Elections and financial markets puzzle: Malaysian evidence
ISSN: 0307-4358
Article publication date: 6 October 2022
Issue publication date: 27 March 2023
Abstract
Purpose
This paper aims to explore the election cycle and financial markets puzzle in a unique emerging market like Malaysia.
Design/methodology/approach
By employing an event-study methodology and wavelet analyses, the author tests 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.
Findings
While the author does not find support for the uncertain information hypothesis, the author uncovers that KLCI tends to overreact following elections, regardless of the winning coalition. The author also records no relationship between KLCI and ringgit in the short run, but the author observes that ringgit leads KLCI in the long run.
Practical implications
The study’s 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.
Originality/value
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.
Keywords
Acknowledgements
The author thanks Don Johnson (the Editor), two anonymous reviewers for their insightful comments on an earlier version of this article and Ammar Faris for research assistance. This work was supported by the Kulliyyah of Economics and Management Sciences [DEBA22-011-0017]. The author is extremely grateful to DeBA KENMS, IIUM for granting the research funds.
Citation
Mohamad, A. (2023), "Elections and financial markets puzzle: Malaysian evidence", Managerial Finance, Vol. 49 No. 4, pp. 703-723. https://doi.org/10.1108/MF-04-2022-0185
Publisher
:Emerald Publishing Limited
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