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What moves the primary stock and bond markets? : Influence of macroeconomic factors on bond and equity issues in Malaysia and Korea

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Frame of Image ND AND EQUITY ISSUES IN MALAYSIA AND KOREA
Rashid Ameer
Aston University, Aston Triangle, Brimingham B4 7ET Corresponding author: ameer@aston.ac.uk
ABSTRACT
This paper examines the impact of macroeconomic factors on the stock and bond market activities in two Asian countries. We examine the influence of interest rate changes, expected inflation rate, and stock market returns on aggregate stock and bond issuance in Malaysia and Korea. Using vector autoregressive models (VARs) and variance decomposition techniques, our result show that dynamics of equity and bond issuance in both countries vary significantly. Our findings show that there has been a two-way relationship between interest rate changes and bond issuance in the case of South Korea, whereas, stock returns have significantly influenced the bond issuance (instead of equity issuance) in Malaysia. The findings seem to support emerging popularity of corporate bond markets in Asian region. Keywords: stock and bond markets, macroeconomic factors, VAR, Malaysia, South Korea
INTRODUCTION Our knowledge of external corporate financing patterns indicates that factors such as business cycle (Choe, Masulis, & Nanda, 1993) and macroeconomic conditions (Bondt, 2005; Korajczyk & Levy, 2003; Park & Shenoy, 2002) explain aggregate bond and equity issuance. Some researchers have argued that firms issue new equity after dividend and earning announcements to minimize information asymmetry and adverse selection (Korajczyk, Lucas, & McDonal


Full Text
Title What moves the primary stock and bond markets?
Similar Titles
Sub Title

Influence of macroeconomic factors on bond and equity issues in Malaysia and Korea

Material Type Reports
Author(English)

Ameer, Rashid

Publisher

Aston University

Date 2007
Pages 25
Subject Country Malaysia(Asia and Pacific)
South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Macroeconomics
Economy < Direct Investment

Abstract

This paper examines the impact of macroeconomic factors on the stock and bond market activities in two Asian countries. We examine the influence of interest rate changes, expected inflation rate, and stock market returns on aggregate stock and bond issuance in Malaysia and Korea. Using vector autoregressive models (VARs) and variance decomposition techniques, our result show that dynamics of equity and bond issuance in both countries vary significantly. Our findings show that there has been a two-way relationship between interest rate changes and bond issuance in the case of South Korea, whereas, stock returns have significantly influenced the bond issuance (instead of equity issuance) in Malaysia. The findings seem to support emerging popularity of corporate bond markets in Asian region.