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Jurnal Ekonomi Malaysia

54 (3) 2020 133 – 145

Impacts of Macroeconomic Environment and Governance Quality on the Stock Market
Impak Persekitaran Makreokonomi dan Kualiti Tadbir Urus ke atas Pasaran Saham

Faculty of Economics and Business,
Universiti Malaysia Sarawak
94300 Sarawak, MALAYSIA.

kelvinklym910104@gmail.com

Faculty of Economics and Business,
Universiti Malaysia Sarawak
94300 Sarawak, MALAYSIA.

jmohamad@unimas.my

Abstract

This study examines the relationship between governance quality and stock market performance using the annual data from 2008 to 2016 for fourteen developing countries. This study used four different indicators, namely stock market return, stock market volatility, stock market development, and stock market liquidity to reflect the stock market’s performance from various aspects. The study further combined the four indicators and formed a new proxy to reflect overall stock market performance by using principal component analysis. The two-step system of GMM estimation was used to test the impact of the macroeconomic environment and governance quality on stock market performance. Specifically, the results obtained show that banking sector development and governance quality have a significant negative relationship with stock market volatility. Meanwhile, the income level has a significant negative relationship with stock market volatility, development, and liquidity. These results suggest that developing countries should strengthen the position of the banking sector and allows the funds to be channeled into the stock market efficiently. Besides that, developing countries also need to improve their governance quality to attract foreign investors. Several policies shall be implemented by the developing countries to improve governance quality in the aspects of voice and accountability, political stability, government effectiveness, regulatory quality, the rule of law, and control of corruption.

Keywords

GMM.; governance quality; macroeconomic factors; Stock market performance

Author’s Acknowledgement

Financial support from University Malaysia Sarawak and Digital Sarawak CoE [UHSB/B-AM2018/083] are gratefully acknowledged. All remaining flaws are the
responsibilities of the authors.

http://dx.doi.org/10.17576/JEM-2020-5403-10
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Ming, , & Jais, (2020). Impacts of Macroeconomic Environment and Governance Quality on the Stock Market. Jurnal Ekonomi Malaysia, 54(3), 133–145. http://dx.doi.org/10.17576/JEM-2020-5403-10

@article{ming2020impacts,
  title={Impacts of Macroeconomic Environment and Governance Quality on the Stock Market},
  author={Ming, Kelvin Lee Yong and Jais, Mohamad},
  journal={Jurnal Ekonomi Malaysia},
  volume={54},
  number={3},
  pages={133—145},
 

year={2020},
}

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