude oil prices.

Looking back into history as well as past researches, increase in oil prices has never
been good for the economy. Higher oil prices spur inflationary pressures that will urge
the central bank to push interest rates up, which in turn cause cost of borrowing to
increase. All of these send ripples through to the financial markets. Rising inflation
tends to hurt bond prices, and dampens economic growth. Higher oil prices increase
costs of business, of which businesses may pass the costs to consumers by increasing
the prices of goods and services. These eventually result in lower disposable income of
consumers. All these factors have been theorised to damage corporate earnings, which
are the key to stock prices.

Despite the economists notions and theories together with majority of past researchers
that found linkages between oil price movements and the stock market, some researches
such as Haung (1996) had found evidence that suggested that oil futures returns do lead
to individual oil company stock return but oil future returns do not have impact on
general market indices. Thus, it can be said that the results of this study concur with
Haungs findings.

In the initial regression, we found that oil prices did not have a significant relationship
with the stock return of the industry sectors. The VAR analysis; using the two key
59

devices through which the dynamic structure of the model was characterized failed to
show any significant impact of oil price shocks on the market return of all the sectors.
The results also show that past stock return innovation does not have any significant
information about the variation of the oil price shocks as well as the KLCI stock market
return. Hence, it can be concluded that oil prices do not contribute much in explaining
the stock market return on the sectors listed on the Bursa Malaysia.

On deeper scrutiny, the impulse response function shows that the response of oil price
on one standard deviation innovation withers very quickly. It goes the same with all the
industry sectors. Granger causality test also shows uni-directional causality from oil
price to the market return on each respective sector.

5.3

Further research

This study is subjected to several limitations as mentioned earlier in Chapter 1 of this

report. It is suggested that other variables such as the CPI, interest rates and effects of
exchange rates be included in a future similar study to enhance the chances of
improving statistical results and ability to infer significant implications of oil price
shock and the economy.

Also, the approach taken by Maghyereh and Al-Kandari (2007) may also be tested on
the Malaysian stock market whereby they had adopted application of rank tests for a
nonlinear cointegration relationship between oil price and the stock markets in GCC
countries. Their empirical analysis supported that oil price impacts the stock price
indices in GCC countries in a nonlinear fashion.
60

In addition to that, this study only employs the indices market returns to examine the
impact of oil price shocks on the stock market. Future studies may consider impact on
companies in the respective industry sub-sectors to further support the findings of this
study and past literatures.

61

REFERENCES

Bank for International Settlement (1991). Bis Economic Papers: Aggregate Demand,
Uncertainty and Oil Prices: The 1990 Oil Shock in Comparative Perspective: Hutchison,
M. M.

Basher, S.A. and Sadorsky, P., (2006). Oil price risk and emerging stock markets.
Global Finance Journal, 17, p: 224251. Retrieved on March 13, 2009, from Emerald
Ideas.

Bogen J., (2006). Import Price Rise in 2005 Due to Continued High Energy Prices,
Monthly Labour Review, Vol. 129, pp. 3.

Boyer, M. M., Filion, D (2007). Common and fundamental factors in stock returns of
Canadian oil and gas companies. Energy Economics 29 (2007) 428453. Retrieved on
March 13, 2009, from ScienceDirect database.

Brookings Conference (2009). Brookings Paper on Economic Activity: Causes and

Consequences of the Oil Shock of 2007-08. Hamilton, J. D.

Burbridge, J., Harrison, A., (1984). Testing for the Effect of Oil Price Rises Using
Vector Autoregressions. International Economic Review 25 (1), 459 484.

Choe (2002). Differential Impacts of Oil Price Shock on Small vs Large Firms As a
Source of Real Effect On The Economy, Dissertation Submitted for PHD Faculty of
Graduate School University of Missouri Columbia, August 2002.

62

Cologni A. and Manera M., (2009). The asymmetric effects of oil shocks on output
growth: A Markov-switching analysis for the G-7 countries, Economic Modelling, 26,
1-29.

Cong R. G., Wei Y. M., Jiao J. L., Fan Y., (2008). Relationships between oil price
shocks and stock market: An empirical analysis from China, China Energy Policy 36
(2008), pp. 3544- 3553

Corbett S. (2005). A Collection of Related Papers: America's Reliance On Oil:

Economic, World and Environmental Effects

Cunado, J. Perez de Gracia. F., (2003). Do oil price shocks matter? Evidence for
some European countries. Energy Economics 25 (2003), pp 137154

Economic Planning Unit, Prime Ministers Department, Malaysia.

Erygit, M., (2009). Effects of Oil Price Changes on the Sector Indices of Istanbul Stock
Exchange, International Research Journal of Finance and Economics, Issue 25.

Franois, L. Mignon (2008), V. On the Influence of Oil Prices on Economic Activity

and Other Macroeconomic and Financial Variables. No 2008 05. CEPII, Working
Paper, April 2008 - 05

Faff, R. W., and Brailsford, T.J., (1999). Oil Price Risk and the Australian Stock
Markets. Journal of Energy Finance and Development, 4, p: 68-87.

Gisser, M., Goodwin, T.H., (1986). Crude Oil and the Macroeconomy: Tests of Some

63

Popular Notions. Journal of Money, Credit, and Banking 18 (1), 95 103.

Grammenos, C. and Arkoulis, A., (2002). Macroeconomic Factors and International

Shipping Stock Returns, International Journal of Maritime Economic, Vol 4, pp 81 - 99.

Gujarati, D. (2003). Basic Econometrics, International Edition Singapore: McGrawHill.

Hamilton, J.D., 1983. Oil and the Macroeconomy Since World War II. Journal of
Political Economy 99 (2), pp 228248.

Hamilton, J.D., (1996). This is What Happened to the Oil PriceMacroeconomy

Relationship. Journal of Monetary Economics 38, 215220.

Henriques, I., and Sadorsky, P., (2008). Oil prices and the stock prices of alternative
energy companies, Energy Economics, Vol. 30, Iss. 3; pp. 996. Retrieved on March 13,
2009, from Emerald database.

Huang, R.D., Masulis, R.W, and Stoll, H.R., (1996). Energy Shocks and Financial
Markets, Journal of Futures Markets, Vol. 16, No. 1, pp 1 27. Retrieved on March 13,
2009, from Emerald database.

Huang B.N., Hwang, M.J. & Peng H.P. (2005). The asymmetry of the impact of oil
price shocks on economic activities: An application of the multivariate threshold model,
Energy Economics 27 (2005), pp. 455- 476;

Jones, C. and Kaul, G., (1996). Oil and the Stock Market, Journal of Finance, vol 51,

64

No. 2, pp. 463. Retrieved on March 13, 2009, from Emerald database.

Publication of Emeritus Prof Datuk Dr Mohammed Ariff (30 June 2008);

Kaufmann, R.K., Dees, S. and Mann, M. (2009). Horizontal and vertical transmissions
in the US oil supply chain. Energy Policy 37, 644 650. Retrieved on March 13, 2009,
from ScienceDirect database.

Lardic, S., and Mignon, V., (2008). Oil prices and economic activity: An asymmetric
cointegration approach. Energy Economics, 30, p: 847855.

Maghyereh, A. and Al-Khandari A., (2007). Oil prices and stock markets in GCC
countries: new evidence from nonlinear cointegration analysis. Journal of Managerial
Finance, Vol. 33, No. 7, pp. 449- 460. Retrieved on March 14, 2009, from Emerald
database.

Manning, D.N. (1991). Petrol prices, oil price rises and oil price falls: some evidence
for the UK since 1972, Applied Economics, 23:9, pp. 1535 1541.

McSweeney, E. and Worthington, A., (2008). A comparative analysis of oil as a risk

factor in Australian industry stock returns, 1980 - 2006, Journal of Studies in Economic
and Finance, Vol 25, No. 2, pp. 131 - 145.

Miller, J. I. And Ratti, R. A. (2009). Crude oil and stock markets: Stability, instability,
and bubbles. Retrieved on March 13, 2009, from ScienceDirect database.

Mitchell, J.D., Ong, L. L. and Izan H.Y (2000). Idiosyncrasies in Australian Petrol Price

65

Behaviour: Evidence of Seasonalities. Energy Policy Vol. 28 (2000) 243- 258

Mork, K.A., 1989. Oil and the Macroeconomy When Prices Go Up and Down: An
Extension of Hamiltons Results. Journal of Political Economy 97 (3), 740 744.

Mork, K.A., Olson, M.H.T., (1994). Macroeconomic Responses to Oil Price Increase
and Decreases in Seven OECD Countries. Energy Journal 15 (4), 19 35.

Nandha M. and Faff R. (2008). Does Oil Move Equity Prices? A Global View, Energy
Economics 30 (2008) 986-997.

Osborn, J., (2008). Russia's Stock Market Tumble to Lowest Levels in Two Years,
Falling Oil Prices, The Wall Street Journal, Sept 10. 2008, pp. C.2.

Papapetrou E. and Hondroyiannis G. (2001). Macroeconomic influences on the stock

market, Journal of Economics and Finance, Vol. 25, No. 1, pp.33-49.

Papapetrou, E., (2001). Oil price shocks, stock market, economic activity and
employment in Greece. Energy Economics, 23, pp 511-532.

Park, J., and Ratti, R.A., (2008). Oil price shocks and stock markets in the U.S. and 13
European countries. Energy Economics, 30, p: 25872608.

Penstrukturan Semula Subsidi Produk Petroleum dan Pengurangan Diskaun Gas

Kepada Sektor Elektrik dan Industri, Jabatan Penerangan Malaysia R004 (Bahasa
Melayu) Jun 2008 - http://www.penerangan.gov.my

66

Sadorsky P. (2008). Assessing the impact of oil prices on firms of different sizes: Its
tough being in the middle. Energy Policy 36 (2008) 38543861. Retrieved on March
13, 2009, from ScienceDirect database.

Sadorsky, P., (1999). Oil price shocks and stock market activity. Energy Economics,
21, p: 449-469.

Sekaran U. (2003). Research Methods for Business, A Skill Building Approach, 4th ed.
India: John Wiley & Sons.

Slater J. and McKay P. (2008). Dow's 250-Point Rally Proves Fleeting; Early Surge on
Falling Oil Prices Fades To a Slight Decline; Treasury Advance, The Wall Street
Journal, Sept 3. 2008, pp. C.1.

Tan B. (2008). Road Bumbs Ahead, Malaysian Business, FindArticles.com. 16 Sep.

2008.

Yun, J. (1993). Measuring the Unintended Effects and Costs of Fuel Economy
Regulation. (Doctoral dissertation, University of California, Los Angeles, 1993).

67

APPENDIX I

List of companies in the Indexes based on the list in Bursa Securities

(as at 8 April 2009)

Construction KLCON

1
2
3

Ahmad Zaki Resources Bhd

Bina Puri Holdings BHD
Brem Holding BHD

0.579015
0.249085
0.446609

Number of
Shares in
Index
276.532
82.848
123.543

4
5
6
7

Crest Builder Holdings Bhd

DKLS Industries Bhd
Ekovest BHD
Gadang Holdings BHD

0.228734
0.310226
0.561727
0.217441

124.089
92.700
141.388
117.963

8
9
10
11

Gamuda Bhd
General Corp BHD
HO HUP Construction Co BHD
Hock Seng LEE BHD

17.00808
0.680533
0.098572
1.084475

2005.016
297.085
102.000
582.676

12
13
14
15

IJM Corp BHD

Ireka Corp Bhd
Isyoda Corp Bhd
JAKS Resources Bhd

13.84278
0.242597
0.167723
0.635442

859.452
113.915
66.000
438.361

16
17
18
19

KEN Holdings BHD

Kumpulan Europlus Bhd
Loh & Loh Corp Bhd
Malaysian Resources Corp Bhd

0.259044
0.305181
0.983285
3.053384

95.860
473.692
68.000
907.537

20
21
22
23

Melati Ehsan Holdings Bhd

Merge Energy BHD
Mitrajaya Holdings Bhd
MTD ACPI Engineering Bhd

0.249115
0.028777
0.167207
0.281883

120.000
67.000
127.989
231.633

24
25
26
27

Mudajaya Group Bhd

Muhibbah Engineering M Bhd
Nam Fatt Corp Bhd
PECD Bhd

1.700061
1.311331
0.221277
0.009097

374.000
383.636
281.012
508.337

28
29
30
31

Pilecon Engineering BHD

Pintaras Jaya BHD
PLB Engineering Bhd
Prinsiptek Corp Bhd

0.054408
0.300896
0.343054
0.136135

380.024
80.064
91.282
126.783

32

Protasco Bhd

0.671105

300.000

NO

Company Name

% Weight
in the Index

68

APPENDIX I

33
34

Putrajaya Perdana Bhd

Ranhill Bhd

2.011238
1.752952

Number of
Shares in
Index
139.781
597.265

35
36
37
38

SBC Corp Bhd

SPK Sentosa Corp BHD
Sunway Holdings BHD
TRC Synergy Bhd

0.11212
0.210944
1.34347
0.723175

82.435
133.944
547.959
188.830

39
40
41
42

TSR Capital BHD

WCT Berhad
YTL Corp Bhd
Zelan Bhd

0.523129
3.942702
41.49035
1.461633

113.300
764.966
1632.674
563.263

NO

Company Name

% Weight
in the Index

100

Total Weights
Consumer Products KLCSU

1 Acoustech BHD
2 Ajinomoto Malaysia Bhd

0.187791
0.281986

Number of
Shares in
Index
177.140
60.799

3 Apex Healthcare Bhd

4 Apollo Food Holdings

0.149027
0.307436

74.974
80.000

5 Asia File Corp BHD

6 Baneng Holdings BHD

0.866908
0.011429

113.773
60.000

7 Bonia Corp Bhd

8 British American Tobacco Malaysia Bhd

0.265445
21.75637

201.572
285.530

9 CAB Cakaran Corp Bhd

10 Carlsberg Brewery-Malay BHD

0.067668
1.7861

131.779
308.078

11 CCM Duopharma Biotech Bhd

12 CI Holdings Bhd

0.494426
0.214687

139.480
129.607

13 Classic Scenic Bhd

14 Cocoaland Holdings Bhd

0.063872
0.115289

120.500
120.000

15 Cycle & Carriage Bintang BHD

16 Degem Bhd

0.342099
0.173132

100.745
134.000

17 DNP Holdings BHD

18 DPS Resources Bhd

0.393554
0.039357

321.067
264.000

19 Dutch Lady Milk Industries BHD

20 DXN Holdings Bhd

0.964713
0.111667

64.000
240.764

21 Ekowood International Bhd

22 Emivest BHD

0.097399
0.099387

168.000
120.000

NO

Company Name

% Weight
in the Index

69

APPENDIX I

23 Eng Kah Corp Bhd

24 Formosa Prosonic Industries BHD

0.261157
0.175174

Number of
Shares in
Index
61.828
229.898

25
26
27
28

Fraser & Neave Holdings

Golden Pharos BHD
Goldis BHD
Guan Chong Bhd

5.019344
0.082461
0.599959
0.238528

356.493
134.547
323.390
240.000

29
30
31
32

Guinness Anchor BHD

Hong Leong Industries Bhd
Hovid Bhd
Hup Seng Industries Bhd

2.802288
1.583389
0.195663
0.146098

302.098
281.146
762.080
60.000

33
34
35
36

Hytex Integrated BHD

I-BHD
IQ Group Holdings Bhd
Jaycorp Bhd

0.072055
0.147919
0.071103
0.11481

150.000
114.486
85.000
137.250

37
38
39
40

Jerasia Capital BHD

John Master Industries BHD
JT International Bhd
KBB Resources Bhd

0.054362
0.055572
1.966806
0.081497

82.046
72.933
261.534
120.000

41
42
43
44

Kenmark Industrial Co BHD

Khee San BHD
Kimble Corp Bhd
Kotra Industries Bhd

0.270951
0.077522
0.000928
0.092285

181.749
60.000
112.000
123.806

45
46
47
48

Latitude Tree Holdings BHD

Leong HUP Holdings BHD
Lii Hen Industries BHD
Lion Diversified Holdings BHD

0.088024
0.223698
0.044724
0.360245

64.805
166.725
60.000
737.223

49
50
51
52

London Biscuits Bhd

Malayan Flour Mills Bhd
Mamee Double Decker BHD
Maxbiz Corp Bhd

0.090494
0.483213
0.297607
0.008246

78.045
107.645
86.378
142.231

53
54
55
56

Mintye Industries BHD

MWE Holdings BHD
Nestle Malaysia Bhd
New Hoong Fatt Holdings Bhd

0.075534
0.241646
11.16754
0.197943

60.800
231.559
234.500
75.157

57
58
59
60

Nikko Electronics Bhd

NTPM Holdings Bhd
Oriental Food Industries Holdings BHD
Oriental Holdings BHD

0.001644
0.613971
0.089448
3.836591

99.269
1123.200
60.000
517.000

NO

Company Name

% Weight
in the Index

70

APPENDIX I

61 Padini Holdings Bhd

62 Panasonic Manufacturing Malaysia BHD

0.544895
1.046469

Number of
Shares in
Index
131.582
60.746

63
64
65
66

PCCS Group BHD

Pelikan International Corp Bhd
Poh Huat Resources Holdings BHD
Poh Kong Holdings Bhd

0.027834
0.409027
0.062125
0.244701

60.012
293.965
87.221
410.352

67
68
69
70

PPB Group Bhd

Proton Holdings Bhd
Putera Capital BHD
PW Consolidated Bhd

19.34259
1.701216
0.009686
0.038341

1185.500
549.213
68.796
60.911

71
72
73
74

QL Resources BHD
Sequoia Holdings Bhd
Sern Kou Resource Bhd
Silver Bird Group Bhd

1.339236
0.066258
0.019877
0.45788

330.000
125.000
120.000
314.117

75
76
77
78

Sin Heng Chan Malaya Bhd

TAN Chong Motor Holdings BHD
Tek Seng Holdings Bhd
Tomei Consolidated Bhd

0.040693
1.435939
0.119264
0.089746

111.667
672.000
240.000
126.000

79
80
81
82

Tradewinds Malaysia Bhd

UMW Holdings Bhd
UPA Corp Bhd
Xian Leng Holdings BHD

1.262093
9.769013
0.143278
0.034925

296.470
1082.125
66.537
72.705

83
84
85
86

YEE LEE Corp

Yeo Hiap Seng Malaysia BHD
YSP Southeast Asia Holdings Bhd
Zhulian Corp Bhd

0.103866
0.297581
0.101797
0.571473

62.704
153.547
69.051
345.000

NO

Company Name

Total weights

% Weight
in the Index

100

Finance KLFIN

71

APPENDIX I

1
2

Aeon Credit Service M Bhd

Affin Holdings Bhd

0.193402
1.327492

Number of
Shares in
Index
120.000
1494.367

3
4
5
6

Alliance Financial Group Bhd

Allianz Malaysia Bhd
AMMB Holdings Bhd
Apex Equity Holdings BHD

1.807445
0.330001
4.595906
0.067755

1548.106
153.869
2722.970
213.563

7
8
9
10

BIMB Holdings Bhd

Bumiputra-Commerce Holdings Bhd
Bursa Malaysia Bhd
ECM Libra Financial Group Bhd

0.460969
15.93527
1.850721
0.205618

891.390
3370.982
525.535
830.902

11
12
13
14

EON Capital Bhd

HLG Capital BHD
Hong Leong Bank BHD
Hong Leong Financial Group Bhd

1.231597
0.078331
5.363978
3.340022

693.209
123.448
1580.107
1052.768

15
16
17
18

HwangDBS Malaysia BHD

Idaman Unggul Bhd
Insas Bhd
Jerneh Asia BHD

0.178806
0.01291
0.102114
0.101484

265.845
406.907
618.966
180.721

19
20
21
22

K&N Kenanga Holdings BHD

Kaf-Seagroatt & Campbell Bhd
Kurnia Asia Bhd
LPI Capital Bhd

0.163033
0.060914
0.237946
0.801007

611.759
120.000
1500.000
138.723

23
24
25
26

MAA Holdings Bhd

Malayan Banking Bhd
Malaysia Building Society
Manulife Holdings Bhd

0.090766
17.42482
0.17116
0.292771

304.354
7077.663
369.515
202.370

27
28
29
30

MBF Holdings BHD

MNRB Holdings Bhd
OSK Holdings BHD
Pacific & Orient BHD

0.12479
0.371793
0.416397
0.072336

570.050
213.070
673.063
110.680

31
32
33
34

Pacificmas Bhd
Pan Malaysia Capital Bhd
Pan Malaysia Holdings Bhd
Panglobal Bhd

0.282098
0.049146
0.032416
n.a.

170.994
815.309
928.867
140.130

35
36
37
38

Public Bank BHD

Public Bank BHD
RHB Capital Bhd
Syarikat Takaful Malaysia

17.97988
17.9799
5.05578
0.123506

3632.833
3632.837
2153.475
162.203

39
40

TA Enterprise Bhd
UBG BHD

0.579659
0.506074

1427.401
317.756

NO

Company Name

Total weights

% Weight
in the Index

100

72

APPENDIX I

Industrial KLIND
NO

Company Name

1 Sime Darby Bhd

28.310078

Number of
Shares in
Index
6009.464

2 MISC Bhd
3 Petronas Gas BHD

17.153373
14.702422

2603.879
1978.732

4 British American Tobacco Malaysia Bhd

5 PPB Group Bhd

10.060968
8.944745

285.530
1185.500

6 MISC Bhd
7 Malaysian Airline System BHD

7.351446
3.571305

1115.948
1671.062

8 Lafarge Malayan Cement Berhad

9 Guinness Anchor BHD

2.746667
1.295884

849.695
302.098

10 HAP Seng Consolidated Bhd

11 Proton Holdings Bhd

0.953918
0.786706

622.660
549.213

12 Malaysian Pacific Industries

13 TAN Chong Motor Holdings BHD

0.704181
0.664032

209.884
672.000

14 Chemical Co of Malaysia Bhd

15 Esso Malaysia Bhd

0.620253
0.421914

402.849
270.000

16 Hume Industries-Malaysia BHD

17 WTK Holdings BHD

0.407191
0.254995

191.216
438.013

18 Malayan Flour Mills Bhd

19 DNP Holdings BHD

0.223456
0.181994

107.645
321.067

20 UAC BHD
21 Lion Corp Bhd

0.16529
0.153984

74.408
1005.116

22 Yeo Hiap Seng Malaysia BHD

23 Aluminium Co of Malaysia BHD

0.137613
0.081804

153.547
134.331

24 Pan Malaysia Corp Bhd

25 Java Inc Bhd

0.053315
0.052464

773.357
173.394

n.a.

894.408

26 Lion Corp Bhd

Total Weights

% Weight
in the Index

99.999998

Plantation KLPLN

NO

Company Name

% Weight
in the Index

Asiatic Development BHD

5.547797

Number of
Shares in
Index
756.365

Astral Asia Bhd

0.175269

119.997

3
4

Ayer Molek Rubber Co BHD

Batu Kawan BHD

n.a.
5.537004

1.800
435.951

73

APPENDIX I

NO

Company Name

5
BLD Plantation Bhd
6
Boustead Holdings Bhd
7
Cepatwawasan Group BHD
8
Chin Teck Plantations BHD
9
Dutaland BHD
10
FAR East Holdings BHD
11
Glenealy Plantations (M) BHD
12
Hap Seng Plantations Holdings Bhd
13
IJM Plantations Bhd
14
Inch Kenneth Kajang Rubber
15
IOI Corp Bhd
16
Kim Loong Resources Bhd
17
Kluang Rubber Co Malaya BHD
18
Kretam Holdings BHD
19
Kuala Lumpur Kepong Bhd
20
Kulim Malaysia BHD
21
Kurnia Setia BHD
22
Kwantas Corp BHD
23
Malpac Holdings BHD
24
MHC Plantations Bhd
25
Multi Vest Resources Bhd
26
Negri Sembilan Oil Palms BHD
27
NPC Resources BHD
28
Rimbunan Sawit Bhd
29
Riverview Rubber Estates BHD
30
Sarawak Oil Palms Bhd
31
Sarawak Plantation Bhd
32
Sungei Bagan Rubber (M)
33
TDM BHD
34
TH Group Bhd
35
TH Plantations Bhd
36
Tradewinds Plantation Bhd
37
TSH Resources Bhd
38
Unico-Desa Plantations Bhd
39
United Malacca Bhd
40
United Plantations BHD
Total Weights

% Weight
in the Index
0.36166
3.495369
0.26681
0.899312
0.30925
1.130637
0.567768
2.248073
2.234971
0.136938
40.54992
0.85205
0.172011
0.301646
18.47326
2.426638
0.299218
0.860997
0.11669
0.13373
0.096322
0.407922
0.379124
0.221967
0.187384
1.333868
0.78238
0.205521
0.569837
0.457205
0.473211
1.276946
0.94541
0.876368
1.319046
3.370474
100

Number of
Shares in
Index
85.000
629.039
215.457
91.363
564.603
135.649
115.362
800.000
639.885
420.750
6139.733
301.507
60.192
180.951
1067.505
306.922
100.786
311.677
75.000
84.233
149.804
70.202
120.000
128.267
64.850
407.848
280.000
60.492
218.856
386.551
196.094
529.153
413.533
883.200
134.005
208.134

74

APPENDIX I

Industrial Products KLPRO

Advance Synergy Bhd

0.070008

Number of
Shares in
Index
461.908

2
3

Adventa Bhd
Ajiya BHD

0.213388
0.143181

139.155
69.224

4
5

Aluminium Co of Malaysia BHD

Amalgamated Indl Steel BHD

0.19042
0.066619

134.331
120.522

6
7

Ancom BHD
ANN JOO Resources BHD

0.175687
1.062513

218.956
522.707

8
9

APB Resources Bhd

APM Automotive Holdings Bhd

0.117879
0.546393

88.147
201.600

10
11

Astino Bhd
Boon Koon Group Bhd

0.09499
0.027141

136.597
138.375

12
13

Boustead Heavy Industries Corp Bhd

Box-Pak (Malaysia) BHD

1.298048
0.115589

248.458
60.023

14
15

BP Plastics Holding Bhd

BSA International Bhd

0.112409
0.003884

180.121
145.200

16
17

Cahya Mata Sarawak Bhd

Can-One Bhd

0.69904
0.243209

329.446
152.400

18
19

CB Industrial Product Holding Bhd

Cement Industries Of Mal-Bhd

0.554344
1.523565

137.563
141.233

20
21

Century Bond Bhd

Chemical Co of Malaysia Bhd

0.085588
1.443808

120.000
402.849

22
23

Chin Well Holdings BHD

Choo BEE Metal Industries BHD

0.427635
0.215562

272.533
109.903

24
25

Coastal Contracts Bhd

CSC Steel Holdings Bhd

0.640892
0.542056

352.382
380.000

26
27

Cymao Holdings Bhd

Daibochi Plastic & Packaging

0.05483
0.085264

75.000
75.902

28
29

Delloyd Ventures BHD

Dolomite Corp Bhd

0.237675
0.098377

88.863
262.727

30
31

Dominant Enterprise Bhd

DRB-Hicom Bhd

0.074071
1.293583

124.003
1007.607

32
33

Eksons Corp BHD

Englotechs Holding Bhd

0.163971
0.003544

NO

Company Name

% Weight
in the Index

164.213
132.500 75

APPENDIX I

34
35

Eonmetall Group Bhd

EP Manufacturing Bhd

0.175497
0.041429

Number of
Shares in
Index
171.171
165.960

36
37
38
39

Esso Malaysia Bhd

Evergreen Fibreboard Bhd
Evermaster Group Bhd
FACB Industries Inc Bhd

0.996563
0.427939
0.006965
0.039481

270.000
480.000
71.024
85.163

40
41
42
43

Favelle Favco Bhd

FCW Holdings BHD
GOH BAN Huat BHD
Gopeng BHD

0.228084
0.168692
0.103782
0.196651

170.554
195.067
61.919
179.329

44
45
46
47

GUH Holdings Bhd

Hartalega Holdings Bhd
HeveaBoard Bhd
Hexza Corp BHD

0.187749
1.166566
0.018537
0.130636

250.702
242.312
90.400
198.012

48
49
50
51

Hiap Teck Venture Bhd

HIL Industries BHD
Hirotako Holdings BHD
HO WAH Genting BHD

0.388214
0.119273
0.200844
0.081136

327.400
278.714
192.545
275.778

52
53
54
55

Hume Industries-Malaysia BHD

Ingress Corp Bhd
Integrated Rubber Corp Bhd
Jadi Imaging Holdings Bhd

0.93762
0.027388
0.088673
0.086166

191.216
76.800
236.810
604.057

56
57
58
59

Java Inc Bhd

Jaya Tiasa Holdings BHD
Johore Tin Bhd
Keck Seng Malaysia Bhd

0.122124
0.846335
0.05647
1.248228

173.394
282.528
65.979
241.393

60
61
62
63

Kia Lim Bhd

Kian JOO CAN Factory BHD
KIM HIN Industry Bhd
Kinsteel Bhd

0.023192
0.934544
0.241699
0.701401

61.937
444.168
154.916
925.565

64
65
66
67

KKB Engineering BHD

KNM Group Bhd
Kossan Rubber Industries
Kramat Tin Dredging BHD

0.230201
3.033236
0.832362
0.008544

80.188
3956.098
159.867
3.960

68
69
70
71

KYM Holdings BHD

Lafarge Malayan Cement Berhad
LB Aluminum BHD
LCTH Corp Bhd

0.02604
6.302711
0.124054
0.109124

81.135
849.695
248.474
360.000

NO

Company Name

% Weight
in the Index

76

APPENDIX I

72
73

Leader Steel Hldgs BHD

Leader Universal Hldgs BHD

0.073053
0.346317

Number of
Shares in
Index
128.032
436.459

74
75
76
77

Leweko Resources Bhd

Linear Corp BHD
Lingui Development BHD
Lion Corp Bhd

0.163802
0.01674
0.717466
0.358441

241.748
75.105
659.630
1005.118

78
79
80
81

Lion Industries Corp Bhd

Luster Industries Bhd
Magni-Tech Industries Bhd
Malaysia Aica BHD

0.896003
0.006546
0.15144
0.11506

712.770
61.183
103.575
130.361

82
83
84
85

Malaysia Smelting Corp Bhd

Malaysia Steel Works KL Bhd
Malaysian AE Models Holdings Bhd
Maxtral Industry Bhd

0.294208
0.216936
0.142849
0.063686

75.000
194.662
106.818
210.099

86
87
88
89

Melewar Industrial Group Bhd

Mentiga Corp BHD
Metrod Malaysia BHD
Mieco Chipboard BHD

0.181937
0.037445
0.307046
0.076762

226.745
60.000
60.000
210.000

90
91
92
93

Minho Malaysia BHD

Muda Holdings Bhd
Mycron Steel Bhd
Narra Industries Bhd

0.052886
0.289263
0.121285
0.0438

109.851
289.690
179.000
62.188

94
95
96
97

NWP Holdings Bhd

Nylex Malaysia BHD
Octagon Consolidated Bhd
Oka Corp BHD

0.102705
0.155934
0.107284
0.041204

320.000
194.338
169.487
60.021

98
99
100
101

Ornapaper Bhd
PA Resources Bhd
Pan Malaysia Corp Bhd
Paos Holdings BHD

0.021468
0.120286
0.124106
0.192741

75.251
133.584
773.357
120.776

102
103
104
105

Perusahaan Sadur Timah Malay

Petronas Gas BHD
Pie Industrial BHD
PNE PCB BHD

0.322264
34.04748
0.433692
0.023447

99.305
1978.732
64.007
65.749

106
107
108
109

Poly Tower Ventures Bhd

Press Metal BHD
Prestar Resources Bhd
Priceworth Wood Products Bhd

0.028467
0.396537
0.192009
0.131105

159.649
364.572
180.981
153.182

NO

Company Name

% Weight
in the Index

77

APPENDIX I

110
111

Rubberex Corp Bhd

Sanbumi Holdings BHD

0.171488
0.097854

Number of
Shares in
Index
79.484
189.238

112
113
114
115

Sapura Industrial Bhd

Scientex BHD
Scomi Group Bhd
Seal Inc BHD

0.042822
0.382141
0.628363
0.085037

72.776
230.446
1021.459
183.427

116
117
118
119

Shell Refining Co Federation of Malaya B

Sindora BHD
Sino Hua-An International Bhd
Sinora Industries BHD

5.215508
0.273881
0.420244
0.108768

300.000
96.000
1122.308
100.000

120
121
122
123

Sitt Tatt Bhd

SKP Resources Bhd
Southern Acids Malaysia BHD
Southern Steel Bhd

0.220234
0.090937
0.302764
1.062833

228.728
600.000
136.934
405.487

124
125
126
127

Subur Tiasa Holdings Bhd

Success Transformer Corp Bhd
Supermax Corp Bhd
Supportive International Holdings Bhd

0.618622
0.154058
0.446983
0.311665

209.000
120.000
265.270
218.488

128
129
130
131

Ta Ann Holdings Bhd

Tasek Corp BHD
Tekala Corp BHD
Tenggara Oil Bhd

1.148113
1.085386
0.177308

214.631
184.459
152.983
81.464

132
133
134
135

Thong Guan Industries Bhd

Three-A Resources BHD
Tien WAH Press Hldgs BHD
Titan Chemicals Corp

0.140691
0.181232
0.180661
1.562602

105.205
308.000
68.925
1752.700

136
137
138
139

Tong Herr Resources Bhd

Top Glove Corp Bhd
UAC BHD
Uchi Technologies Bhd

0.418081
2.764637
0.384759
0.762423

127.430
301.065
74.408
375.077

140
141
142
143

United U-Li Corp BHD

Versatile Creative Bhd
VS Industry Bhd
Wah Seong Corp Bhd

0.069433
0.030579
0.330036
1.574187

132.000
110.643
179.702
639.744

144
145
146
147

Weida Malaysia Bhd

Wellcall Holdings Bhd
White Horse Bhd
Wijaya Baru Global Bhd

0.095098
0.207297
0.466454
0.167837

133.333
129.176
240.000
276.846

NO

Company Name

% Weight
in the Index

n.a.

78

APPENDIX I

148
149

WTK Holdings BHD

Yi-Lai BHD

0.58576
0.151205

Number of
Shares in
Index
438.013
160.000

150
151
152

YLI Holding BHD

YTL Cement Bhd
Yung Kong Galvanising Industries Bhd

0.093142
2.273318
0.118542

98.560
490.361
195.535

NO

Company Name

% Weight
in the Index

Total Weights

100

Property KLPROP

A&M Realty BHD

0.489499

Number of
Shares in
Index
362.734

2
3
4
5

AMDB Bhd
Asas Dunia BHD
Asia Pacific Land BHD
Asian Pac Holdings Bhd

0.397861
0.395433
0.592066
0.251618

954.681
191.596
710.341
975.315

6
7
8
9

Bandar Raya Developments BHD

BCB BHD
Bina Darulaman Bhd
Binaik Equity Bhd

2.042018
0.290607
0.157641
0.242111

476.378
206.250
66.196
100.000

10
11
12
13

Bolton BHD
Country Heights Holdings BHD
Country View BHD
Crescendo Corp Bhd

0.757628
0.574502
0.230204
0.498541

320.815
275.707
100.000
155.071

14
15
16
17

Daiman Development BHD

Damansara Realty BHD
Dijaya Corp Bhd
Eastern & Oriental Bhd

1.140546
0.418844
0.906805
1.339298

231.743
781.690
259.626
591.995

18
19
20
21
22

Ekran BHD
Encorp Bhd
Equine Capital Bhd
Eupe Corp BHD
Farlim Group BHD

0.114817
0.603236
0.274917
0.193053
0.124866

525.969
223.509
192.405
128.000
121.000

23
24

Fima Corp BHD

Focal Aims Holdings Bhd

0.637951
0.15584

82.427
253.317

25
26

Fountain View Development Bhd

Furqan Business Organization BHD

0.101938

444.941
223.335

NO

Company Name

% Weight
in the Index

n.a.

79

APPENDIX I

27
28

Glomac Bhd
Gold Bridge Engineer

0.589737
0.02516

Number of
Shares in
Index
297.169
211.300

29
30
31
32

Golden Plus Holding BHD

Gromutual Bhd
GuocoLand Malaysia Bhd
Hua Yang Bhd

0.297256
0.18635
2.029501
0.232188

146.851
375.608
700.459
90.000

33
34
35
36

Hunza Properties Bhd

IBRACO Bhd
IGB Corp Bhd
IJM Land Bhd

0.736778
0.177703
8.340184
2.040908

147.327
99.494
1490.296
568.187

37
38
39
40

IOI Properties BHD

Johor Land Bhd
Karambunai Corp Bhd
Keladi Maju BHD

8.579055
0.668225
0.402868
0.376219

834.557
122.000
2030.060
758.310

41
42
43
44

KLCC Property Holdings Bhd

KrisAssets Holdings Bhd
KSL Holdings BHD
Kumpulan Hartanah Selangor Bhd

11.71528
2.899019
0.860576
0.607261

934.074
330.503
355.447
450.000

45
46
47
48

Land & General BHD

LBS Bina Group Bhd
Lien Hoe Corp BHD
Mah Sing Group BHD

0.403697
0.382209
0.215365
4.028597

598.305
385.192
361.742
622.705

49
50
51
52

Mahajaya Bhd
Majuperak Holdings Bhd
Malaysia Pacific Corp Bhd
Malton BHD

0.334724
0.068187
0.287717
0.359482

224.891
143.164
172.597
348.353

53
54
55
56

Matrix International BHD

Meda Inc Bhd
Menang Corp Malaysia BHD
Merge Housing BHD

1.369484
0.144036
0.185527
0.297677

1113.042
426.941
267.107
150.000

57
58
59
60

Metro Kajang Holdings BHD

MK Land Holdings BHD
MUI Properties BHD
Mutiara Goodyear Development BHD

0.736466
0.814581
0.272932
0.45825

229.078
1207.262
764.060
230.913

61
62
63
64

Naim Holdings Bhd

Oriental Interest BHD
OSK Property Holdings Bhd
Paramount Corp BHD

1.20063
0.357579
0.293709
0.916387

250.000
90.545
200.001
107.890

NO

Company Name

% Weight
in the Index

80

APPENDIX I

0.26161
0.23787

Number of
Shares in
Index
205.978
136.208

Petaling Tin BHD

PJ Development Holdings Bhd
PK Resources BHD
Plenitude Bhd

0.129818
0.814681
0.235357
0.996622

344.292
456.132
114.036
135.000

71
72
73
74

Prime Utilities BHD

Sapura Resources Bhd
Selangor Dredging Bhd
Selangor Properties Bhd

0.026196
0.085882
0.710351
4.091472

60.000
139.600
426.128
343.617

75
76
77
78

SHL Consolidated BHD

South Malaysia Industries
SP Setia Bhd
Sunrise BHD

1.105145
0.091658
12.26732
2.07287

242.124
209.940
1016.698
450.225

79
80
81
82

Sunway City Bhd

TAHPS Group Bhd
Talam Corp BHD
Tanco Holdings BHD

3.114749
0.736793
0.337128
0.106334

469.919
74.853
1887.550
334.887

83
84
85
86

Tebrau Teguh Bhd

Triplc Bhd
United Malayan Land Bhd
YNH Property Bhd

1.116429
0.045253
1.007301
1.672049

669.727
142.520
241.705
409.004

87

YTL Land & Development BHD

1.913777

796.988

NO

Company Name

65
66

Pasdec Holdings Bhd

Perduren M Bhd

67
68
69
70

Total Weights

% Weight
in the Index

100

Trading/Services KLSER

1
2
3
4

Advance Synergy Capital BHD

Aeon Co M Bhd
AirAsia BHD
Alam Maritim Resources Bhd

0.037165
0.531121
0.992618
0.164605

Number of
Shares in
Index
156.861
351.000
2374.052
492.109

5
6
7
8

Amway (Malaysia) Hldgs

Analabs Resources BHD
Astro All Asia Networks PLC
Atis Corp Bhd

0.464756
0.019719
1.709701
0.06612

164.386
60.024
1934.036
159.659

Axiata Group Bhd

2.79492

3753.402

NO

Company Name

% Weight
in the Index

81

APPENDIX I

10
11

Berjaya Corp BHD

Berjaya Land Bhd

0.684878
1.321661

Number of
Shares in
Index
3044.124
1144.509

12
13
14
15

Berjaya Media Bhd

Berjaya Sports Toto BHD
Bintai Kinden Corp Bhd
Bintulu Port Holdings Bhd

0.067542
2.485477
0.008274
0.915863

232.353
1351.030
103.889
400.000

16
17
18
19

Cheetah Holdings Bhd

CNI Holdings Bhd
Complete Logistic Services Bhd
Compugates Holdings BHd

0.018036
0.055907
0.019114
0.123232

127.589
720.000
120.000
2134.289

20
21
22
23

Dayang Enterprise Holdings Bhd

Deleum Bhd
DFZ Capital Bhd
Dialog Group BHD

0.118441
0.046191
0.216756
0.52335

352.000
100.000
150.370
1413.210

24
25
26
27

DKSH Holdings Malaysia Bhd

Dreamgate Corp Bhd
Eastern Pacific Indus
Ecofirst Consolidated Bhd

0.03139
0.034725
0.08959
0.033656

157.658
872.050
169.163
650.148

28
29
30
31

Edaran Bhd
Edaran Otomobil Nasional BHD
Engtex Group Bhd
Esthetics International Group Bhd

0.011827
n.a.
0.070171
0.026281

60.000
248.993
198.000
132.000

32
33
34
35

Faber Group BHD

Fiamma Holdings BHD
Fitters Diversified Bhd
Freight Management Holdings Bhd

0.108411
0.01675
0.023502
0.032957

363.001
85.845
131.157
121.714

36
37
38
39

Genting Bhd
George Kent Malaysia BHD
Hai-O Enterprise BHD
Halim Mazmin Bhd

6.371137
0.041959
0.11719
0.073444

3703.655
158.455
84.085
318.000

40
41
42
43

HAP Seng Consolidated Bhd

Harbour-Link Group Bhd
Harrisons Holdings (Malaysia) Bhd
Hexagon Holdings BHD

0.495888
0.038048
0.03544
0.056538

622.660
182.000
63.120
132.695

44
45
46
47

Hock Sin Leong Group BHD

Hubline Bhd
Integrated Logistics Bhd
Integrax BHD

0.003345
0.096863
0.055704
0.055099

60.000
1247.443
197.026
300.806

NO

Company Name

% Weight
in the Index

82

APPENDIX I

48
49

Ipmuda Bhd
JobStreet Corp Bhd

0.022509
0.123755

Number of
Shares in
Index
72.470
310.784

50
51
52
53

Johan Holdings BHD

Kamdar Group M Bhd
KBES Bhd
Kencana Petroleum Bhd

0.052688
0.014075
0.004766
0.527991

508.901
126.235
126.000
902.000

54
55
56
57

KFC Holdings Malaysia Bhd

Knusford BHD
Konsortium Logistik BHD
Konsortium Transnasional Bhd

0.548725
0.049598
0.077259
0.020443

198.275
99.645
250.348
301.997

58
59
60
61

KPJ Healthcare Bhd

KUB Malaysia BHD
Kumpulan Fima BHD
Kumpulan Perangsang Selangor Bhd

0.237973
0.065368
0.041916
0.263167

208.230
556.465
263.160
475.461

62
63
64
65

LCL Corp Bhd

Liqua Health Corp Bhd
M3nergy Bhd
Malayan United Industries Bhd

0.031916
0.001724
0.076195
0.123636

143.127
288.611
125.064
1940.532

66
67
68
69

Malaysia Airports Holdings Bhd

Malaysian Airline System BHD
Malaysian Bulk Carriers Bhd
Malaysian Merchant Marine Bhd

1.22208
1.863174
1.314064
0.009796

1100.000
1671.062
1000.000
175.722

70
71
72
73

Malaysian Mosaics BHD

Marco Holdings BHD
MBM Resources BHD
MEASAT Global Bhd

0.021839
0.024111
0.212066
0.155272

78.349
712.354
242.073
389.933

74
75
76
77

Mechmar Corp Malaysia BHD

Media Chinese International Ltd
Media Prima Bhd
Mega First Corp BHD

0.002979
0.369022
0.380051
0.073844

149.646
1684.950
852.159
239.283

78
79
80
81

Metacorp BHD
MISC Bhd
MISC Bhd
MMC Corp Bhd

0.136905
8.917067
3.777163
1.927949

680.811
2603.879
1115.948
3045.059

82
83
84
85

MTD Capital Bhd

Mulpha International Bhd
Multi-Purpose Holdings BHD
Naim Indah Corp Bhd

0.215029
0.147421
0.458138
0.011182

300.000
1254.972
958.766
702.034

NO

Company Name

% Weight
in the Index

83

APPENDIX I

86
87

Nationwide Express Courier

NCB Holdings Bhd

0.009575
0.54304

Number of
Shares in
Index
60.116
470.253

88
89
90
91

New Straits Times Press BHD

Nomad Group BHD/The
NV Multi Corp Bhd
OCB Bhd

0.09515
0.060846
0.069521
0.023754

217.228
223.068
342.331
102.850

92
93
94
95

Ogawa World Bhd

Oilcorp Bhd
Olympia Industries Bhd
Padiberas Nasional Bhd

0.008362
0.021419
0.056712
0.247255

120.000
219.548
730.364
470.402

96
97
98
99

PAN Malaysian Industries BHD

Pantech Group Holdings Bhd
Parkson Holdings Bhd
PBA Holdings BHD

0.022214
0.073169
1.6508
0.11606

1239.662
375.000
1036.410
331.205

100
101
102
103

PDZ Holdings Bhd

Perak Corp BHD
Petra Energy Bhd
Petra Perdana Bhd

0.131543
0.026679
0.078426
0.183682

869.321
100.000
195.000
297.600

104
105
106
107

Petronas Dagangan BHD

Pharmaniaga Bhd
PJI Holdings BHD
PLUS Expressways Bhd

3.00652
0.149927
0.01051
5.89338

993.454
106.963
406.047
5000.000

108
109
110
111

POS Malaysia BHD

Progressive Impact Corp Bhd
Pulai Springs BHD
QSR Brands Bhd

0.459766
0.117907
0.043902
0.313605

537.026
658.000
105.000
286.383

112
113
114
115

RCE Capital Bhd

Reliance Pacific BHD
Resorts World Bhd
Salcon Bhd

0.114659
0.136751
5.265946
0.069843

710.971
858.552
5877.480
467.721

116
117
118
119

SapuraCrest Petroleum BHD

Sarawak Energy Bhd
Scomi Marine Bhd
SEG International BHD

0.399979
1.068576
0.087566
0.026608

1181.721
1524.720
733.009
89.093

120
121
122
123

Sime Darby Bhd

Srii BHD
Star Publications Malaysia BHD
Store Corp Bhd/The

14.597157
0.023418
0.946992
0.070923

6009.464
80.562
738.564
68.504

NO

Company Name

% Weight
in the Index

84

APPENDIX I

124
125

Suiwah Corp BHD

Sumatec Resources Bhd

0.022347
0.013124

Number of
Shares in
Index
61.000
160.773

126
127
128
129

Suria Capital Holdings Bhd

Swee Joo Bhd
Symphony House Bhd
Taliworks Corp Bhd

0.09195
0.03982
0.05657
0.260928

283.328
200.000
676.500
376.590

130
131
132
133

Tanjong Plc
Tanjung Offshore Bhd
Telekom Malaysia Bhd
Tenaga Nasional Bhd

2.215964
0.078789
5.128294
10.52698

403.256
245.790
3577.402
4333.824

134
135
136
137

Texchem Resources Bhd

Time Engineering BHD
Tiong NAM Logistics Holdings
Tradewinds Corp Bhd

0.050899
0.02624
0.020764
0.173967

124.099
775.245
84.103
1106.032

138
139
140
141

Trans-Asia Shipping Corp Bhd

Transmile Group BHD
Triumphal Associates BHD
Unimech Group Bhd

0.025286
0.063999
0.027769
0.036162

100.000
270.118
87.171
136.561

142
143
144

Utusan Melayu Malaysia Bhd

Warisan TC Holdings Bhd
Yinson Holdings BHD

0.028661
0.048166
0.012956

110.734
67.200
68.498

NO

Company Name

Total Weights

% Weight
in the Index

99.999995

Technology KLTEC

1
2

AIC Corp BHD

AKN Technology BHD

2.277995
0.685849

Number of
Shares in
Index
146.374
126.333

3
4
5
6

Comintel Corp Bhd

D&O Ventures Bhd
Dataprep Holdings BHD
ENG Teknologi Hldgs BHD

0.912057
6.605173
2.577997
2.329393

140.000
730.000
356.148
119.187

7
8
9
10

Formis Resources Bhd

GHL Systems Bhd
Globetronics Technology BHD
Green Packet Bhd

5.154647
0.653354
4.647477
10.0117

183.771
138.862
262.059
333.279

11

HeiTech Padu Bhd

3.261795

100.137

NO

Company Name

% Weight
in the Index

85

APPENDIX I

NO

Company Name

12
13

Industronics BHD
Kesm Industries BHD

14
15
16
17

Kobay Technology BHD

Lityan Holdings BHD
LKT Industrial BHD
Malaysian Pacific Industries

18
19
20
21

Mesiniaga Bhd
Metronic Global Bhd
Patimas Computers Bhd
Pentamaster Corp Bhd

22

Unisem M Bhd

Total Weights

1.568762
2.802262

Number of
Shares in
Index
95.263
43.015

1.429136
n.a.
5.130779
33.271749

68.081
102.806
70.881
209.884

3.016836
1.263846
1.508667
0.482243

60.402
634.907
757.896
133.243

10.408284

471.442

% Weight
in the Index

100.000001

86

APPENDIX II

NORMAL DISTRIBUTION AT FIRST DIFFERENCE

DLNKLCSU

DLNKLCON
.10

.04

.05

.02

DLNKLFIN
.06
.04
.02

.00

.00

.00

-.02

-.05

-.02

-.04

-.10

-.06

-.04

-.15

-.08

-.06

-.20
250

500

750

1000

1250

-.10

250

1500

500

750

1000

1250

1500

250

500

DLNKLPLN

750

1000

1250

1500

DLNKLPRO

DLNKLIND
.12

.08

.08

.06

.08
.04

.04

.04
.02

.00

.00
-.04

.00
-.02

-.04

-.04
-.08

-.08

-.12

-.12

-.06

250

500

750

1000

1250

-.08

250

1500

500

DLNKLPRP

750

1000

1250

1500

250

500

1250

1500

.08

.06

.04

1000

DLNKLTEC

DLNKLSER

.08

750

.04

.06

.02

.04

.00

.02

.00
-.02

.00

-.04

-.04

-.02
-.06

-.04

-.08

-.08

-.06

-.10

-.12

-.08

-.12

250

500

750

1000

1250

1500

250

500

750

1000

1250

250

1500

DLNKLCI

500

750

1000

1250

1500

DLNOILP

.06

.15

.04

.10

.02
.05

.00

.00

-.02
-.04

-.05

-.06
-.10

-.08
-.15

-.10
-.12

-.20

250

500

750

1000

1250

1500

250

500

750

1000

1250

1500

90

APPENDIX II

DLNKLCSU

DLNKLCON
320

600

280
500

240
Frequency

Frequency

400

300

200
160
120

200

80
100

40
0

0
-.20

-.15

-.10

-.05

.00

.05

-.06

.10

-.04

-.02

.02

.04

DLNKLIND

500

500

400

400

300

300

Frequency

Frequency

DLNKLFIN

.00

200

100

200

100

-.10

-.08

-.06

-.04

-.02

.00

.02

.04

.06

-.12

-.08

-.04

DLNKLPLN

.00

.04

.08

DLNKLPRO

600

500

500

400

Frequency

Frequency

400

300

300

200

200
100

100

0
-.12

-.08

-.04

.00

.04

.08

.12

-.08

-.06

-.04

-.02

DLNOILP

.00

.02

.04

.06

.08

DLNKLCI

900

500

800
400

700

Frequency

Frequency

600
500
400

300

200

300
200

100

100
0

0
-.20

-.15

-.10

-.05

.00

.05

.10

.15

-.10

-.08

-.06

-.04

-.02

.00

.02

.04

.06

91

APPENDIX II

DLNKLTEC

DLNKLPRP

400

500

350
400

Frequency

250
200
150

300

200

100
100
50
0

0
-.08

-.06

-.04

-.02

.00

.02

.04

.06

.08

-.12

-.08

-.04

.00

.04

.08

DLNKLSER
500

400

Frequency

Frequency

300

300

200

100

0
-.12

-.08

-.04

.00

.04

.08

92