The economic conditions were not that favourable during the financial crisis in 1997. Instability in the international financial markets in turn spilled over into the domestic financial markets. Continued waves of adjustment in both the currency and stock markets, coupled with the decline in domestic and export demand subsequently prompted a shift to more growth promoting policies. One of the institutions that affected was Malaysian stock market. In general, Malaysia stock market contributes to the best allocation of capital resources among numerous users. The roles of the stock market are mainly to facilitate and encourage the mobilization of funds, direct them towards efficient economic activities, provide adequate liquidity for investors and encourage the creation of large-scale enterprises, The Kuala Lumpur Stock Exchange Index (CI) is the most popular indicator of the Kuala Lumpur stock market performance. The CI represents share prices of 100 Corporations. These companies are chosen because their operations cover a broad spectrum of economic performance in Malaysia and more significantly reflect stock market activities with fair accuracy, Stock prices depend on the supply and demand for the stock, it causes by the factors that stock prices to be more volatile is limited supply of new issues despite of strong demand for the stocks. This restriction of supply leads to more price fluctuations, which are common to all stock markets. However, two things prevent an infinite price increase in the stock market. Firstly, the amount of money available in any country is finite. As the bull market proceeds, more and more of the country’s savings are invested in the stock market and eventually the people involved might face liquidity... ... middle of paper ... ...economic variables for emerging economies. At all, the studies have shown the existence of a weak form of market efficiency among the EMFs for respective periods of study and countries. Recently the studies done examine the cointegration between macroeconomic variables and stock prices in order to test for the informational efficient market hypothesis. All the studies are covering on the period before the financial crises in July 1997. However, there is no attempt to study the cointegration between the variables and the stock market after the financial crisis. Hence, this study investigate the relationship between stock market returns and underlying macroeconomic variables, for the Malaysia as country known as a member of ASEAN for the period after the Asian financial crises, to determine whether or not the weak form of market efficiency to exist in Malaysia.
The financial crisis of 2007–2008 is considered by many economists the worst financial crisis since the Great Depression of the 1930s. This crisis resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. The crisis led to a series of events including: the 2008–2012 global recessions and the European sovereign-debt crisis. The reasons of this financial crisis are argued by economists. The performance of the Federal Reserve becomes a focal point in this argument.
report of the national commission on the causes of the financial and economic crisis in
There are many different ways to save money and there are different things to save for. A savings plan for an immediate want is apparently different than a savings strategy for retirement. One may choose to select stocks, bonds, or mutual funds for a savings strategy, however, my personal choice is to invest in bonds first, then mutual funds.
Every few years, countries experience an economic decline which is commonly referred to as a recession. In recent years the U.S. has been faced with overcoming the most devastating global economic hardships since the Great Depression. This period “a period of declining GDP, accompanied by lower real income and higher unemployment” has been referred to as the Great Recession (McConnell, 2012 p.G-30). This paper will cover the issues which led to the recession, discuss the strategies taken by the Government and Federal Reserve to alleviate the crisis, and look at the future outlook of the U.S. economy. By examining the nation’s economic struggles during this time period (2007-2009), it will conclude that the current macroeconomic situation deals with unemployment, which is a direct result of the recession.
Between January 2008 and February 2010, employment fell by 8.8 million, the largest decline in American history. The 2008 Recession, which officially lasted from December 2007 to June 2009, began with the bursting of an 8 trillion dollar housing bubble. Job losses during the recession meant that family incomes dropped, poverty rose, and people all over the country were suffering. Things like this don’t just happen. Policy changes incorporated with the economy are often a major factor. In this case, all roads lead to one major problem: Deregulation. Deregulation originating from the Carter and Regan Administrations, combined with a decrease in consumer spending, and the subprime mortgage bubble all led up to the major recession of 2008.
The financial crisis occurred in 2008, where the world economy experienced the most dangerous crisis ever since the Great Depression of the 1930s. It started in 2007 when the home prices in the U.S. Dropped significantly, spreading very quickly, initially to the financial sector of the U.S. and subsequently to the financial markets in other countries.
The efficient market hypothesis has been one of the main topics of academic finance research. The efficient market hypotheses also know as the joint hypothesis problem, asserts that financial markets lack solid hard information in making decisions. Efficient market hypothesis claims it is impossible to beat the market because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information . According to efficient market hypothesis stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments . In reality once cannot always achieve returns in excess of average market return on a risk-adjusted basis. They have been numerous arguments against the efficient market hypothesis. Some researches point out the fact financial theories are subjective, in other words they are ideas that try to explain how markets work and behave.
According to Perold (2004), ‘CAPM can be served as a benchmark for understanding the capital market phenomena that cause asset prices and investor behavior to deviate from the prescript...
In 2003, Capital Market Authority (CMA) was established under the Capital Market Law (CML) to act as regulatory supervisor for the capital market. Capital Market Authority regulate and supervise different critical issues such as market conduct, merger and acquisitions, corporate governance, and issuance of financial tools such as mutual funds, IPOs and Sukuks “Islamic bonds”. Thus, the establishment of CMA defined a new stage of financial liberalization in the country. CMA established the legal and regulatory platform to open up the Saudi capital market, support the privatization effort and increase public participation in the market while promoting efficiency and transparency. Furthermore, in March 2007, Tadawul exchange was re-incorporated as joint stock Company with a capital of USD 320 million to increase autonomy for the exchange. After the formation of CMA, the Saudi capital market continuously evolving in term of breadth, depth and complexity. In March 2010, the number of listed companies increased to 139 from 76 back in 2001 as local companies started to look at capital markets to fund their future financing needs. Due to the increasing in investors participation, Tadawul’s total market capitalization at a compound annual growth rate “CAGR” of 34.8% to SAR 1.9 trillion which about USD 507 billion between 2003-2007. Due to the financial crisis in 2008-2009 the market capitalization for Tadawul declined to SAR 1.2 trillion, which about USD 320 billion. Between the years of 2003-2007, the stock market activity grew in a fast pace without interruption in term of value, volume, and market cap along with rising in the number of transactions. The total trading volume of shares on Tadawul Stock Exchange increased at a CAGR of 11.4% between 2003-2009. The
Chapter 11 closes our discussion with several insights into the efficient market theory. There have been many attempts to discredit the random walk theory, but none of the theories hold against empirical evidence. Any pattern that is noticed by investors will disappear as investors try to exploit it and the valuation methods of growth rate are far too difficult to predict. As we said before the random walk concludes that no patterns exist in the market, pricing is accurate and all information available is already incorporated into the stock price. Therefore the market is efficient. Even if errors do occur in short-run pricing, they will correct themselves in the long run. The random walk suggest that short-term prices cannot be predicted and to buy stocks for the long run. Malkiel concludes the best way to consistently be profitable is to buy and hold a broad based market index fund. As the market rises so will the investors returns since historically the market continues to rise as a whole.
Velde,D.K (2008). The global financial crisis and developing countries. Available at: http://www.odi.org.uk/resources/download/2462.pdf (Accessed: 5th August 2010).
In turn everything in the present and the future is judged through the stocks as they hold a high importance in industrialized economies showing the healthiness of said countries economy. As investing discourages consumer spending over all decreases, it lead...
The financial crisis of 2008, which has also been referred to as The Great Recession and the Global Financial Crisis of 2008, began with the downfall in the housing market in the United States. Thee were many factors that played into this housing market turn for the worst during this time. Some of these factors included: subprime loans, the housing bubble that peaked in 2005-2006, government policy and regulation, and faulty mortgages. This housing market turn affected more than just the housing market with all the personal and government additions involved. In turn the unemployment rate went down with this event, evictions and foreclosures of houses sky rocketed, faulty and risky loans were also issued that created problems in the banking system. This lead to many businesses failures, and the recession was not expected, so it began to hit the economy and United States hard.
The stock market is an essential part of a free-market economy, such as America’s. This is because it provides companies the capital they need in exchange for giving away small parts of ownership in their company to investors. The stock market works by letting different companies sell stocks to gain capital, meaning they sell shares of their company through an exchange system in order to make more money. Stocks represent a small amount of ownership in a company. The more stocks a person owns, the more ownership they have of that company. Stocks also represent shares in a company, which are equal parts in which the company’s capital is divided, entitling a shareholder to a portion of the company’s profits. Lastly, all of the buying and selling of stocks happens at an exchange. An exchange is a system or market in which stocks can be bought and sold within or between countries. All of these aspects together create the stock market.
Warwick J. McKibbin, and Andrew Stoeckel. “The Global Financial Crisis: Causes and Consequences.” Lowy Institute for International Policy 2.09 (2009): 1. PDF file.