The association between aggregated and disaggregated stock prices with monetary policy using asymmetric cointegration and error-correction modeling approaches

Abstract

This paper analyzes the association between monetary policy (measured by short-term interest rate) and stock prices at the aggregate and disaggregated levels for Malaysia using asymmetric cointegration and error-correction modeling approaches. Estimating the models using monthly data from 1986:1 to 2012:12, results show with the exception of the finance, plantation and consumer products sectors, there is evidences supportive of the long-run relations between monetary policy and stock prices. Further, the aggregate, industrial and properties stock price indices are noted to be asymmetrically cointegrated with monetary policy with the faster adjustment of stock prices when they are below their long-run values.