Faculty of Business And Management

Bachelor of Business Administration (Hons.) Finance

Quantitative Research Methods (MGT646)

Research Proposal
The Influence of Macroeconomic Variables Towards The Stock Performance In
Asia-6 Countries (Malaysia, Japan, South Korea, Singapore, China, Indonesia)

Prepared by:

NO. NAME MATRIC NO.

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Group: BA242 xxx

Research Proposal submitted to xxx in partial fulfillment of the requirement for the
Quantitative Research Methods (MGT646)
 ACKNOWLEDGEMENT

In the name of Allah, the Most Gracious and the Most Merciful.

All praise be to Allah, Lord of the Universe who gives us the strength and blessing to
complete this report. Peace and prayers upon His final prophet and messenger, Muhammad
the ideal role model for human beings.

We would like to take this opportunity to express our deepest gratitude to all those who
provided us the possibility to complete this research proposal, especially our dear lecturer,
Dr. Zetty Zahureen Mohd Yusoff for her continuous support and guidance. Without her
support and advice, this research proposal could not be successfully done on time. We
treasure everything she had done to help us in completing this task.

We would like to thank our parents for their greatest support and motivation throughout
this assignment preparation. Without their encouragement, this research proposal cannot
be done successfully. We treasure to all those who have support and help us directly and
indirectly. Your help will not be forgotten.
 TABLE OF CONTENT

CHAPTER ONE ................................................................................................................1

INTRODUCTION..............................................................................................................1
1.1 Nature of the Study ......................................................................................................1
1.2 Background of the Study .............................................................................................4
1.3 Problem Statements ....................................................................................................7
1.4 Research Questions ....................................................................................................11
1.5 Research Objectives ..................................................................................................11
1.6 Scope and Limitations of the Study ..........................................................................12
1.6.1 Scope of the study ........................................................................................................... 12
1.6.2 Limitation of the study .................................................................................................... 13
1.6.2.1 Time constraints ........................................................................................................ 13
1.6.2.2 Lack of experience ..................................................................................................... 13
1.6.2.3 Accuracy and reliability of data ................................................................................. 13
1.7 Implications of the Study...........................................................................................13
1.7.1 Significant to the researchers.......................................................................................... 14
1.7.2 Significant to the existing and potential investors ......................................................... 14
1.7.3 Significant to the future researchers .............................................................................. 14
CHAPTER 2 .....................................................................................................................17
LITERATURE REVIEW ...............................................................................................17
2.1 Theoretical Findings............................................................................................................ 17
2.1.1 Stock Market Index ...................................................................................................... 17
2.1.2 Classical Growth Theory – Economic Growth and Stock Index .................................. 17
2.1.3 Capital Asset Pricing Model – Unemployment Rate and Stock Index ....................... 18
2.1.4 Keynesian Theory – Inflation Rate and Stock Index ................................................... 19
2.1.5 Keynesian Theory – Interest Rate and Stock Indext ................................................... 20
2.1.6 Quantity Theory of Money – Money Supply and Stock Index ................................. 21
2.2 EMPIRICAL FINDINGS .......................................................................................................... 22
2.2.1 The relationship between economic growth and stock market index performance 22
2.2.2 The relationship between unemployment rate and stock market index performance
............................................................................................................................................... 23
2.2.3 The relationship between inflation rate and stock market index performance ....... 24
 2.2.4 The relationship between interest rate and stock market index performance ........ 25
2.2.5 The relationship between money supply growth rate and stock market index
performance.......................................................................................................................... 26
2.3 Cconclusion ................................................................................................................27
CHAPTER THREE .........................................................................................................28
RESEARCH METHODOLOGY ...................................................................................28
3.1 Introduction ................................................................................................................28
3.2 Methodological choice ...............................................................................................28
3.3 Purpose of research design ........................................................................................29
3.4 Research strategies.....................................................................................................29
3.4.1 Research Hypothesis ........................................................................................................ 30
3.5 Data and source ..........................................................................................................31
3.6 Theoretical Framework .............................................................................................33
3.7 Type of Research ........................................................................................................34
3.8) Diagnostic Check ......................................................................................................34
3.8.1 Variance Inflation Factor (VIF) Procedure ........................................................................ 34
3.8.2 Serial Correlation Test ...................................................................................................... 35
3.8.3 Normality Test on Residuals ............................................................................................. 36
3.9 Multiple regression ....................................................................................................36
3.9.1. T-Test ............................................................................................................................... 37
3.9.2 R-Squared ......................................................................................................................... 38
3.9.3 F-Test ................................................................................................................................ 38
3.10 Conclusion ................................................................................................................39
REFERENCES.................................................................................................................40
 CHAPTER ONE

INTRODUCTION

1.1 NATURE OF THE STUDY

Stock indexes basically tells how the stock market are performing. The importance
of a stable financial market for a country's growth has been highlighted since a well-
established stock market is widely seen as an indication of a country's overall
macroeconomic success. Researchers of the stock market feel it is essential for the growth
of industry and commerce, hence it has a significant impact on a country's economy
(Muhammad Azam et al., 2016). According to Buszko et al. (2021) most nations' socio-
economic lives were greatly affected by the COVID-19 pandemic. Individuals,
organizations, sectors, and overall economy has been affected negatively by the virus. In
theory, its presence indicated a huge burden and rearrangement of the health-care system,
as well as the necessity for increased disinfection and cleanliness precautions, but its
worldwide scale is projected to be the most impacting social and economic event in years
to come. COVID-19 pandemic has basically impact negatively towards the
macroeconomic variables. As a result, it will also influence the stock market performance
(Buszko et al., 2021). Therefore, in this research we will be discussing on the influence of
macroeconomic variables towards the stock performance in Asia-6 countries such as
Malaysia, South Korea, Singapore, Japan, China, Indonesia.

In Malaysia, the FTSE Bursa Malaysia Kuala Lumpur Composite Index

(FBMKLCI hereafter) is the main index used by investors in Malaysia to assess the stock
market's overall performance (Tarmizi et al., 2014). According to Arshad and Yahya
(2016), Bursa Malaysia has grown to become one of Asia's most major stock markets.
Since 1973, Malaysian stock market indices have been known as the Kuala Lumpur
Composite Index (KLCI hereafter), and in 2004 they were changed to the FTSE Bursa
FBMKLCI. According to Idris (2020) on 16 March 2020 the KLCI drops below 1,300,
reaching its lowest level in a decade. The benchmark index dropped 65.39 points, or 5.11
percent, to 1279.36, the lowest level since mid-2010.

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 The Japanese stock market is one of the largest markets in the world in regards of
trading volume, and market capitalization and has developed significantly after the 1990s
financial reforms (Kung & Carverhill, 2012). The Nikkei Stock Average is recognized as
the main representative index of Japan and has been more than 60 years since the
calculation of history of the Japanese economy after World War II began. Due to the
excellent nature of the index, many financial products related to the Nikkei 225 are traded
all over the world, and the index is well used as an indicator of the Japanese stock market
movements (Nikkei, 2019).

The Korea composite stock prices index 200 (KOSPI 200 hereafter) represent the
overall performance of the Korean stock market that was establish in June 1994 and
introduced by Korean Stock Exchange (KSE hereafter). KOSPI 200 consists of the 200
companies chosen from all stocks in the KRX-Stock Market. In May 1996, KSE introduced
the futures market on the KOSPI 200. Since its inception, the Korean derivative markets
have been among the fastest growing derivatives markets in the world (Ciner, 2004).
Through the implementation of several more economic plans, South Korea now has the
13th largest economy in the world. Its national GDP in 2007 was $949.7 billion and GDP
per capita reached $19,624 (Heo, 2008). This rate of change is unrivaled in world history.
Despite South Korea's theoretically solid fundamentals, the country's economy has begun
to suffer because of the ongoing issue. By mid-November 2008, North Korea saw the
won’s value against the us dollar fall to 1,500, a drop of more than 30 percent in just a few
months since the global financial crisis rattled the export-driven economy. Korea’s
benchmark KOSPI stock index has lost half its value, falling below the symbolic 1,000-
point mark (Ahn, 2008). Since 2014, when the main index fell 4.8 percent, the KOSPI has
closed on a negative note for the first time in four years.

Singapore stock exchange (SGX hereafter) have a quite interesting history back
then because Singapore was a part of Malaysia until 1965. Currently, the index that been
used for SGX to measure the overall performance of that market is Strait Time Index (STI
hereafter). It consist of top 30 firms listed in SGX based on market capitalization weighted
index (Singapore Stock Exchange, 2021). It was founded in 1973 after the termination of
currency interchangeability between Malaysia and Singapore, resulting in both stock

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exchange to separate (HISTORY SG, 1973) After that, the stock market officially formed
a new independent stock exchange in 1999. Surfing through time, currently Singapore has
been an indicator for developing and developed country as a model to match and to point
as justification for their return-to-market policies. Singapore also vastly recognized by
countries around the globe as the most successful economy in the world (Linda, 1983).
From the year 1999 until 2021, STI already surged to 3900 (the highest point of index)
from 809. It is about an increase of 380 in percentage. This is the prove that Singapore
economy always growing steadily in tremendous rate.

The Shanghai Stock Exchange (SSE hereafter) is the main stock market in mainland
China, it is also the largest. The SSE composite index represents the overall performance
of all the stocks being traded in SSE. Shanghai Stock and Share Brokers Association was
founded in 1891 by American, British, and French businessmen. That was the first stock
trading organization in China. In the mid-1900s, Shanghai is regarded as one of the most
important financial centers in mainland China. Also, during that time, the SSE was once
crowned the largest equities market in Asia up till the Communist revolution. The Chinese
currency started to take a toll since during the 1937 where the value against USD was USD
0.2925. Since that, the Chinese currency has been in shambles and slowly go downhill. In
1939, the Chinese government received the corporation of the British and started to set up
a 10 million Euro exchange stabilization fund in order to prevent the excessive exchange
fluctuation by selling and buying the Chinese dollars (Barnett, 1941). Even though, the
market was looking messy, the Chinese managed to maintain their inflation from plunging
into a dangerous stage. Slowly afterwards, the SSE started gaining moment to reach what
they are today.

However, just recently, in 2015, the state media among the Chinese encouraged
domestic investors to start taking initiative in their stock market. Some media even went
ahead and state that the Chinese government would support the bullish market. In just about
3 months, the SSE Composite Index rose by 36 percent from 3810 points to 5166 points.
Around a week after the 36% increment, the market experienced a sudden slump of 32%
decrease in the index at 3507 points. This sudden spike forced policymakers to request help
from state-owned financial agencies. More than 1600 of the 2800 listed companies in the

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 SSE were allowed to suspend trading activities. Most of the suspension was without any
clear or legitimate reason. This was the leading issue that caused an unexpected devaluation
of the RMB later in August while the economic slowdown is still being active. (Li, 2015).

In Indonesia, the Indonesia Stock Exchange (IDX, hereafter) is an Indonesian stock

exchange situated in Jakarta. During the Dutch colonial period, the first stock market in
Indonesia was founded in Batavia (currently known as Jakarta) in 1912. According to
Nangoy (2020), The Indonesian stock market strengthens circuit breakers for big index
declines in March 2020. As it strives to defend against coronavirus and oil shock volatility,
Indonesia's stock exchange improved its trading suspension systems to signal a cessation
of the main stock index more promptly.

We shall be discussing further the background of the study, which will include
current issues related to the instability of macroeconomic variables that could negatively
impact the Asian stock market, problem statement, and questions that would arise from the
subject discussed and objectives, as well the as the limitation and implication of the study.
In chapter 2, the independent and dependent variables shall be examined thoroughly and
the significant relationship between both variables. Finally, for chapter three, we will be
focusing on the methodological technique used to conduct the studies, objectives, strategies
that implement, data that were acquired, and the theoretical framework and types of
investigation.

1.2 BACKGROUND OF THE STUDY

This research focuses on the influence of macroeconomic variables towards the
stock performance in Asia- 6 countries. The stock market performance can be seen through
the performance of the stock indexes. For generations, stock markets have been at the heart
of economies. In these markets, any imbalances or crises have substantial or overall
consequences on the economy (Demir, 2019). According to Naik (2013), he mentioned
that the stock market is generally well-known because it provides long-term capital to listed
companies by pooling funds from various investors and allowing them to expand their
businesses, as well as providing investors with alternative investment to put their surplus
money to work. In addition, he stated that investors will carefully monitor stock market

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performance by observing the composite market index prior investing funds. Good investor
would track sharply the index of stock market to identify the average performance of the
stock market in that particular country that they wish to invest (Tarmizi et al., 2014).
Therefore, this shows how important the stock index can be as it could reflect the overall
market condition as well as the benchmark for the economic indicator. This will help
policymaker and also anyone who involve in purchasing of stocks to re-evaluate the
development of stock index performance to plan better strategies and develop proper
objectives.

Over the course of history, there has been a ton of research that focus to discover
the link among the stock market and macroeconomic variables. This is due to the fact that
stock market has really set a foothold in a country’s economy, especially when it affects
the performance (Samsi et al., 2019). The Asian stock market has its own share of ups and
downs. Some moments, there will be a bearish scenario, some may be bullish, and there’s
also a time where the market is stale (Murthy et al., 2016).

The question here would be, why does macroeconomics and the six Asian
countries’ stock market have any sort of correlation? Thinking of the stock market as an
individual versus the components of macroeconomics, that is the part that makes it
interesting. To learn about how the macroeconomics factors affects the stock markets of
these 6 countries. There were several times when the stock market reacted to economic
performance, such as The International Crash of October 1987 (Malliaris & Urrutia, 1992),
Financial Crisis 1980-1990s (Samsi et al., 2019) and Currency Crisis and Asian Currency
Crisis 1997 (Moon, 2001). This indicates that the Asian stock market is impacted by the
macroeconomic factors. During the crisis, the Asian countries had to go through a moment
of hardship in order to reach where there are today. All economic activities were disrupted
due to the ongoing crisis throughout the world, including their stock market performance.
There is a research published back in 2014 about the progress of ASEAN countries based
of a few macroeconomic factors (Kabir & Salim, 2014).

The journal, Financial Crisis, Stock Market and Economic Growth, was about the
macroeconomic factors that is involved in the monetary policy such as inflation rate,
interest rate, exchange rate and policy implications affected the stock market (Kabir &

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Salim, 2014). Next, a journal about China’s stock market crash due to the macroeconomic
factor of unemployment and interest rate being affected by the financial crisis 2015 was
also written in, Stock Market Crash, New Market Failure Theory And Extremely Great
Economic And Financial Crises (Bin, 2017).

Economic conditions were starting to reach its prime in 2019. In December 2019,
there was a news indicating the first sign of the Corona Virus outbreak. In February 2020,
news started to spread throughout the world at a terrifying rate. On 11 March, it was
declared that the Corona Virus outbreak is considered to be a pandemic forcing countless
countries to declare a state of emergency (Brannen et al., 2020). In turn, governments had
to issue a lockdown order and movement control. As an after the lockdown, economical
activities are forced to be suspended, leading to an economy crisis globally. This means
that export and import activities will be barred from resuming their operations.

With the lockdown order being in place, it is a compulsory for the workforce to
stay away from their regular jobs. This also translate to companies not being able to operate
without their workforce. From an economical perspective, with less companies operating,
this will lead to a lower economic growth or perhaps even negative growth. In addition to
the lockdown, new government regulations were established, including the limited amount
of workforce being deployed at on time. This leads to more people being laid-off of work,
meaning the number of unemployment started to surge. With the number of unemployment
being higher than usual, this creates a decrease in opportunities for the companies to carry
out their normal operations. On the stock exchange, there are a variety of firms. With a
decrease in efficiency of the companies, there will also be negative effects on the stock
market, making the stock market performance to drop (Moon, 2011).

Plus, the significant of stock index performance, which reflects the overall market
condition, this topic has sparked our interest in conducting thorough research regarding the
relationship between macroeconomic variables with the stock market index of 6 Asia
countries. This research's primary purpose and goals are to investigate and determine the
influence of macroeconomic factors that could affect the Asia stock index in certain Asia
countries such as Malaysia, South Korea, Singapore, Japan, China, and Indonesia. Hence,
in this study, we shall test the significance of economic growth, unemployment rate,

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 inflation rate, interest rate, and the money supply growth rate towards the stock market
index performance. This research would greatly benefit by improving a better
understanding and acquiring a better insight into the influence of macroeconomic variables
on the Asia stock index in 6 countries. In addition, this study could assist policymakers,
investors, and anyone involved to understand better the economic competence and, hence,
implement a proper action and get involved in planning better economic growth efficiency.
Therefore, these countries would ensure that implementing appropriate policies and
measures will reflect stock market index performance.

The issue has grabbed our attention to examine the influence of macroeconomic
variables which are economic growth, unemployment rate, inflation rate, interest rate, and
money supply growth rate to the Asia countries stock market index as mentioned earlier.
Several theories related to this research on the influence of macroeconomic variables
towards the stock market index on Asian countries would be Classical Growth Theory,
Phillip Curve Theory, Keynes Monetary of Inflation, and Quantity Theory of Money.

1.3 PROBLEM STATEMENT

Every country has their own set of benchmarks that places them on the top of the
global list. However, the most common benchmark is the country’s economy. There are
several ways of measuring the economy, one way is by looking at the country’s GDP, and
the other way that has recently became famous is by checking the country’s stock market
performance. The stock market generally plays a large role in affecting the investors
mindset when investing in a specific country. The stock market also takes up the role of
supporting the growth of the industry and economy of the country. A rising stock market
index reflects the stability of the country’s economy. However, we also know that the
country’s growth is influenced by the various variables such as GDP, Foreign Direct
Investment, Inflation, Interest rate, Inflation rate, Money Supply, and many others. These
economy variables affect the stock prices and indexes by the change in fundamentals of
the economy and expectations about prospects. A few studies were undertaken in the
United States, the United Kingdom, and Japan to understand the connection between

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macroeconomic factors and stock price variations. The findings of the studies show that
even slight changes in macroeconomic indicators have a big influence on stock values.
With these type of result, it serves as a tool for investor to make better predictions on the
stock prices movement whenever there are a change of fundamentals (Aurangzeb, 2012).

In Malaysia, the stock market index can be classified as the benchmark which
indicate the economic performance. This research will enable investors, both local and
foreign to understand the influence of KLCI fluctuations based on macroeconomic
variables (Khong et al., 2019). However, the influence of macroeconomic factors on
emerging nations like Malaysia has received little attention (Siong et al., 2013). The
FBMKLCI has been on a roller coaster ride in recent years, experiencing bearish, bullish,
and sideways market conditions. (Murthy et al., 2016). Primary, the recent is because of
all the crisis that is happening in the financial world such as Global and Asia financial crisis
which lead to the fluctuation of the KLCI. Also, due to COVID-19 pandemic, it has
impacted the economy and the KLCI of Malaysia drastically. To support this, according to
Idris (2020) on 16 March 2020 the KLCI drops below 1,300, reaching its lowest level in a
decade. The index dropped 65.39 points, or 5.11 percent, to 1279.36, the lowest level since
mid-2010.

In Japan, during the Covid-19 outbreak, the Japanese stock market experienced an
approximately 30% decline between February and March 2020 which is its largest fall in
over three years (Hidenori & Kazuo, 2020). However, from the recent performance, Japan's
Nikkei 225 stock index has hit a 31-year high on September 2021 since August 1990 which
was driven by the rise in US stocks and its successful progress in its Covid-19 vaccinations.
Furthermore, the Nikkei Stock Average closed at 30,670.10, up 0.73% from the previous
day. It surpassed this year's record of 30,467, which was a hit in February 2021 (Wataru &
Jada, 2021).

South Korea is one of the few nations in which the financial crisis of 2008 had little
influence on the actual economy, and private investors' direct stock market investments are
unusually high in comparison to other countries (Kim et al., 2021). Individual investors
tend to keep undiversified stock portfolios; thus, millions of Korean investors may have
experienced severe financial losses because of their less diversified portfolios during the

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stock market crisis in October 2008. The financial crisis of 2008 had a substantial impact
on financial markets throughout the world. (Rastogi, 2014). The impact of the global
financial crisis of 2008 on stock market volatility has been the focus of numerous research.
According to certain researchers, stock market volatility has dramatically changed after the
2008 financial crisis, as evidenced by their study articles. Not only that, COVID-19
epidemic has caused a drop in the Korean stock market. The COVID-19 virus spread
dramatically, resulting in a pandemic that the WHO announced in March 2020. Every stock
market in the globe has been impacted, with Asian countries seeing higher negative
anomalous returns than other countries (Gil-Alana & Claudio-Quiroga, 2020). As a result,
multiple past studies claim that epidemic-related stock market swings have resulted in
severe economic losses for stock markets in Korea.

In Singapore, throughout the success of STI, there are also pitfall that sometimes
shake the market in negative ways due to the respond of macroeconomics factors. For
example, in 1997, the Asian economy was hit by the currency crisis and it was called Asian
Financial Crisis (Engel, 2012). STI responds negatively where the index started to plummet
about 60 percent in on year. Resulting from the Asian Financial Crisis, Singapore reformed
their economy to improve the financial market. People starting to gain more annual return
in 1999 – 2007 (Kung & Wong, 2009). In 2007, another macroeconomics factor which is
financial crisis hit the world and at that time Singapore was also needed to face recession.
The STI was having the biggest bearish and retracement in history of Singapore where the
index starts to fall about 60 percent in two years. Their economy shrinking when the
Singapore GDP decline to 12.5 percent cause pitfall stated by the Ministry of Trade (Rolf
Jordan, 2009).

In China, in 2018 the Shanghai Stock Exchange (SSE hereafter) had reached a peak
in their composite index at 3558.13 and right before, they went into a bearish territory for
the whole year. Before the downfall, there was a moment where US-China was going
smoothly since the declaration of USA president, Barrack Obama, announced an alliance
that entails US to help strengthen Asia Pacific’s multilateral institutions to promote
cooperation between regional countries. The US declared support for universal values
(Tehseen, 2017). That led to a stable increment of China’s stock market.

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 In 2018, a trade war with Washington broke out, and that news had dominated the
headline for the year. This was when US government announced the action of imposing
tariffs on Chinese goods. That was the trigger that started the trade war between USA and
China (Lanteigne, 2020). This year was also considered to be the worst performance in this
decade for China. The Shanghai Composite ended the trading year at 2483.90. the
Shenzhen composite also suffered a fall about 33.25% in 2018. This is mostly affected by
the tariffs that was announced by the US that made US imported goods, agriculture, and
energy products to seem more desirable.

According to CNBC news published on 31st December 2018, Chinese markets’

2018 performance was their worst in a decade, China’s economy was already in a tight spot
as they have shown signs of stuttering in the manufacturing sector. The conclusion made
was that even before the trade tension had happened with the US, Beijing was already
struggling with a slowdown in its economy. After being hit with the tariff along with the
economy slowdown, that led to a huge drop in the Chinese stock market index in the whole
year of 2018.

In Indonesia, the Jakarta Composite Index (JCI hereafter) plummeted to a level

haven't seen since March 2017 over concerns about the outbreak of COVID-19, extending
Asian stock losses. The IDX main index fell 2.63 percent to 5,539.38. According to
Bloomberg statistics, the result was the lowest since March 10, 2017, when the index was
at 5,390 (Rahman & Wirayani, 2020).

Stock market index is important to a nation as it indicate the overall performance

of market condition in that country. Without stock index, investor will not be able to
identify the current economic situation as stock index clearly shows the overall condition
of market. Thus, effective decision making can be implemented if market participants are
able to identify why the macroeconomic variables could influence the Asian stock index
performance. As mentioned above, most country are currently facing poor economic
growth, hence researchers are keen to find the factors that could affect towards the Asia
country stock index.

Most researchers will focus on the variables of macroeconomic, however some do

not include other variables in macroeconomic such as money supply growth rate, interest

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 rate or inflation rate. As a result, it will cause the research to be inadequate. Hence, we
believe that through this study, we can gain a better understanding regarding to the issue
of macroeconomic variables towards the Asia stock index performance.

1.4 RESEARCH QUESTIONS

As problem arise in this research, this research came out with a few questions.

1.4.1 Main research question:

How macroeconomic variables influence the stock index performance in Asian-6

countries?

1.4.2 Specific research questions:

I. What is the relationship between economic growth and stock index performance in
Asian-6 countries?
II. What is the relationship between unemployment rate and stock index performance
in Asian-6 countries?
III. What is the relationship between inflation rate and stock index performance in
Asian-6 countries?
IV. What is the relationship between interest rate and stock index performance in Asian
6 countries?
V. What is the relationship between money supply growth rate and stock index
performance in Asian 6 countries?

1.5 RESEARCH OBJECTIVES

Our study is aimed to achieve following objectives:

I. To investigate the relationship between economic growth and stock index

performance in Asian-6 countries.

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 II. To evaluate the relationship between unemployment rate and stock index
performance in Asian-6 countries.
III. To determine the relationship between inflation rate and stock index performance in
Asian-6 countries.
IV. To investigate the relationship between interest rate and stock index performance in
Asian 6 countries.
V. To analyze the relationship between money supply growth rate and stock index
performance in Asian-6 countries.

1.6 SCOPE AND LIMITATION OF THE STUDY

1.6.1 Scope of the study

The research setting for this study is rather wide including a few countries
in Asia, mainly focusing on Malaysia, Korea, Singapore, Japan, China, and
Indonesia. This study is to determine on each country’s stock market index
performance towards different macroeconomic variables. We are focusing on five
macroeconomics variables in this study, hoping to help individuals, groups, and
governments in understanding why the stock index is indicating as they were at that
moment. However, there is a limitation towards developing this study such as the
lack of real-world realization during any incident happening.

This research emphasizes on the determinant of economic growth,

unemployment rate, inflation rate, interest rate and money supply growth rate
towards the performance of each stock market index. The data basis used in this
study is secondary data which is taken from reports of world bank and index
websites. The time frame of this study is between 2005 to 2020, monthly. A more
detailed data period will aid in observing and clearly determining the performance
of the stock markets.

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 1.6.2 Limitations of the study

1.6.2.1 Time constraints

Students are pressure to meet the deadline of submitting the research paper.
The time given to study and understood the research problem, as well as composing
the written research is restricted by the deadline given. Finally, articles published
on the internet need subscription and are not widely accessible, even though they
are included in papers pertinent to our research. It's because we need to get
permission from the organization, which takes time, and we need to wait for
clearance before we can access the data.

1.6.2.2 Lack of experience

This is the first time for us as the researchers to conduct a proper research
paper. Therefore, researchers tend to lack experience and exposure while preparing
the research paper. Despite lacking those aspect, the researchers will give full
dedication and commitment to complete this research paper.

1.6.2.3 Accuracy and Reliability of Data

Since this research paper is taken based of secondary sources of data. The
accuracy and reliability of the data depends on the source of our findings. If there
are any slight misconduct, it will affect this research paper. We will try to obtain
the most genuine data that we can find. In addition, due to a lack of data, we will
have to limit the scope of our investigation. It may be seen when there is a lack of
supply in some nations, causing us to choose only a few Asian countries. It may be
argued that the absence of correct data limits the scope of our investigation.

1.7 IMPLICATIONS OF THE STUDY

Based on this research, it can be said that the economic growth, inflation rate,
unemployment rate, interest rate and money supply growth rate are all the factors that could

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 affect Asia’s stock index performance. The significance of the study when the research is
being conducted would include:

1.7.1 SIGNIFICANT TO RESEARCHERS

This study is significance because it will help to guide the current researchers as a
reference for their future research or studies. In addition, it may provide consistent evidence
and provide an excellent result to strengthen the existing information. Hence, this can help
researchers to obtain better understanding and help them acquire broad ideas of the
influence of macroeconomic variables that has been chosen towards the stock index
performance in Asia countries.

1.7.2 SIGNIFICANT TO EXISTING AND POTENTIAL INVESTORS:

The investor will obtain benefits from this research as it could provide a relevant
information for decision-making process when they decide to invest in that Asia countries.
Hence, this research will provide great insight to the investors from wide angles regarding
to the influence of macroeconomic variables towards the stock index performance in Asia
countries. This could also lead to a theory that led to predicting the future price movement
of the stock markets. Aside from that, this study may also act as an awareness for more
discoveries to potential investors toward the government policies that may affect the stock
market performance. With that in mind, we hope that the information written in this
research paper would prove to be beneficial to all the investors and financial institutions in
getting a clearer understanding of the stock index performance.

1.7.3 SIGNIFICANT TO FUTURE RESEARCHERS

Aside from the study's significance to existing researchers and investors, it also
adds to the amount of material already available, particularly in the public domain. The
public benefits from this analysis since it comes from a third-party source. Hence, it could
14
 provide the public with better understanding of what may happen to the stock index
performance in Asian countries that is impacted by the macroeconomic variables.
Furthermore, the study is significant in the literature since it will aid future researchers with
same studies as it could produce high-quality information of data and produce an excellent
result from it.

1.8 CONCLUSION

As a shortlist of the research that is performed has been explained in this chapter.
This research study hints why investigator chose the certain aspect along with the problems
that arose in each field of study. We as the researchers also discussed on the context of
macroeconomic factors affecting the stock market performance of each country, such as
Malaysia, Singapore, China, Japan, Korea, and Indonesia. The macroeconomic factors
affect the economy, also affecting the stock market of each country mentioned. The
economic factors will be mentioned throughout the course of history, but the effect on the
stock market from 2015 to 2020 will be displayed in the findings. Furthermore, all variables
and terminologies are clarified and explained to avoid any confusion while determining the
correlation between the macroeconomic variables and the stock market performance of the
6 Asian countries.

In summary, we agreed to establish the outcome of our study goal., which is to find
the effects of macroeconomic variables on the stock market performance in 6 Asian
countries, including Korea, China, Singapore, Malaysia, Indonesia, and Japan. We will also
use theories relating to the macroeconomic variables studied. Aside from that, to study the
stock market performance, it is crucial for us to research. This will also give us the
opportunity to gain a more solid understanding and discovery. Consequently, from this
research, we will obtain results and a few suggestions that may prove to be useful for future
uses, including government benefits, policy formulation, economy strategy planning, and
educational initiatives.

Besides, by proceeding with the research, we will be able to produce results that
may serve as the solution to the problems that the Asian stock market and economy in

15
general. Through identifying the issue and understanding the scope of the research, a
problem-solving could arise from this research. With having a clear and precise problem
statement, finding a solution for a vague and misconception filled question would not prove
to be useful for anyone. This chapter also enlighten use on our goal for this study research.
All in all, this study will prove to be a good material for any future researcher.

16
 CHAPTER 2

LITERATURE REVIEW

2.1 THEORETICAL FINDINGS

Write some introduction – what is theoretical findings?

2.1.1 STOCK MARKET INDEX

According to Naik (2013), by collecting funds from several investors will
able them to expand their business that were public listed in stock market and
therefore, the stock market were usually known as a platform that provide long term
capital. In addition, it also provides investors with alternative investment to put
their surplus money to work. Moreover, he stated that investors will carefully
monitor stock market performance by monitoring the composite market index prior
investing funds. Good investor would track sharply the index of stock market to
identify the average performance of the stock market in that particular country that
they wish to invest (Tarmizi et al., 2014).

2.1.2 Classical Growth Theory – Economic Growth and Stock Index

Economic growth can be defined as changes in material output in relative
short period of time. GDP and national income are the term that can explain the
rising in annual growth for material production. In addition, economic growth can
be achieved because it does not coincide with the process of economic growth.
Thus, the scale of economic development includes not only an increase in material
production, but also all other socio-economic processes and changes caused by
economic factors, as well as economic influences (Mladen, 2015).
Economic variables such as GDP and many others are directly related to the
country's growth. Stock price movements are highly influenced by these variables
because they are the foundation of any economy (D. Aurangzeb, 2012).

According to classical growth theory developed by Adam Smith, he stated

that there are three main factors that stimulate economic growth which is the

17
 division of labor, the gains from trade, and the accumulation of capital. Smith
claimed that the engagement of capitalists in terms of capital accumulation in the
division of labor among workers into more specific area led to increase in
productivity, benefit for their own personal gain, as well as the benefit for the
economy. He described this process using the metaphor of the "invisible hand" of
profits (Harris, 2007).

Lokeswar (2012) suggested that there is significant relationship between

stock prices and expected GDP growth. He provided two significant explanations
for this, the first was those changes in information about the future direction of
GDP lead stock market values to fluctuate today. He also stated that fluctuations in
stock prices, regardless of the source, will lower companies' asset holdings and
impact their borrowing costs. When it becomes more expensive for businesses to
borrow money, they borrow and invest less, which result in slow growth of GDP.
Changes in information regarding the future path of GDP may influence stock
market values to fluctuate.

2.1.3 Capital Asset Pricing Model – Unemployment Rate and Stock Index
The unemployment rate is an economic factor that potentially have an
influence on the stock market. In general, the unemployment rate is a long-standing
essential labor market indicator that is extensively used throughout the world to
communicate about the labor market's performance and the economy's capacity to
produce sufficient working opportunities. (Unknown, 2019). Hence,
unemployment rate can be used as an indicator to predict stock prices in the future.

Based from studies by Tapa et al. (2016), to demonstrate the evaluation of

stock price and unemployment rate, capital asset pricing model (CAPM hereafter)
is the method that can be used. It emphasized that correlation movement between
stock prices and unemployment is driven by three important factors dividends, risk-
free rate of interest, expected growth rate of firms and equity risk premium., and
the equity risk premium. In addition, under the Philip Curve theory, studies from
Gonzalo and Taamouti (2017) found that a big value of unemployment rate is

18
 usually followed by Federal Reserve monetary policy activity. The interest rate
usually will be decreased after the increase of unemployment rate, which result
in raises of stock market values. According to Farsio and Fazel (2013), they
discovered that an increased unemployment rates can be a positive sign during
economic expansions for stocks and negative during economic contractions. This
occurred because an increase in unemployment rates often indicates a drop in
interest rates, which is good news for equities, as well as a drop in future corporate
earnings and dividends, which is a negative signal for the stock market. As a result,
stock prices normally rise when there is news of increased unemployment, because
the economy is usually in an expansion period. This predicament arose as a result
of two basic types of information that are crucial for analyzing stocks, which is
future interest rates and future corporate earnings and dividends (John H.Boyd,
2001).

2.1.4 Keynesian Theory – Inflation Rate and Stock Index

Inflation a factor that contributing to the economy's poor performance. In
general, inflation is often defined as a broad metric, such as the total increase in
prices of goods and services or the cost of living in a country. High costs of goods
and services can result in rising of inflation which can reduces people's purchasing
power. (Oner, 2010). Thus, inflation is also one of the vital macroeconomics
variables that can influenced stock market.

According to Keynesian theory on inflation, the economy is at greater risk

of inflation if the level of production pushing beyond the potential gross domestic
product. This occurred because of increase in cost of production, particularly when
the additional cost of goods and services are included in prices (Oner, 2010). Based
on the previous studies, Inflation has significant effects on the stock market. This
occurred because something known as "inflation illusion," which describes on how
investors fail to recognize of the increase in cash flow and profits that occurs during
inflation. As a result, investors are more interested with the stock's present value,
which leads to the influence of interest rates and inflation. (Warr, 2018). A study
conducted by Bai (2014) for the development of the stock market, some empirical

19
 studies reveal that the relationship between inflation and stock price is relatively
weak, while certain nations have proven a positive correlation between the two. He
believes that the growth of emerging nations' monetary policy is more important to
inflation, and the stock may be correctly regarded as value-added inflation.

In developed markets, however, there is evidence of a negative link between

inflation and stock performance. According to Bahram Adrangi et al. (2011), the
negative relationship between stock price returns and inflation represents the
detrimental effect of inflation on real economic activity. There is evidence that
stocks in developed countries failed to maintain their value during periods of high
inflation. For example, during the period of rapid inflation of the 1970s, US stock
prices did not keep up with general price levels.

2.1.5 Keynes Theory – Interest Rate and Stock Index

Stock market and interest rate are important aspects of economic growth of
a country. The effects of interest rates on the stock market have significant
consequences for monitoring policy, risk management methods, and government
policy toward financial markets. The interest rate is a key macroeconomic indicator
that is directly tied to economic growth. In general, interest rates are defined as the
cost of capital, which is the price paid for the use of capital over a set period of time
(Alam, 2009).

According to Keynes theory, he stated that the interest rate determined by

the supply and demand of money. Keynes explained that if supply of money
exceeds the demand for money, the price of commodities will rise, and interest rate
will fall until demand for money becomes equal to the supply of money. On the flip
side, if the demand for money manage to exceed supply of money, price of
commodities will fall which result in rise of the interest rate. Hence, interest rate
can be a vital component in determine stock market movements (Appelt, 2016).

Previous studies have shown that changes in interest rates can affect a
company's stock and the value of the stock. The theory behind relationship between

20
 interest rates and stock market returns is that stock prices and interest rates have a
negative correlation. High interest rates due to shrinking monetary policy usually
devalue stocks and make bonds more attractive instead of holding them, thus
negatively impacting stock market returns. This reduces the tendency of investors
to borrow and invest in stocks, increases business costs and impacts profitability.
On the contrary, low interest rates are due to the expansion of monetary policy that
can stimulates the stock market (Teitey, 2019).

2.1.6 Quantity Theory of Money – Money Supply and Stock Index

Adjustments in the money supply potentially can give significant impact
on volatility in stock prices, if an increase in the money supply causes a decrease
in real interest rates, it would give positive impact on stock prices because investors
would anticipate higher stock returns following an increase in the money supply.
However, an excessive increase in the money supply may cause inflation, which
will have a negative impact on stock prices. (Choi & Yoon, 2015).

According to Quantity Theory of Money developed by Nicolaus

Copernicus, he stated that money supply of the economy and price levels are
directly related. As the money supply changes, so does the price level, and vice
versa. If the money supply in the economy doubles and everything else is the same,
the price level will also double. This means that consumers pay twice as much for
the same amount of goods and services. This rise in price levels will ultimately lead
to higher inflation levels (Jones, 2005). From the prior studies have shown that
stock returns are affected by changes in the money supply. According to James N.
Bodurtha (1989), there is strong evidence linking the money supply and stock price
levels. A rise of money supply can cause a rebalancing of the portfolio toward the
stock market which result in the increase of the stock prices. On the flip side, any
increases in the money supply may cause an inflation uncertainty, and the increase
of money supply may have a negative impact on the stock market. Choi and Yoon
(2015) shows that the average price of stocks was positively correlated with the
money supply, indicating a significant and methodical relationship.

21
 In contrast, other studies have found that past adjustments in money supply
have no significant impact on the stock market. Faze (2008) claimed that the
absence of a stable negative relationship between money supply and interest rates,
as well as interest rates and stock prices, results in no remarkable relationship
between money supply and stock prices in a long-term span. Findings from Choi
and Yoon (2015) stated that any changes in money supply in South Korea did not
affect significantly on the stock market. Rogalski (1977) also demonstrated that
the relation did not appear from the money supply to the stock market, but rather
from the stock market to the money supply.

2.2 EMPIRICAL FINDINGS

Write some introduction – what is empirical findings?

2.2.1 The relationship between economic growth and stock market index
performance
(Hong Peng Tang, 2007) a group of researchers investigates the relationship
between economic growth and stock markets in 12 countries of Asia from 1980 to
2004. Only four of the twelve nations studied, notably China, the Philippines,
Singapore, and Taiwan, show a long-term link between economic growth and stock
market. Granger causality tests suggest that only China, Hong Kong, Indonesia,
Malaysia, and Thailand have a bidirectional causality relationship between stock
markets and economic growth. In the short run, however, a unidirectional causal
influence flows from stock markets to economic growth in Japan and Korea. In the
short run, causality flows from economic growth to stock markets in India and
Singapore, while no causality is established among the variables in Sri Lanka
(Azam et al., 2016).

Numerous previous researched, on the other hand, have indicated a

negligible or weak negative link between stock market development and economic
growth. For example, (Harris, 1997) re-examines the association between stock
markets and economic growth using the same data as (Atje & Jovanovic, 1993) but

22
 finds no evidence that the stock market's level causes per capita production growth.
For 95 nations, he found a negligible to weak negative association between
financial development and real GDP per capita growth rate (Azam et al., 2016).

(Boubakari & Jin, 2010) examine the relationship between stock market and
economic growth in five Euronext countries: Belgium, France, Portugal, the
Netherlands, and the United Kingdom, from 1995: Q1 to 2008: Q4. For those
countries where the stock market is liquid and tremendously active, the study finds
a positive association between the stock market and economic growth. For
countries with a tiny and less liquid stock market, however, the causation
relationship is disputed. (Masoud, 2012) conclude that stock market expansion has
a considerable beneficial impact on economic growth in 42 emerging nations from
1995 to 2006. For the period 1993-2011, (Marques et al., 2013) found bidirectional
causality between the stock market and economic growth in Portugal, but no flow
of causality from bank financing to economic growth (Azam et al., 2016).

2.2.2 The relationship between unemployment rate and stock market index
performance
In expansions, the stock market reacts positively to news of increased
unemployment; in contractions, the stock market reacts negatively. Based on their
own definition of business circumstances, (McQueen & Roley, 1993) discovered a
high association between stock prices and macroeconomic data, such as news
concerning inflation, industrial production, and the unemployment rate. (Krueger,
1996) looked at whether bond price responses to labor market news were market
rational. As the unemployment numbers were corrected, his attention was on
market reaction to the provision of more reliable information. According to his
research, unemployment announcements had a significant impact on market values
(John et al., 2001).

Jareño and Negrut (2015) meanwhile, conducted a research study regarding

with the US stock market from 2008 to 2014, using indices in USA to investigate
the link between the US stock market and other variables of macroeconomic in

23
 United States, and discovered that, despite having significant positive results with
other factors, unemployment rate and interest rate have negative and statistically
significant relationships with the stock market. For the period 1983 to 2002 on the
Istanbul Stock Exchange (ISE hereafter), Aktas (2011) investigated the impact of
19 macroeconomic announcements on equity index options and discovered that all
strongly related to index option returns (Ağırman et al., 2018).

Aside from these studies, there have been a number of others that have
yielded varied outcomes when it comes to the association between unemployment
and stock returns. (Farsio & Fazel, 2013) did a study that looked at three of the
world's most economically significant countries. Between 1970 and 2011,
researchers investigated the relationship between unemployment rates and stock
prices in the United States, China, and Japan. Using Co-integration and Granger
Causality analyses, they determined that relying on unemployment rate statistics to
make stock market investing decisions would be a mistake. They also demonstrate
that unemployment and stock prices do not have a consistent relationship in a long
run (Ağırman et al., 2018).

2.2.3 The relationship between inflation rate and stock market index performance
Over the last three decades, the relationship between stock returns or stock
index performance and inflation has been thoroughly investigated for advanced and
developing nations, with the majority of them finding a negative relationship.
(Fama, 1981), discovered that stock returns and inflation have a strong negative
relationship. (Geske & Roll, 1983), looked at the stock market in the United States
and discovered that stock prices are negatively associated to inflation. According
to (Asprem, 1989), stock prices are negatively associated to inflation in a number
of European countries (Tripathi & Kumar, 2015).

For the Indian market, Chatrath et al. (1997) looked at the relationship
between stock prices and inflation. He discovered a negative relationship between
stock returns and inflation. (Gallagher & Taylor, 2002), studied the relationship
between stock prices and macroeconomic variables in US markets and discovered

24
 that both expected and unexpected inflation have a negative impact on stock
returns. (Kaur, 2017) looked at the impact of macroeconomic factors on Indian
stock market performance before and after market liberalization. Inflation had an
impact on Indian stock returns in the post-liberalization period, they discovered
(Tripathi & Kumar, 2015).

Besides, between 1985 and 2000, Ioannides, Katrakilidis and Lake (2002)
investigated the relationship between stock market returns and inflation rates in
Greece. According to Fisher's hypothesis, the stock market can be used to hedge
inflation. Another viewpoint was that inflationary pressures had little effect on the
real stock market. The purpose of this study was to look into three different sorts
of relationships to see if the stock market in Greece was a safe haven for investors.
The associations were categorized into three groups based on empirical evidence.
For starters, stock market returns, and inflation have a favorable association. They
employed the ARDL cointegration technique in conjunction with Granger
Causality to assess the long- and short-run effects, as well as the direction of these
effects, between the variables in question. Over the first sub-period, there was a
long-run negative association between inflation and stock market returns. The
findings backed with Fama's claims (Fama, 1981) (Caroline et al., 2011).

2.2.4 The relationship between interest rate and stock market index performance
In the literature, the relationship between stock market performance and
interest rates has gotten a lot of attention. Lee (1997) examined the relationship
between the stock market and the short-term interest rate using three-year rolling
regressions. He attempted to estimate excess returns (for example, the difference
between stock market returns and the risk-free short-run interest rate) on the S&P
500 index using the short-term interest rate, but discovered that the link is not stable
over time. It progressively shifts from a highly negative to no relationship, or even
to a positive but little association (Alam & Uddin, 2009).

Regression analysis were used to investigate the relationship between stock

prices and interest rates. Zhou (1996) discovered that interest rates had a significant

25
 influence on stock returns, particularly over long-time frames, but he rejected the
premise that predicted stock returns move in lockstep with ex ante interest rates.
Furthermore, his findings demonstrate that the long-term interest rate explains a
large portion of the fluctuation in price-dividend ratios, implying that the stock
market's high volatility is linked to the high volatility of long-term bond yields and
might be explained by shifting discount rate expectations. Hsing (2004) Abu uses
a VAR Model to determine the inverse link between stock prices and interest rates
while simultaneously determining many endogenous variables such as output, real
interest rate, exchange rate, and stock market index (Alam & Uddin, 2009).

The influence of the long-term interest rate on stock prices, on the other
hand, is derived directly from the present value model via the long-term interest
rate's influence on the discount rate. Campbell (1987) looked at the relationship
between the yield spread and stock market returns rather than utilizing either short-
term or long-term interest rates. He claims that the same characteristics that predict
excess returns in the term structure also predict excess stock returns, implying that
a simultaneous examination of bill, bond, and stock returns should be helpful. His
findings back up the term structure of interest rates' ability to predict excess returns
on the US stock market (Alam & Uddin, 2009).

2.2.5 The relationship between money supply growth rate and stock market index
performance
Many research had looked into the relationship between money supply and
stock market performance. Sprinkel (1964) made a comparison between the turning
points in a stock price index and the turning points in the money growth rate. He
came to the conclusion that a bear stock market would occur 15 months after each
monetary peak, and a bull market would occur two months after each monetary
trough (Sara & Shokoofeh, 2008).

Looking for a prediction tool to help with the execution of investing

strategies, Homa (1971) calculated the link between the money supply and a stock
market index. The level and growth rate of dividends, the risk-free rate of interest,

26
 and the risk premium are all factors that affect the price of a common stock,
according to their results. They found that because the risk-free rate of interest is a
function of money supply, the average level of stock prices is positively connected
to the money supply (Sara & Shokoofeh, 2008).

To reflect the direct and indirect effects of money supply on the stock
market, Kochin (1971) started with the basic valuation model and included current
price level and corporate bond rate. They concluded that monetary growth might
have a variety of repercussions on the stock market. Furthermore, using time series
analysis, Kraft (1976) discovered no causal relationship between money supply and
stock prices. Pearce and Roley (1985) looked at the impact of money supply
announcements on stock prices and discovered that unforeseen increases in the
money supply had a negative impact on stock prices (Sara & Shokoofeh, 2008).

2.3 CONCLUSION
We addressed one of the study literatures that detailed the relationship
between independent variables and the dependent variable by evaluating prior
researcher's findings that have been recorded theoretically and empirically. Journal
articles, conference papers, working papers, electronic books, and several others
credible sources that are especially connected to our current topic are related with
the literature review. Apart from that, different point of view which relate on the
subject must be discovered to ensure that the current empirical and theoretical
finding could or could not be implement in these studies. The ideas of the experts
described earlier are utilized as a designed to assist us comprehend the
macroeconomic aspects that influence stock market indexes in the Asian countries
that we are currently studying. Lastly, all factors exhibited both positive and
negative connections on the stock market index.

27
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction
The third chapter gives an overview of the study's research methodologies. It
explains the data gathering procedures that were utilized to look into the key research
questions. Our study outputs, which include research design, data collecting, variables and
measurement, and data analysis, may be reviewed using research methodology.
Throughout the specific research, we will provide detailed details on the research
methodology and data sources. We'll also illustrate how we gather data in the research
methodology section, and the analysis will include a look at the dependent and independent
variables. The data is collected over a 16-year period, from 2005 to 2020, to analyze the
relationship between macroeconomic conditions and economic growth.

In research, wide range of methodologies may be used. Consequently, we can

visualize the data collection strategy and approach that we will use throughout the chapter
to carry out and complete this research. Finally, the analysis demonstrates how the five
macroeconomic factors influence the overall performance of stocks of stocks in our 6
selected Asia's countries.

3.2 Methodological choice

In research, there are numerous methodological options available, including
qualitative, quantitative, and mixed methodology approaches. This study focuses on the
relationship and factors between independent and dependent variables. This method's
primary concept is its strength. We're using a quantitative approach since it focuses on
gathering numerical data and defining a problem. Quantitative research can be used to
discuss things about the relationships between variables in a study. “Quantitative
researchers seek explanations and predictions that will generate to other persons and places.
The intent is to establish, confirm, or validate relationships and to develop generalizations
that contribute to theory” (Leedy, 2001). Quantitative research starts with a statement of
the problem and includes developing a hypothesis, doing a literature study, and analyzing

28
 quantitative data. Quantitative research methods will be necessary to aid this study process
since raw data will be collected, analysed, and evaluated. This method will also help us
figure out how macroeconomic parameters, financial indicators, and economic growth are
linked. Finally, quantitative research methods are simple to assess, and results can reliable
and precise.

3.3 Purpose of research design

The research conducted exploratory investigations to develop the study. This is a
public inquiry to learn more about the origin of a problem and to get the most particular
information necessary. These are carried out with the idea that further research will be
required to produce solid evidence, but they contribute to our understanding of the problem.
Exploratory research is a type of research that is carried out to discover as much about a
topic that isn't specified. It is carried out so that a greater understanding of the current
situation may be gained. This style of research starts with a broad notion and then uses
research to uncover problems that might be the topic of further investigation.

The purpose of exploratory research is seen at many areas of a study issue rather
than producing comprehensive and distinct answers to research questions. When doing
exploratory study, the investigator must be willing to shift course if new information or
ideas unfold. Exploratory research's use in laying the groundwork for upcoming
discoveries, as well as its adaptability and responsiveness to change.

3.4 Research strategies

We do our study through archival research, external sources from region
publications, and trade and news sources. Secondary data analysis is the examination of
information gathered by someone else for a primary reason (Johnston, 2014). Using current
data is a realistic choice for researchers with limited time and resources. Secondary analysis
is an empirical operation that employs the same methodologies and follows the same core
research principles as original data studies.

In archiving analysis, quantitative data has been used to providing researchers with
access to actual data in recordings such as annual or financial reports. Quantitative data
may consist of simple sets of numbers, or complex arrays of data in multiple dimensions,

29
sometimes captured over time in time series (Hellerstein, 2008). We used this strategy since
our work involves the use of historical research knowledge. The underpinning of data
cleaning methods in this domain is statistical methods for outlier detection. We try to seek
measurements that are "far" from what would be expected based on the rest of the data.
This might be a good method to use, but it all depends on the relevance of our research
topics and the materials we gather.

External sources include national government-issued documents, data, and regional

viewpoints, which are gathered through regional periodicals or referred to as trade
association and offered by various banks. Even so, broadcast or print media provide some
media sources on several issues. Because it is simple to access and receive via the Internet,
this resource was chosen. Nonetheless, because we were able to design the data acquired
to our main objectives, the sources we used are reliable and valuable to our research.

3.4.1 Research Hypothesis

The aim of this research is to investigate the influence of macroeconomic
variables toward the stock market performance in Asian countries. In this
analysis, the following hypothesis will be considered and tested:

Hypothesis 1

H01: Economic growth has no significant relationship on stock market index.

HA1: Economic growth has a significant relationship on stock market index.

Hypothesis 2

H02: Unemployment has no significant relationship on stock market index.

HA2: Unemployment has a significant relationship on stock market index.

Hypothesis 3

H03 : Inflation has no significant relationship on stock market index.

HA3 : Inflation has a significant relationship on stock market index.

30
 Hypothesis 4

H04 : Interest rate has no significant relationship on stock market index.

HA4 : Interest rate has a significant relationship on stock market index.

Hypothesis 5

H05: Money supply growth rate has no significant relationship on stock market
index.

HA5 : Money supply growth rate has a significant relationship on stock market
index.

(1)

The dependent variable in Equation 1 above is Y, which stands for stock market index (KLCI,
Shanghai SE Composite Index, STI, Nikkei 225, KOSPI, and IDX). In addition, independent
variables X1 (economic growth), X2 (unemployment), X3 (inflation), X4 (interest rate), and X5
(money supply growth rate) are being implement.

3.5 Data and source

These studies are mainly obtained from the data from the World Bank website. The
purpose of the data is to enable the researcher to perform analysis to determine the
relationship between the dependent variable and the independent variable. The data and
sources are listed in the Table 3.1 below:

31
Table 3.1 XXX

Variables Proxy Review of Literature Measurem Data Sources

ent Unit

Dependent Variable

Stock Market KLCI, Shanghai (Naik, 2013), Annual World Bank

Index SE Composite (Tarmizi et al., 2014). Percentage
Index, STI,
Nikkei 225,
KOSPI, and
IDX

Independent Variables

Economic Gross Domestic (D. Aurangzeb, 2012) Annual World Bank

Growth Product (GDP) (Mladen, 2015) Percentage
(Harris, 2007)
(Lokeswar, 2012)

Unemployment Unemployment Tapa et al. (2016) Annual World Bank

Rate Gonzalo and Taamouti Percentage
(2017)
(John H.Boyd, 2001)
Farsio and Fazel (2013)

Inflation Consumer Price (Oner, 2010). (Bai, 2014) Annual World Bank
Index (CPI) (Warr, 2018). (Bahram Percentage
Adrangi et al., 2011)

Interest Rate Real Interest (Alam, 2009). (Appelt, Annual World Bank
Rate 2016) (Teitey, 2019) Percentage

Money Supply M2 Rate (Choi & Yoon, 2015) Annual World Bank
Growth Rate (Jones, 2005), (James N. Percentage
Bodurtha, 1989) (Faze,
2008)

32
3.6 Theoretical Framework
The theoretical framework serves as the foundation for the entire research project.
The suitable variables are chosen that are relevant to the problem we researched. The
theoretical framework explained the theory of relationship between the Independent
Variable (IV) and Dependent Variable (DV).

Independent Variables

Economic Growth

Dependent Variable
Unemployment

Stock Composite
Inflation Index

Interest rate

Money Supply

Figure 3.1 Theoretical Framework

Figure 3.1 above is a framework that explain the influence of macroeconomics

components toward the stock market performance in six Asian countries which consist of
Malaysia, South Korea, Singapore, Japan, China and Indonesia. There are two variables in
this research. The Stock Composite index represent the dependent variable and the
independent variables are economic growth, unemployment, inflation, interest rate and
money supply. The independent variables are the factors that should affect the stock market
performance.

33
3.7 Type of Research
Explanatory research is the method of research used for this proposal. It is about a
cause-and-effect relationship or in this study it is about the relationship of the independent
variables and dependent variables. To simplify the type of research we used, it is about the
reaction of the dependent variable that we study toward its environment (independent
variables). In addition, quantitative approach also been used because we are using numeric
data using special software to analyse the research.

Furthermore, this research is using a collection of data to conduct the analysis.

Therefore, we are using time series. To get the most significant value of data, researchers
eliminate the outliers using special software and link the time series data.

The data that we use are historical data and the value of each variable are varying
over time from years 1990 -2020. The data is the collection information of the independent
variables of 6 Asian countries that we study.

3.8 Diagnostic Check

Researchers will carry out the diagnostic check to identify the problem that may
arising when develop the test using the data. There are several methods that can be used to
run this check.

3.8.1 Variance Inflation Factor (VIF) Procedure

Multicollinearity is the situation where two or more independent variables
is having intercorrelations when running the multiple regression. VIF is a method
in detecting the multicollinearity. The data can lead to skewed where the data is not
accurate and misleading.

(2)

Based on the equation above, higher VIF will resulting in higher R2

indicates that the variable X is on the straight line align the variable Y and Z. If the

34
 R2 is 0, it means that the variables are on the right angle and the equation should
be 1.

The statement below shows the interpretation of the variance inflation factor
based on the result of the equation:

• If it is 1 meaning that it is not correlated

• If the equation lies between 1 and 5, it will be moderately correlated
• If the equation is greater than 5, it will be highly correlated (Mansfield &
Helms, 1982)

The magnitude of VIF whether it is big to indicates the issue that may arise
still in discussion. Logically, if the VIF increases, the regression result will be less
accurate. Some scholar recommends a minimum of 2.5 or higher. But a VIF greater
than 10 should be worrying.

3.8.2 Serial Correlation Test

Statistics that examine autocorrelation in regression residuals also known
as “The Durbin Watson Test”. Autocorrelation means resemblance of a time line
over repeated periods. It might show to an overestimation of the standard error and
the belief that predictors are significant when they aren't.

The Durbin Watson test hypotheses as shown below:

H0 = there is no first-order autocorrelation.

Formula used to calculate the test:

(3)

Source: (Durbin & Watson, 1951)

35
 The test will generate a value between 0 to. The meaning of the result is as shown
below:

1. 2 is no autocorrelation
2. Positive autocorrelation (common in time series data) ranges 0<2
3. More than 2 to 4 is a negative autocorrelation (less common in time series data)

According to the Durbin and Watson (1951), if the values is in the 1.5 to 2.5 it
is considered as common. If it is outside of this range, there must be some mistake
need to be concern.

3.8.3 Normality Test on Residuals

Many researchers assumed that normality is necessary in multiple
regressions. The underlying residuals must be consistently distributed, or nearly so,
according to the normality assumption. Non-normality can be detected using a
residual plot or a normal plot of the residuals, but the Shapiro-Wilk or a comparable
test can be performed to formally examine the hypothesis.

Violations of the normality assumption become a concern when sample

sizes are small. The assumption is less relevant for large sample sizes because of
the central limit theorem and the fact that the F- and t-tests used for hypothesis
testing and creating confidence intervals are very robust to modest deviations from
normality.

In contrast to the alternative hypothesis that the residuals are not

consistently distributed, the null hypothesis says that they are. We can reject the
null hypothesis and infer that the residuals are not from a normal distribution if the
test p-value is less than the present significance threshold. The null hypothesis
cannot be excluded if the p-value is larger than the chosen significance threshold.

3.9 Multiple regression

It is the same as multiple linear regression. Two or more other variables are used to
predict the value of a variable. The dependent variable is the one that we are seeking answer
or predict for. Multiple regression is an approach for forecasting the result of a response
36
variable by combining the number of explanatory variables. The linear relationship
between the independent variable and dependent variable is represented by MLR.

Regression formula as below:

yi=β0+β1xi1+β2xi2+...+βpxip+ϵ (4)

The statistical method that may be used to find out how much variation in the
independent variables can be explained by variance in the outcome is called the coefficient
of determination (R-squared). Even if the predictors are not connected to the result of that
variable, R2 always grows when more predictors are added to the MLR model. As a result,
R2 cannot be used to find out which predictors should be included, and which should be
discard from a model. R2 can only be in the range of 0 to 1, with 0 indicating that none of
the independent variables can reliably predict the result and 1 indicating that all of them
can.

At least two autonomous elements, which might be apparent, ordinal, or

interval/ratio level factors, are required for different direct relapse. Relapse assessment
requires at least 20 instances every autonomous variable inside the examination, according
to a rule of thumb for the test estimate.

3.9.1 T-Test
It is a statistical test that distinguish two classes means. It is usually used in
hypothesis testing to investigate if a procedure or treatment has an influence on the
population of interest. People can be randomly assigned to the treatment or control
groups, for example. Randomization can also be accomplished by "clusters." The
group of individuals were treated as a unit, whether they are friends, society, office
workers, or communities, and give each group to the treatment or control gathering
at random.

A rule of thumb is that the evaluation of power for a sample that been used
will start to plummet if the randomizing action was taken at the cluster level and

37
 not at the individual level. As the sample size grows the similarity for individual
result inside cluster will displayed.

3.9.2 R-Squared
R-squared is a statistic that measures the spread of data points along a fitted
regression line. The coefficient of determination, or coefficient of multiple
determination, is a word used in multiple regression. For the same data set, higher
R-squared values indicate less differences between observed and fitted values. A
linear model's R-squared is the percentage of the dependent variable variation it
describes.

(5)

Source: (Henderson & Velleman, 1981)

The value is always between 0 – 100%

A model with a percentage of zero does not explain the variance in the
response variable around its mean. Dependent variable’s mean will predict the
regression model and the dependent variable. Moreover, it will be 100 percent
correct if the model describes all the variance that response variable around its
mean.

3.9.3 F-Test
In regression analysis, the F-test is used to test the hypothesis that all model
parameters are zero. It is frequently used in statistical analysis to evaluate statistical
models that were fitted with the same underlying variables and data set to discover
which one better matches.

Source: (Henderson & Velleman, 1981)

38
 A typical rule of thumb is that we can either reject or disregard the null
hypothesis, which is a common statement in regression analysis. At least one
parameter value is nonzero, we may presume.

3.10 Conclusion
Finally, we spoke about how we'll conduct this research or study in order to achieve
our major aim of analyzing whether the macroeconomics factors and financial indicators
can influence the Stock market index in 6 Asia’s countries. This will include quantitative
research which will be used to examine numerical data in terms of the interactions between
numerous mechanisms, as previously indicated. Furthermore, we have established research
objectives and designs that will aid us in moving on with our study and fulfilling our study's
objectives using our chosen research method (Correlational Research). Indeed, creating
research methodologies is important for us to have a prearranged, clear, and structured
research process in this study, as it minimizes confusion and outside input, such as other
ideas that may or may not be appropriate.

Furthermore, theoretical framework will be properly arranged to display a clear

path between the independent and dependent variables can help us understand the direct
goal in researching the relationship and identify the variable under a certain kind.
Diagnostic evaluations such as the VIF approach, Serial Correlation Test, and Normality
Test on Residual have been discovered because this study is concerned with time series
data. This study will use regression analysis as the technique of analysis, which we will
analyses afterwards. This will result forms, which will be inferred in the study's findings
section.

Overall, specific subjects on these procedures and processes are crucial for
achieving the study's goals since they will eliminate ambiguity and discrimination in the
process of the research, especially during data collection connected to the variables in our
chosen topic of study.

39
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