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Elections and financial markets puzzle: Malaysian evidence

Mohamad, Azhar (2022) Elections and financial markets puzzle: Malaysian evidence. Managerial Finance. ISSN 0307-4358 E-ISSN 1758-7743 (In Press)

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Before Malaysia GE14 (2018) general election, Barisan Nasional carried the reputation as one of the longest-serving ruling coalitions in the world since Malaya independence in 1957. However, the ruling coalition was voted out in GE14 (2018), and the Malaysian equity has since dropped. This paper explores the election cycle and financial markets puzzle in a unique emerging market like Malaysia. By employing an event-study methodology and wavelet analyses, we test for uncertain information hypothesis by examining the reactions of the Kuala Lumpur Composite Index (KLCI) and ringgit surrounding Malaysian general elections, spanning from GE5 (1978) to GE14 (2018). This paper also explores the relationship between KLCI and ringgit. While we do not find support for the uncertain information hypothesis, we uncover that KLCI tends to overreact following elections, regardless of the winning coalition. We also record no relationship between KLCI and ringgit in the short run, but we observe ringgit leads KLCI in the long run. Our findings bear implications for investors’ disposition in the Malaysian equity market. Investors should square off their positions before the general elections to avoid equity market overreactions and potential losses.

Item Type: Article (Journal)
Uncontrolled Keywords: National elections; Stock market; Ringgit; Malaysia; Event-study; Wavelet.
Subjects: H Social Sciences > HG Finance > HG3810 Foreign exchange
H Social Sciences > HG Finance > HG4501 Stocks, investment, speculation
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button): Kulliyyah of Economics and Management Sciences > Department of Finance
Kulliyyah of Economics and Management Sciences
Depositing User: Dr Azhar Mohamad
Date Deposited: 17 Oct 2022 12:32
Last Modified: 17 Oct 2022 12:32
URI: http://irep.iium.edu.my/id/eprint/100670

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