5.

0 Conclusion
5.1 Introduction
This chapter summarizes the findings from the previous chapter. The summary of this study
will be discussed in this chapter, followed by the policy implications, limitation of study as
well as the recommendation for future study.
5.2 Summary of Study

As stated in the problem statement, many previous studies found out that the effects of
macroeconomics variables towards KLCI are too ambiguous therefore we intend to solve this
problem by using OLS method to do the model estimation. Eventually the results shown that
KLCI are significantly affected by inflation rate and exchange rate and they are supported by
other authors. Besides, we successfully narrow down the research area in the problem statement
as interest rate and money supply are found insignificant based on the 30 years observations in
Malaysia.

In the beginning of the research, researcher has investigate macroeconomics variables which
are Money Supply (M2), consumer price index, exchange Rates as independent variables which
bring the impact on that Kuala Lumpur Stock Exchange Composite Index (KLCI) in Malaysia.
Therefore throughout these research, we have successfully achieved two objectives in this
assignment. We also able to identify the impact of inflation to the stock exchange market in
Malaysia. To examine the significant relationship between foreign exchange and stock
exchange market in Malaysia. However, the effect of interest rate to the stock exchange market
in Malaysia and the relationship between money supply and stock exchange market in Malaysia
is unable to match with research objectives.
For analysis and findings, we can able to examine that foreign exchange have significant
relationship with stock exchange market and it is consistent with the previous study. Among
from all these journal, foreign exchange rate which have negative relationship with stock
exchange market and it is consistent with our Eviews output. For inflation rate, there are also
significant relationship with stock market exchange which is also consistent with Eviews
output result and the previous study. When inflation increase, it will lead to stock exchange
market will increase. But, for Eviews result between these two variables (money supply and
interest rate) are not significant relationship with stock exchange market, so it is very difficult
to fully explain these variable can any effect or impact to the stock exchange market and unable
to achieve these objectives.
From our previous study, interest rate have negative relationship with stock market exchange.
However, the interest rate is inconsistent with our Eviews output which shown that there is
positive impact on the stock exchange market. Based on Kadir, Selamat, Masuga and Taudi
(2011), interest rate is found to be negatively related to the stock market. When interest rate
increases, people will invest less in capital stock leading to a decrease in the demand of shares.
Adam, Anokye, and Tweneboah (2008) also cited that interest rate has a negative influence on
stock prices as when the interest rate increase, the cost of borrowing also will increase so the
companies have to pay more money, and this interest expense reduces company profits. If
investors perceive that companies unable to make up for the lost profits, it can cause the stock
price drop. However, Majid and Yusof (2009) also have argued that interest rate have positive
relationship between interest rate and Islamic stock prices which included in the Islamic stock
market in Malaysia. When increase in interest rate it will encourage Muslim people to buy
more Shari’ah-compliant stocks instead of money deposited in banks or invest in other interest
bearing securities, therefore it will drive up Islamic stock prices. Besides that, Hakim Rashidian
(2005) and Yusof and Majid (2007) also found that the interest rate is positive relationship but
it does not bring the effect on the Islamic stock market index in Malaysia.
5.3 Policy Implications
A healthy stock exchange market is conducive for economic growth. Hence, this research
study provides useful information which helps investors, policy makers, economist, central
bank and the stock market participants to have a clear understanding on the relationship
between interest rate, inflation, foreign exchange rate, money supply and stock exchange
market in Malaysia. According to the OLS results obtained in the previous chapter, foreign
exchange rate and inflation rate shows a significant relationship with the stock exchange
market. Hence, this research study has some policy implications as to further boost the stock
market in Malaysia.
5.3.1 Exchange Rate
Exchange rate indicates a negative significant relationship with the stock exchange market.
The exchange rate is expressed as the nation’s currency in terms of another currency (USD).
If the foreign currency increase, or depreciation in the Ringgit Malaysia (RM), the stock
exchange market decreases. This is consistent with the findings mentioned by Dornbusch and
Fischer (1980). This is because the depreciation in the country’s currency (RM) will become
less attractive to investors to make investment in the stock market, hence affecting the
performance of stock exchange market in Malaysia. Hence, the central bank should try to
prepare an expansionary monetary policy that brings in new foreign investors to invest in the
stock market and diversify their portfolio which in turn leads to a favourable market. The
depreciation of the currency will be stabilized automatically once the stock market is well
developed (Khalid, 2017).
5.3.2 Inflation Rate
Inflation is one of the major factors affecting stock market, hence it is advised that the
regulatory body or the government should try to take measures to control them in order to
develop and strengthen the stock market. The findings by Yeh and Chi (2009) and Daferighe
and Sunday (2012) found that there is negative significant relationship between inflation and
stock market. However, the results contrary reveals that there is a positive significant
relationship between inflation and stock market, which is consensus to the empirical
approach by Fisher (1930). Hence, it is suggested that investors should use long term stock to
hedge against inflation. This is because stocks are claims on real assets, for instance land,
which appreciates when overall prices increase. Stock compensates investors when there is an
increase in the overall general price level through the corresponding increase in nominal
interest rate, which takes into account inflation, hence real returns are unaffected (Adam,
2010).
5.4 Limitations of study
During the entire research study, we have encountered several limitations of this study. First
and foremost, the research findings may not useful for other countries’ stock exchange market
such as Thailand, Philippine and China since the data for this research is primarily used for
Malaysia‘s stock exchange market. Hence, the factors such as inflation rate, exchange rate,
interest rate and money supply (M2) which have significant impact in Malaysia may not affect
other countries’ stock exchange market.
Secondly, the industrial production index which may affect the Malaysia’s stock exchange
market was not included in our study. This is because we found limited data when we conduct
the research in our study period.
Lastly, we do not use time series data of more than 40 years in our research. When we use
small sample size, it may influence the accuracy as well as reliability in our research’s findings
since it leads to a higher variability, which may cause the model to become bias. The variability
is determined by the standard deviation of the population. When the standard deviation is high,
it indicates that the expected result is further away from true result.

5.5 Recommendation for future study

We recommend future researcher to fully understand the factors that can cause fluctuation in
the overall stock market, and not just focus one or two stock market. The main focus of our
study is Stock exchange of Malaysia, we did not compare our stock exchange of Malaysia with
other countries because we use this time series data in our model. Thus, the future researcher
can change from time series data to panel data because it can provide information across
countries and over time. The panel models consist of both cross sectional and time series data.
Cross-sectional data only collect different countries at the same point of time which is without
regard to differences in time. In our case, a time period is very important for stock exchange
market, this is because of the movement of stock exchange changes in anytime. If we need to
evaluate whether the stock exchange market good or bad, we need to go through the previous
data in order to evaluate accurately. Panel data is the most suitable and informative data to be
used in order to get higher accuracy result as it can give us the benefit of time series and cross
sectional data.
Furthermore, we suggest that the future researchers can add one more independent variable
into the model which is industrial production index. Industrial production index is one of the
factors that can affect stock exchange market. We had found several journals to prove that there
is a relationship between industrial production index and stock exchange market. Due to data
limited for industrial production index of Malaysia so we only focus on 4 independent variables
which are the real interest rate, inflation rate, exchange rate, and money supply (M2).
Lastly, we suggest that the future researchers use larger sample size, they can choose the sample
size more than 40 years. This is because larger sample size allows researchers to better evaluate
average values of data, get accurate results, and avoid errors from testing a small number of
possibly atypical samples. If a research performs with a larger sample size this is one of the
ways to increase the credibility of research’s result. Besides that, larger sample sizes can make
more representative of the entire population and provide more data for researchers. We also
encouraged future researchers to use monthly, quarterly or semi-annually compare to annual
data this is because annual data easier face autocorrelation problem.

5.6 Conclusion
We have achieved two of our research objectives which is testing the significance of
relationship of the macroeconomics variables towards KLCI namely inflation and exchange
rate. However, we are unable to find the significant relationship for money supply and
interest rate on KLCI, for the 30 years period observations obtained in Malaysia. The
outcome of this study hold important lesson for market participants as well as policy makers
although this study may not necessarily be useful in estimating other countries stock market
performance die to the geographical data obtained only in Malaysia.