This paper is an investigation on the impact of the 2007/2008 global financial crisis and foreign exchange rate on the stock market of Malaysia in two sub periods namely, pre-crisis (January 2002 till June 2007) and during crisis (July,2007 till December 2010). The findings showed that the stock market returns in US and Malaysia were depressed during the period of crisis. The correlation coefficient was strongly significant during the period of the crisis. In addition, multiple regression analysis provided evidence that contagion effects exist to the Malaysian stock market did exist during the US financial crisis, however the foreign exchange rate was not significant during the said financial crisi

Adam, Gawi Mohamed Khalifa

English

Universiti Utara Malaysia: UUM eTheses

i  PERMISSION TO USE  In presenting this project paper in partial fulfilment of the requirements for a post graduate degree from University Utara Malaysia, I agree that the University Library may make it freely available for inspection. I further agree that permission for copying of this project paper in any manner, in whole or part for scholarly purpose may be granted by my supervisor or in their absence, by the Dean of Graduate School of Business. It is understand that any copying of publication or use of this thesis or parts thereof for financial gain shall not be allowed without my written permission. It is also understand that due recognition shall be given to me and to University Utara Malaysia for any scholarly use which may be made of any material from my project paper.   Requests for permission to copy or to make other use of materials in this project paper, in whole or in part should be addressed to:  DEAN Othman Yeop Abdullah  Graduate School of Business Universiti Utara Malaysia 06010 UUM Sintok Kedah Daruil Aman  ii  DECLARATION  I hereby declare that all information in this document has been obtained and presented in accordance with academic rules and ethical conduct. I also declare that, as required by these rules and conduct, I have fully cited and referenced all material and results that are not original to this work. The author is responsible for the accuracy of all opinion, technical comment, factual report, data, figures, illustrations, and photographs in this dissertation. The author takes full responsibility for the checking of whether material submitted is subject to copyright or ownership right. University Utara Malaysia (UUM) does not accept any liability for the accuracy of such comment, report and other technical and factual information and copyright claims The author declares that this project paper is original and his own except those literatures, quotations, explanations and summarizations which are duly identified and recognized. The author hereby grant the copyright of this project paper to the Othman Yeop Abdullah   Graduate School of Business, University Utara Malaysia (UUM) for publishing if necessary.     Gawi Mohamed Khalifa  Student Signature…………….    805877Date………………………….. Othman Yeop Abdullah Graduate School of Business Universiti Utara Malaysia 06010UUM Sintok Kedah Daruil Aman iii   DEDICATION  This project paper is dedicated with love and gratitude to my beloved late father Mohamed may the blessing and forgiveness of Allah be upon him and my mother, Nurahwho have provided undying love, support and encouragement. They provided me with strength, dreams, courage and determination to move through the final stages of this process. I also dedicate this project paper to my brothers(Khalifa, Abdienand Elsadig), my sisters (Shadya, Marwa, Lyla,Mona, Amna and Limya)without their love, patience and sacrifices, this project paper would not have been possible. Special appreciation goes to my friends, Dr Yahya Mohamed, Habeebo andAbdulgader). For their encouragement and love which has influenced my success. There are so many friends and colleagues who gave me unselfish support.Thank you guys and i will remember your support          iv     ABSTRACT  This paper is an investigation on the impact of the 2007/2008 global financial crisis and foreign exchange rateon thestock market of Malaysia,, in two sub periods namely, pre crisis (January  2002 till June  2007) and during crisis (July, 2007 till December 2010).The findings showed that the stock market returns in US and Malaysia were depressed during the period of crisis. The correlation coefficient was strongly significant during the period of the crisis. In addition, multiple regression analysis provided evidence that contagion effectsexistto the Malaysian stock marketdid exist during the US financial crisis, however the foreign exchange rate was not significant during the said financial crisis. Keywords:  Financial crisis, contagion, stock market, Forex            v  ACKNOWLEDGEMENTS  In the name of Allah SWT, the Most Gracious and the most Merciful, I thank you for giving me the strength to complete this project paper. This project paper would not have been completed without the support and assistance of many people. Firstly, my deepest appreciation goes to Prof. Dr. Cristina G. Gallato,who has provided unlimited amount of encouragement and professional support. She valued my commitment to self and lifelong learning and all the while supporting my professional endeavours. Thank you, Prof. Dr. Cristina G. Gallato,for your always-positive attitude and outlook; you are an incredible supervisor and an outstanding leader. Secondly, my appreciation to our lovely lecturers who have provided expertise, knowledge, support and coaching.The highest compliment I can say to lecturers like you are: I have learned from you. I again like to thank Allah, The Sublime, The Majestic, for instilling in me the courage and strength to complete this study. May Allah, in His infinite Grace and Mercy, accept this humble effort.Finally I would like to thank Dr. Suzilah bt.Ismailfor her great help and support. To all, thank you so much. Gawi Mohamed Khalifa  (805877) January 2012    vi   TALBLE OF CONTENT                                                                                        PAGE PERMISSON TO USE   i DECLARATION    ii ABSTRACT  iii DEDICATION iv ACKNOWLEDGEMENTS v LIST OF TABLES vi LIST OF FIGURES                                                                                                           vii  CHAPTER 1 INTRODUCTION 1 1.1 Introduction                                                                                                                              1 1.2 Background of Study                                                           1                                                                 1.3 Problem Statement 3 1.4 Research Questions 5 1.5 Research Objectives 5 1. Significance of the Study 6 1.6 Scope and Limitations of Study                                                                                   6                                                                                                                          CHAPTER 2 LITERATURE REVIEW 8 2.1 Introduction 8 2.2 Literature on measurements of Stock markets Integration and Contagion Effects 9  2.2.1 Literature on Co-integration                                                                                                              9 2.2.2 Literature on Contagion   15   2.13 Literature on foreign exchange rate (Forex)                                                                         21 CHAPTER 3 RESEARCH DESIGN AND METHODOLOGY  23 3.1 Introduction 23 3.2 Variables and Theoretical Framework                            23 3.3Variables Definition                                                                                         24 3.4 Empirical model 26 3.5 Data Collection  28 3.6 Data Analysis 29   3.6.1 Regression Test for Three-Factor model                                                         30 CHAPTER 4  ANALYSIS AND FINDINGS 31 4.1 Introduction 31 4.2 Descriptive Analysis 31 4.3.1 Line plot 31 4.3.2 Summary of descriptive statistics                                                                      35    4.4 Correlation analysis                                                                                             36 vii    4.5 regression result                                                                                            38 Chapter 5 Conclusion                                                                                            41 5.1 Conclusion and Recommendation                                                                           41 REFERENCES 43 APPENDIX   47                     viii  List of Tables                                                                                                                     page Table 1: Descriptive analysis for the dependent and independent variables _______35 Table 2:  Correlations between MY, US and FOREX (pre- crisis)_______________37  Table3: Correlation between MY, US and FOREX (during-crisis)______________37 Table 4: summary analysis (Pre-crisis)_____________________________________38 Table 5: Regression result (Pre-crisis)_____________________________________38  Table 6: summary analysis (During-crisis)__________________________________39 Table 7: Regression result (During-crisis)__________________________________39                              ix      List of Figures                                                                                                                                        page  Figure 1: Variables and Theoretical Framework _________________________________23 Figure 2: KLCI (MY) stock returns series monthly _______________________________31 Figure 3: S&P500 (US) stock returns series monthly______________________________32 Figure 4: KLCI (MY) stock returns series yearly _________________________________33 Figure 5: S&P500 (US) stock returns series yearly _______________________________33 Figure 6: Forging exchange rate (Forex) monthly ________________________________34 Figure 7: Forging exchange rate (Forex) yearly __________________________________34               x   1  CHAPTER ONE INTRODUCTION 1.1Introduction         This chapter provides a general introduction of the study. It is divided into five parts consisting of background of the study, problem statement, research questions, research objectives, significance of the study and scope and limitations of the study. 1.2 Background of the Study  The global financial crisis started in 2007 in the U.S.It began in real estate mortgages; the credit crises arose due to the careless darting in granting facilities and exaggerated estimated value of the mortgaged real estate providing borrowers with guaranteed loans. As a consequence, this led to the disability of many borrowers to repay their debts (Al-Zeer, Al-Khateeb&Areiqat, 2010). The crisis has not only been affecting the financial markets and the economy of the U.S.A, but it has also spread over the other countries’ financial markets worldwide, with no exception to the emerging financial markets. For example, from July 25, 2007 until December 31, 2008, the global financial crisis has severely affected the U.S. stock market as indicated by a decline in the S&P500 index by 40.50 percent. Other stock markets in the advanced and emerging economies have also been affected such as the FTSE100 index of the UK stock market which plunged by 31.30 percent, Nikkei225 index of Japan fell by 50.39 percent, KLSE index of Malaysia decreased by 36.45 percent and Jakarta composite index (JCI) of Indonesia declined by 43.39 percent in the corresponding period (Bloomberg Database, 2008). The contents of the thesis is for internal user only 43  References Ahmad,K. & Umer,F. & Mammona, M.& Shahza, H. (2010, May 8). The Impact of Recent Financial Recession on the Banking sector of Pakistan. Retrieved April 28, 2011, from Munich Personal RePEc Archive: http://mpra.ub.uni-muenchen.de/30558/ Al-zeer, N & Al-Khateeb, H & Areiqat, A. (2010). 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The Contagion Effect of the 2007 Global Financial Crisis on the Malaysian Stock Market

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The Contagion Effect of the 2007 Global Financial Crisis on the Malaysian Stock Market

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