International Equity Flows, CPO & Plantation Index Returns Linkages and The EU Palm Oil Ban Resolution: Evidence from Palm Oil Producing & Exporting Country
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Abstract
An attraction of international investors, particularly on their equity capital investments is crucial to the stability and liquidity of local stock market, especially in agriculture, mainly in palm oil industry for the development, economic growth and sustainability of the industry. When Members of the European Parliament voted to ban the use of palm oil in biofuels, on 4 April 2017, Malaysians were shocked. Palm oil is our major agricultural product and Malaysia is the second largest world palm oil producing and exporting country after Indonesia. Thus, we realized the importance of palm oil and the need to study the behaviors and the relationships of equity flows and palm oil market returns and how the EU resolution would affect the market.
The aim of this paper is to examine the relationships between international equity flows (institutional & retail investors) and CPO index return of an emerging market, Bursa Malaysia. In addition, the impact of the EU palm oil ban resolution on the relationship between international equity flows and CPO index returns is also exploredThis paper will employ a bivariate Vector Autoregressive (VAR) model for the sample data from October 2009 to March 2018 in the analysis. This paper also will carry out an event study analysis to examine the relationship between international equity flows and CPO index return following the EU palm oil ban resolution.
Expected outcomes: 1) Bi-directional relationships exist, i) Past returns affect flows which support the feedback trading argument and ii) Past flows affect returns which support the information contribution argument. iii) The EU palm oil ban resolution affect the relationship of CPO returns and international equity flows. iv) The EU palm oil ban resolution affect the relationship of international equity flows and CPO returns.
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