Testing for linear and nonlinear relationship in the stock-bond relation : Malaysia evidence

Stocks and bonds have been historically chosen as the main asset for investment. Most of the investors believe that bonds are a direct substitution for stocks, especially government bonds. Early studies extensively studied the correlation between stocks and bonds, in order to make a prediction about...

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Main Author:	Ong, Sheue Li
Format:	Thesis
Language:	English English
Published:	2012
Subjects:	HG4501-6051 Investment capital formation speculation
Online Access:	https://eprints.ums.edu.my/id/eprint/41624/1/ABSTRACT.pdf https://eprints.ums.edu.my/id/eprint/41624/2/FULLTEXT.pdf
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id	my-ums-ep.41624
record_format	uketd_dc
spelling	my-ums-ep.416242024-11-26T05:29:44Z Testing for linear and nonlinear relationship in the stock-bond relation : Malaysia evidence 2012 Ong, Sheue Li HG4501-6051 Investment, capital formation, speculation Stocks and bonds have been historically chosen as the main asset for investment. Most of the investors believe that bonds are a direct substitution for stocks, especially government bonds. Early studies extensively studied the correlation between stocks and bonds, in order to make a prediction about stocks based on bonds. However, the directions of correlation between these two markets are not always entire clear. In recent studies, linear cointegration and Granger causality test have been applied to investigate the long run and short run relationship between stocks and bonds. However, if the true relationship is nonlinear, the inferences from linear model may be misleading. Moreover, prior empirical studies had found the nonlinearities in stocks prices. Hence, in this study, the standard linear and nonlinear cointegration and causality tests are employed to investigate the linear and nonlinear relationship between stocks and bonds market indices in Malaysia case from January 1994 till December 2010. The cointegration tests show that no cointegration between stocks and bonds indicates that bond market is not a close substitution to stock market in Malaysia. All the three maturity periods of bonds are found to linear and nonlinear Granger cause stocks. These results may due to the policies of Malaysian government in enhancing the strong development of the bond markets. From the results, it is suggested that researchers should consider nonlinear mechanisms when evaluating the relation of stocks and bonds. 2012 Thesis https://eprints.ums.edu.my/id/eprint/41624/ https://eprints.ums.edu.my/id/eprint/41624/1/ABSTRACT.pdf text en public https://eprints.ums.edu.my/id/eprint/41624/2/FULLTEXT.pdf text en validuser masters Universiti Malaysia Sabah Sekolah Sains dan Teknologi
institution	Universiti Malaysia Sabah
collection	UMS Institutional Repository
language	English English
topic	HG4501-6051 Investment capital formation speculation
spellingShingle	HG4501-6051 Investment capital formation speculation Ong, Sheue Li Testing for linear and nonlinear relationship in the stock-bond relation : Malaysia evidence
description	Stocks and bonds have been historically chosen as the main asset for investment. Most of the investors believe that bonds are a direct substitution for stocks, especially government bonds. Early studies extensively studied the correlation between stocks and bonds, in order to make a prediction about stocks based on bonds. However, the directions of correlation between these two markets are not always entire clear. In recent studies, linear cointegration and Granger causality test have been applied to investigate the long run and short run relationship between stocks and bonds. However, if the true relationship is nonlinear, the inferences from linear model may be misleading. Moreover, prior empirical studies had found the nonlinearities in stocks prices. Hence, in this study, the standard linear and nonlinear cointegration and causality tests are employed to investigate the linear and nonlinear relationship between stocks and bonds market indices in Malaysia case from January 1994 till December 2010. The cointegration tests show that no cointegration between stocks and bonds indicates that bond market is not a close substitution to stock market in Malaysia. All the three maturity periods of bonds are found to linear and nonlinear Granger cause stocks. These results may due to the policies of Malaysian government in enhancing the strong development of the bond markets. From the results, it is suggested that researchers should consider nonlinear mechanisms when evaluating the relation of stocks and bonds.
format	Thesis
qualification_level	Master's degree
author	Ong, Sheue Li
author_facet	Ong, Sheue Li
author_sort	Ong, Sheue Li
title	Testing for linear and nonlinear relationship in the stock-bond relation : Malaysia evidence
title_short	Testing for linear and nonlinear relationship in the stock-bond relation : Malaysia evidence
title_full	Testing for linear and nonlinear relationship in the stock-bond relation : Malaysia evidence
title_fullStr	Testing for linear and nonlinear relationship in the stock-bond relation : Malaysia evidence
title_full_unstemmed	Testing for linear and nonlinear relationship in the stock-bond relation : Malaysia evidence
title_sort	testing for linear and nonlinear relationship in the stock-bond relation : malaysia evidence
granting_institution	Universiti Malaysia Sabah
granting_department	Sekolah Sains dan Teknologi
publishDate	2012
url	https://eprints.ums.edu.my/id/eprint/41624/1/ABSTRACT.pdf https://eprints.ums.edu.my/id/eprint/41624/2/FULLTEXT.pdf
_version_	1818611420024012800

Testing for linear and nonlinear relationship in the stock-bond relation : Malaysia evidence

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