Background of the Study
Studying the impact of oil prices and stock market performance is an active and growing area of research. Stock exchanges show the necessary functions to help stock buyers and sellers meet specific prices. Liberalization and globalization influenced by developing countries make the role of financial markets more important for promoting capital raising. Instead, high industrial and commercial growth can be achieved in these countries, including Malaysia. The Malaysian stock market is represented by the Malaysian Stock Exchange, which holds a company previously identified as the Kuala Lumpur Stock Exchange to control multiple exchanges in the country’s capital markets. The main financial market in Malaysia is the Financial Times Securities Exchange (FTSE) Malaysia Stock Exchange Malaysia Stock Exchange Long Composite Index as a performance indicator for Malaysian stock market (FTSE Russel, 2016). (Ekhlas Al-haji, 2017, pp. 235-244) It provides competitive services and infrastructure, and applies standard rules to improve global recognition of Malaysian stock market oil is considered to be the main energy source. In the world, it is considered a strategic part and also affects supply and demand. Given the importance of oil on the world economy, a large literature details on how the oil price shocks impact macroeconomy and the stock market. (Gupta, 2018, pp. 65-86) The desperate role of oil in the economy will lead to expectations that changes in oil prices are related to changes in stock prices. In all of these issues, consumers are directly and indirectly affected. Changes in oil prices have different effects on global markets, economic and financial indicators. This study aims to explore the dependence structure between oil prices and stock market of Malaysia.
The Malaysian government has cancelled fuel subsidies, allowing domestic oil prices to fluctuate according to market demand and supply. As a result, Malaysia’s oil prices have become more volatile and the company’s cash flow has become more volatile. Uncertainty in corporate cash flow makes stock prices more difficult to predict. This increases the difficulty for investors to assess the company’s stock price and they will face higher risks.Therefore, investors in Malaysia may move their funds to another country to be less exposed to risks related to a firm’s cash flow unstable.
Significance of the Study
This study more focused the results of a causal relationship between oil prices and the stock market may affect Malaysians. if oil prices fall, Malaysian stocks can hedge their portfolio risk by entering short positions in crude oil futures. Therefore, their losses in the stock market can be offset by the gains in the crude oil futures market. This will allow their portfolio returns to be protected from changes in oil prices. In addition, investors can guess stock price movements based on changes in crude oil prices that are highly causally related to the Malaysian stock market. If oil prices fall, stock prices will fall due to a positive correlation between oil and stock prices. As a result, investors may use oil prices as a support tool to predict stock price movements in their hedging decisions.This research is different from others, because i focus based on the relationship between the oil prices and stock market in Malaysia.
1)To identify of oil prices fluctuation on the stock market of Malaysia. 2) To study the effect of oil price volatility on the volatility of Malaysian stock market
ResearchQuestion 1) How does the oil prices fluctuation influences the stock market of Malaysia? 2) What is the effect of oil price volatility of Malaysian stock market?
Expected Contribution Oil prices had been fairly stable until 1973. Since then, the impact of oil price shocks on the world economy has been larger. (Le, 2011, p. 3) I have learned from this study that oil is a basic item in our country. The rise in oil prices can reduce profits or losses, so the company will not directly increase prices as costs increase. If you don’t raise prices because of more effective practices, your competitors will be more attractive. When income enters, they may fall and lower the stock price. Some companies use crude oil and its by-products as raw materials for their end products. Companies with higher crude oil inputs or higher costs, such as tires, plastics, chemicals, airlines, paints, lubricants, cement, logistics and construction materials, will achieve profit margins at high oil prices. As oil prices rise, these companies will have to raise the price of goods or services. Through this survey, I realized that the economy is affected in two situations. First of all, the price of gasoline and diesel has been deregulated and linked to international crude oil prices, which means that whenever the price of crude oil in the world market rises, the price of gasoline and diesel in Malaysia will rise. Higher gasoline and diesel prices will affect inflation. As a result, it has had a negative impact on people around the world. High oil prices may reduce the household’s actual income, thereby damaging consumer demand and reducing consumption. Secondly, rising crude oil prices have led to a decline in corporate profit margins as it increases input or operating costs and reduces consumer discretionary demand. Well, this is the impact of fluctuations in oil prices in the Malaysian stock market and the impact of fluctuations in oil prices in the Malaysian stock marke.
This study made me understand that the stock market index is usually used to show the economic performance of a country. Because of the important role of the stock market in the economy, many studies attempt to investigate factors that influence the behavior or changes in the stock market index. Many studies have been studying the impact of macroeconomic variables on the stock market index. This study investigated the impact of selected macroeconomic variables, namely the impact of interest rates and exchange rates on stock market prices. The results show that the impact of oil price volatility on the stock market is not statistically important. Although the assumption of the relationship between oil prices and stock prices seems reasonable. Finally, we understand the key role of oil price shocks, and we can further study the extent of impact depending on the different reasons behind the changes in oil prices.