FACULTY OF BUSINESS, ECONOMICS & ACCOUNTANCY

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Course Code/Name : BD20203 MONEY AND CAPITAL MARKETS

Assignment No./Title : GROUP ASSIGNMENT III (25%) TIME SERIES DATA ANALYSIS
Date of Submission : 23/01/2023 Deadline for Submission : 23/01/2023

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Group No: 11

No Student Name Student No. HP No./E-mail Signature

1. ASMIH BINTI M. FADZLI BB20161004 01121812367 ASMIH

2. GENG MENGZHU BB19270080 0 178195789 GENG
3. LI SHUANGXIN BB19270089 01123618565 LI
4. LI YANG BB20170884 8617631221337 LI YANG
5. LOIS ANAK ANGGUT BB20110089 0109720926 LOIS
6. NURUL SHAFIRAH BINTI P RAMLI BB20110318 0168158558 NURUL
7. SARA MARIESSA CHONG BB20110930 0128586532 SARA
8. SITI SUHAIMA BINTI SUDIN BB20110521 0164069074 SITI
9. YUE HONGYU BB20170038 01170132860 YUE

ASSESSMENT
Performance against the main assessment criteria as follows (where appropriate):
% wgt 0-39 40-49 50-59 60-69 70-79 80+
The accuracy of the answers
The flow/structure of the answers
The ability to provide reasoned and
well-supported argument 60 - 70
The understanding of relevant
materials
Evidence of further reading/research
The execution (e.g. grammar, spelling, 10
neatness, clarity)
The format and neatness 20
The presentation (if applicable) 10

Comments:

i
RECEIPT (Please retain this receipt as a proof of submission):

Student No./Name : BB20110089 LOIS ANAK ANGGUT

Course Code/Name : BD20203 MONEY AND CAPITAL MARKETS

Signature :LOIS Date : 23/01/2023 Time : 11:55 Received by: Associate Professor Dr. Mohd
Rahimie Abd Karim

Student Name :
1. ASMIH BINTI M. FADZLI
2. GENG MENGZHU
3. LI SHUANGXIN
4. LI YANG
5. LOIS ANAK ANGGUT
6. NURUL SHAFIRAH BINTI P RAMLI
7. SARA MARIESSA CHONG
8. SITI SUHAIMA BINTI SUDIN
9. YUE HONGYU
Group No. : 11
Course Code/Name : BD20203 MONEY AND CAPITAL MARKETS
Assignment No./Title : GROUP ASSIGNMENT II (25%) TIME SERIES DATA ANALYSIS

IMPORTANT NOTICE
This form is applicable for group assignment only. The purpose of this form is to identify the contribution
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I hereby declare that I have contributed to this Group Assignment in the following manner:

ii
Signed by, Verified by,

ASMIH LOIS
__________________________________ __________________________________
(Name : ASMIH BINTI M. FADZLI) (Name : LOIS ANAK ANGGUT )
HP No. : 01121812367 HP No. : 0109720926
Member Group Leader

iii
TABLE OF CONTENTS
ABSTRACT................................................................................................................................. v
CHAPTER 1: INTRODUCTION ................................................................................................ 1
1.0 Introduction ................................................................................................................... 1
1.1 Background of Study .................................................................................................... 1
1.2 Problem Statement ....................................................................................................... 2
1.3 Research Objective ....................................................................................................... 3
1.4 Research Question ........................................................................................................ 3
1.5 Significance of the study ............................................................................................. 3
CHAPTER 2: LITERATURE REVIEW ...................................................................................... 4
2.1 Previous studies on the relationship between the gold price and inflation ......... 4
2.2 Previous studies on the relationship between the bond and inflation .................. 5
2.3 Previous studies on the relationship between the real estate and inflation ........ 6
CHAPTER 3: RESEARCH METHODOLOGY ............................................................................ 8
3.1 Research Framework .................................................................................................... 8
3.1.1 Hypotheses Development .................................................................................... 8
3.2 Sampling Design ........................................................................................................... 8
3.3 Data Collection .............................................................................................................. 9
3.4 Methods .......................................................................................................................... 9
3.4.1 Descriptive .............................................................................................................. 9
3.4.2 Correlation .............................................................................................................. 9
3.4.3 Regression ............................................................................................................ 10
CHAPTER 4: RESULT AND DISCUSSION............................................................................ 11
4.2 Descriptive Analysis .................................................................................................... 11
4.3 Correlation Analysis .................................................................................................... 11
4.3.1 The correlation between the gold return and inflation rate ......................... 11
4.3.2 The correlation between the KLCC return and inflation rate ........................ 12
4.3.2 The correlation between the ABF return and inflation rate .......................... 12
4.4 Regression Analysis .................................................................................................... 13
CHAPTER 5: CONCLUSION................................................................................................... 15
REREFENCES .......................................................................................................................... 16
APPENDICES ........................................................................................................................... 20

iv
 ABSTRACT

THE LINK BETWEEN GOLD, REITs, AND BOND INDEX WITH INFLATION RATE IN
MALAYSIA

The main objective of this study is to examine the link between the inflation rate and gold,
REITs, and bond index to safeguard one’s assets against inflationary trends by using multiple
regression analysis method. The variables involved in this research are the Gold return, REITs
(KLCC Return), and Malaysian Bond Index Fund (ABF Return) and Inflation Rate using data
covering the period from 2011 to 2020. The findings shows that the Inflation rate does not
show a significant relationship with the gold return, REITs (KLCC return), and Malaysian Bond
Index Fund (ABF return). Also, result indicates that the chosen explanatory variables are not
suitable for forecasting changes in Malaysia's Inflation rate. As a result of Regression analysis,
it was observed that the selected variables data set was not suitable for this model and method
as there was only 4.88% of the variance in the data can be explained by the model.
Consequently, none of the chosen explanatory variables can protect against inflationary trends
in Malaysia.

Keywords: Inflation Rate, Gold, Real Estate, Bond Index Fund, Multiple Regression

v
 CHAPTER 1: INTRODUCTION

1.0 Introduction

Bank Negara Malaysia (BNM) has been increasing the Overnight Policy Rate (OPR) several
times in the past few months, signifying a potential rise in inflation and a weakening of the
Malaysian Ringgit. This is in line with BNM's efforts to keep inflation under control, as well as
to encourage a more prudent economic environment. The increased OPR also signals an
increase in the cost of borrowing for businesses and consumers, which further serves to
reduce economic activity and further battle inflationary pressures. A common increase in the
cost of goods and services over a period is known as inflation. The rate of inflation is usually
measured by the Consumer Price Index (CPI). Inflation can be recognized by a hike in prices
of goods and services, a reduction in the actual value of money, and decreased purchasing
power. Rising wages may also be a sign of inflation, as wages tend to increase when inflation
rises. Inflation can also be seen when there is an increase in the price of raw materials, as
these costs are passed on to consumers. Inflation can have a negative impact on businesses,
as higher prices can lead to reduced consumer demand. In addition, it can lead to higher
borrowing costs, which can be difficult for businesses to manage. Understanding inflation is
critical for those who are investing their money. Knowing how your investments may be
impacted by changes in inflation can help you make wiser decisions.
1.1 Background of Study

According to Greer (1978), hedge inflation is a concept used by investors and financial
advisers to reduce the risk of exposure to inflation. It involves investing in a basket of assets
that will provide a return that is greater than the rate of inflation. This type of investment is
designed to protect against the risk of inflation eroding the value of the investor's portfolio.
Hedge inflation can be achieved through a variety of strategies, including using derivatives
such as inflation-protected securities or commodities, investing in real estate, and even
investing in gold and other commodities. Hedge inflation strategies can also be used in
conjunction with other investments, such as stocks and bonds, to further diversify a portfolio
and reduce the risk associated with inflation.
Studies that were conducted in the past have exhaustively studied the relationship
between gold rates and CPI or inflation. According to Jastram and Leyland (2009), most of
the researchers' studies were inspired by Roy Jastram's well-known research into gold which
is “The Golden Constant”. Jastram discovered that gold's price has remained largely
unchanged for centuries. Its purchasing power in the mid-1900s was almost identical to its

1
purchasing power in the 1600s. Recent research has uncovered a variety of data pointing to
the correlation between gold prices and inflation. Duong (2022) studied the relationship
between domestic gold prices and inflation in Vietnam based on the monthly series of the gold
price index and consumer price index over the period of December 2001–July 2020 showing
that short-term fluctuations in gold prices had the only influence on inflation. Ghost et al.,
2002; Shahbaz et al.; 2014; Hoang et al., 2016, claim that there is a relationship between
gold prices and the inflation rate. However, Ghazali et al. (2015), study the role of gold quoted
in domestic currency as an inflation hedge in Malaysia and claimed that no substantial
correlation has been observed between gold returns and inflation.
Besides that, real estate is an inflation-protected asset that can yield significant
returns. Property appreciates over time in value and increases in value with inflation. Investing
in real estate can provide a steady stream of income and provides an opportunity to leverage
the asset for future investment. With careful research and analysis, real estate investments
can be a great way for investors to hedge against inflation and maximize returns. A study
conducted by Hoesli (1994) indicates that real estate provides a more effective safeguard
against inflation over the long term compared to stocks. However, Gulseven & Ekici, (2020)
found that as inflation hedging becomes more crucial, the proportion of gold and real estate
in a medium-risk and medium-return portfolio has substantially increased.
Moreover, commodities have long been considered an effective inflation-hedge asset
due to their correlation with inflationary pressures. When inflation occurs, the costs of
commodities often go up due to heightened demand, which provides protection against the
deteriorating value of paper investments such as stocks and bonds. Commodities also provide
diversification benefits, as they tend to be uncorrelated or inversely correlated to other assets
in a portfolio. Also, commodities can be used to hedge against inflation risk in an environment
of rising interest rates, as commodities are not subject to the same interest rate risk as bonds.
Commodities can offer an opportunity to profit from the expected growth in global demand
for commodities, which can be a powerful hedge against unexpected inflationary pressures.
Talha et al. (2021), investigated commodities such as oil prices, energy consumption, and
economic growth have a positive association with the inflation rate in Malaysia.
1.2 Problem Statement

A thorough examination of many documented works reveals that, at the time of

conducting this research, it looks like no one has done any research yet to see if gold, reits,
and bond index with inflation rates can help protect Malaysian investors against inflation, even
though inflation is rising. Given the lack of research in this area, an examination to determine

2
if there is a statistically significant relationship between the inflation rate and gold, REITs, and
bond index.
1.3 Research Objective

• To examine the link between the inflation rate and gold, REITs, and bond index to
safeguard one’s assets against inflationary trends.
• To examine the effectiveness of commodities investment against inflationary trends.
• To examine the effectiveness of REITs investment against inflationary trends.
• To examine the effectiveness of bond investment against inflationary trends.
1.4 Research Question

• What is the link between the inflation rate and gold, REITs, and bond index to
safeguard one’s assets against inflationary trends?
• How effective is commodities investment against inflationary trends?
• How effective is REITs investment against inflationary trends?
• How effective is bond investment against inflationary trends?

1.5 Significance of the study

The importance of this research is that its findings will present a clearer picture of how
Malaysian retail investors make their investment judgments in times of inflation. Next, this
research can give us new perspectives on how institutional and retail investors in Malaysia
organize their assets in response to the inflation rate. Moreover, financial advisors can find
useful advice for making better investments for their customers from this study. Furthermore,
people who work in finance, such as financial managers, stockbrokers, fund managers, and
academic and non-academic researchers in investments, along with investment advisors, can
utilize this study to help in making decisions connected to the inflation rate.
1.6 Conclusion
This paper is ordered as follows: the beginning portion is a literature review, followed
by the research methodology for gathering data, and then the result and discussion of them.
Lastly, the finishing section is the conclusion which stresses the implications of the results for
the research.

3
 CHAPTER 2: LITERATURE REVIEW
2.1 Previous studies on the relationship between the gold price and inflation

This study examines the correlation between inflation and the price of gold using
monthly data from January 1999 through December 2018 (Anandasayanan et al., 2019).
Inflation and gold prices have been studied extensively, and Anandasayanan (2019) looked at
the evidence from Sri Lanka to draw his conclusions. Multiple statistical tests, such as
correlation and regression analyses, as well as the unit root and granger causality tests, have
been performed on the research data. According to the results, gold prices tend to rise in
tandem with inflation. Both the regression analysis and the Granger causality test results
showed that inflation significantly affects the gold price, with the latter indicating that the
relationship between the two is unidirectional.
Sahaida (2022) analyzed the variables impacting the cost of gold in Malaysia. This
research aims to shed light on how different macroeconomic variables affect the price of gold
in Malaysia by analyzing the data presented here. The findings demonstrate that gold's price
is affected by inflation and the current exchange rate, both of which may be highly useful
indications for projecting gold's price in the future. The inflation rate is the single most
important variable in determining the market value of gold. Through the use of Pooled
Ordinary Least Square (POLS) regression analysis, the researcher was able to accomplish all
of the study's aims (Md Hashim, 2022). In order to provide more useful findings, future
research should use additional regressor factors. Any number of macroeconomic indicators
might fall into this category, from the price of crude oil to the Gross Domestic Product to the
volume of imports and exports of goods and services. The sample size of the research is also
encouraged to be increased. Given the study on the gold price in Malaysia, it would be helpful
if similar studies could be conducted in other countries. If we take gold as an example, the
top gold-producing countries are South Africa, the USA, Canada, Australia, and China. Instead
of using a time series method, similar studies might be conducted using a panel data
approach.
In 2014, Ibrahim investigated what factors influence the price of gold in Malaysia. Data
from 2003–2012 was used to test the significance of a linear relationship between the
dependent and independent variables with the help of the Multiple Linear Regression Model.
Gold prices were the dependent variable, while crude oil prices, inflation rates, and currency
exchange rates were the independent variables (Ibrahim et al., 2014). The price of gold, the
value of currencies, and the rate of inflation all have a strong negative inverse relationship,
according to empirical data, while the price of crude oil has a strong positive inverse.

4
 Sukri et al. (2015) found, unexpectedly, that inflation, GDP, and the price of gold all
move in the opposite direction. Furthermore, between 2005 and 2014, the price of gold in
Malaysia has a negative correlation with both the price of crude oil and the currency rate.
Here, we use multiple regression analysis to look at how various macroeconomic factors are
connected to the price of gold (Kijang Emas). In this study, we looked at the correlation
between the two variables. Baur and Tran (2014) examined four decades' worth of data,
beginning in 1970 and ending in 2011, to assess the long-term correlation between gold and
silver prices. Gold and silver prices began to "decouple" in the 1990s, fluctuating at different
rates. Gold and silver prices have historically been seen to be connected, and many market
analysts and traders believe that this trend will continue.
2.2 Previous studies on the relationship between the bond and inflation

Bonds are not a foreign thing in the world of business and economics. Bonds to some extent
have some effects on the economy, especially in the risk of inflation. According to Shawn
Dewane (2010), in owning bonds there are two methods that can be used to gain profit. The
two methods are the interest paid by the bond and any increase in the bond's price. Following
the continuous flow of income, many parties make investments in bonds regardless of the
changing bond prices. In addition, inflation and interest rate changes are among the factors
that affect other prices. These two factors cause bond prices to tend to go down and up
against the bond price. Bond prices will fall if inflation experiences higher price increases. This
is because the current price increase causes a reduction in purchases.

According to Alam et al. (2013) stated that there is a difference in the market reaction
to the issuance of Sukuk and conventional bonds. This is shown through stock market
participants recognizing the differences in the characteristics of the two types of bonds.
Nevertheless, Miller et al. (2007) stated that the yield of Sukuk resembles the yield of
conventional bonds.

In recent years the bond market has experienced inflation. The first bonds whose
principal and interest was linked to the price of a basket of goods were issued by the State of
Massachusetts in 1780. In the post-war era, inflation-linked bonds were categorized more
broadly. Among them are countries that experience high and volatile inflation, which makes
inflation related.

In a study written by Rose & Spiegel, (2015), in that study, they examined the
relationship between inflation and the existence of local, nominal, publicly traded, long-
maturity domestic currency bond markets. This study was written because bondholders are

5
exposed to capital losses through inflation. The research done is by using a simple theoretical
model with heterogeneous agents. This study shows the number of poor households forced
to hold cash that is not protected from inflation. For asset holders that affect inflation results.
In addition, it is encouraged that the wealthy create this bond market because they respond
well. Also, create a strong political group against inflation and end up choosing less inflation
instead.
2.3 Previous studies on the relationship between the real estate and inflation

Rising rental property rates are likely positives during times of high inflation. It can be difficult
to obtain a mortgage during periods of high inflation. Because high mortgage rates reduce
buyers' purchasing power, many people continue to rent. This increase in demand leads to
higher rental rates, which is great for landlords. While appreciation is a distinct market
analysis, in general, housing prices rise in an inflationary economy. Real estate has intrinsic
value; people require shelter regardless of the value of their currency. If you can offer
favorable terms for private mortgages, you'll almost certainly have a line out the door. Real
estate has long been a favourite of pension funds. Real estate, among other things, provides
stable returns and has low correlation with traditional asset classes, providing diversification
benefits. Real estate returns have been shown to keep pace with inflation (Case et al. 2012;
Booth, 2002; Brounen et al., 2010). Currently, open-ended real estate funds use one or two
predetermined liquid assets, mostly cash and/or listed real estate.

Real estate and gold are two of the most important asset classes in investment
portfolios. By far the most important store of household wealth in the world is real estate.
According to the World Gold Council, the total amount of gold ever mined is over 190,040
tones as of 2017. This gold is worth a staggering 11.4 trillion dollars (at a price of $60 per
gramme). Many previous studies investigated the roles of real estate and gold in optimal. One
recurring theme in these studies is their role as inflation hedging instruments. It have observed
that household demand for real estate and gold has been extremely strong in recent years,
far exceeding what can be justified by ordinary market forces. They offer a cultural explanation
for this occurrence.

Under conditions of high inflation, the best inflation hedge is an interest-earning asset.
For Example, In Turkey, many people consider interest income to be un-Islamic, and they
avoid investing their savings in interest-earning assets. According to modern portfolio theory,
this situation may have had a significant impact on the prominence of real estate and gold in
their investment portfolios. In the absence of an interest-earning asset, real estate and gold

6
may have played a larger role as inflation hedges, fueling domestic demand for real estate
and gold. However, in recent years, the rate of inflation has risen again and now exceeds
25%. Because of its historically high and volatile rates, inflation is the primary concern for
Turkish households when constructing their investment portfolios. Turkish households invest
in a variety of assets, including equity and fixed-income instruments, to protect their savings
from high and volatile inflation. However, by global standards, household demand for equity
and fixed-income instruments in Turkey is low.

Ultimately, whether higher inflation is a passing fad or not is in the hands of the gods
(or maybe the central bankers). But whether the hawks or the doves are correct, the concept
of transitory will, presumably, be replaced in a short period of time. However, inflation is
always present, as is the risk it poses to investment returns. Real estate can help mitigate that
risk but stopping there is a mistake because differences across sectors and geographies can
have a significant impact on the degree to which future returns can be insulated from inflation.

7
 CHAPTER 3: RESEARCH METHODOLOGY
3.1 Research Framework

This research is done to examine and identify the relationship between a few variables that
are assumed to have influenced each other. The variables set in this study are Gold Price,
Malaysian Real Estate Investment Trust (MREIT), and Bond Index as independent variables
and Inflation Rate as the dependent variable. The framework in this study is based on previous
studies results that have been identified in the literature review. Gold Price is expected to
have a relationship with inflation rate in reference to the findings of Beckmann & Czudaj,
2013; See also Duong, 2022; Ghazali et al., 2015 Ghosh et al., 2004; Hussin et al., 2013.
Next, this study anticipates the relationship between MREIT and inflation rate due to the
discovery of Gulseven & Ekici, 2020; see also Hoesli, 1994; Obereiner & Kurzrock, 2012.
Besides that, Bond is also expected to have a relationship with the inflation rate which is
supported by the findings of Subhani & Osman, 2012.
3.1.1 Hypotheses Development

H1: There is a statistically significant relationship between the gold price and the inflation
rate.

H2: There is a statistically significant relationship between MREIT and the inflation rate.

H3: There is a statistically significant relationship between the bond index and the inflation
rate.

3.2 Sampling Design

According to Jawale (2012), sampling design is a technique or plan for taking a sample from
a population, whereas sampling is the action of selecting the right sample from a population
in order to discover the population's characteristics (Majid, 2018). The ideal research method
is to investigate the entire population, however, investigating the sample is more practical
because it is difficult to obtain data from a big population. A sample is best described as a
subset of the population and can be said as the representative of the population (Jaggia &
Kelly, 2018, p. 7). In this research, researchers use 10 years of data. The use of 10 years of
data for each variable instead of daily, weekly, and monthly data has been proven to be an
effective tool for measuring the yearly inflation rate. This is due to the fact that yearly inflation
rate data can be more accurately determined with longer time frames, which 10 years of data
provided. Additionally, this method allows researchers to better understand the overall trends
and patterns of the economy, which can be used to make more informed decisions.

8
Furthermore, using 10 years of data also allows researchers to reduce the noise and volatility
of day-to-day fluctuations in order to better understand the underlying economics. By utilizing
this approach, researchers are able to more accurately track and measure the yearly inflation
rate, gold price, REITs, and bond index which provides us with a better understanding of the
overall trend.

3.3 Data Collection

The data used in this study covered 10 yearly observations from the year of 2010 to 2020.
Data for the ABF Malaysian Bond Index Fund return and KLCC Property Investment Fund
return was sourced from Yahoo Finance, while the Gold Price return data was acquired from
Kijang Emas Bank Negara Malaysia. The Inflation Rate was measured using the Consumer
Price Index (CPI) that was obtained from the Department of Statistics Malaysia (DOSM).
3.4 Methods

Once the researchers have completely collected the data from the selected source, then, all
the data will be analysed by using several statistical methods to describe and illustrate,
summarise and evaluate the collected data.

3.4.1 Descriptive

Descriptive analysis in statistics is a set of techniques used to summarize and interpret a

dataset. It is used to explore and describe the characteristics of a dataset, such as its mean,
median, standard deviation, distribution, and correlations. It can also be used to identify
outliers or unusual data points. Additionally, it can also be used to identify patterns or trends
in the data, such as seasonality, non-linearity, or clustering. Descriptive analysis is an
important tool to help visualize and interpret datasets and can be used in a variety of
applications, such as market research or predictive analytics.

3.4.2 Correlation

In order to analyse the link between the variables, correlation analysis is being used in this
research to measure whether the correlation of the variables may be positive or negative.
However, when outliers exist in one or both of the variables, the correlation analysis may not
be an accurate measure; thus, it is important to evaluate whether the sample changes
drastically by deleting a few outliers but crucial data in the outlier should not be removed
(Jaggia & Kelly, 2018, p. 513).

9
3.4.3 Regression

According to Jaggia & Kelly (2018, p. 513), the multiple linear regression analysis allows
researchers to analyse the linear relationship between more than one explanatory variable
and the response variable. In this research, the Multiple Regression Analysis is being used to
determine the relationship between Gold Price, ABF Malaysian Bond Index Fund and KLCC,
(Independent Variable) with the Inflation Rate (Dependent Variable).

10
 CHAPTER 4: RESULT AND DISCUSSION
4.2 Descriptive Analysis

From the Table 1, we can see that the standard deviation in gold, KLCC and ABF
return is higher than the average, even up to twice as high. This suggests that returns on
assets have fluctuated wildly between the averages of gold, real estate and bonds. In Gold
return, the difference between its maximum value and minimum value is 48.29%, its lowest
value is -22.74% and its highest value is 25.55%. According to the data, the return value of
gold during the period of inflation and the average value fluctuated greatly. And they're very
discrete. That means they're not normally distributed. This shows that the data of the gold
return has a lot to do with the average. So, inflation could push up the price of gold. In terms
of KLCC. The standard deviation is still more than 2 times higher than the average. As can be
seen from the table comparison of gold, the return on investment in the real estate industry
is also very volatile. Its maximum value is 109.79%, but its minimum value is -7.06%. The
difference between the two is 116.85%. Compared with gold returns, real estate investment
in assets is more erratic and volatile. Therefore, there is a certain relationship between real
estate and inflation. In terms of ABF Return. Malaysia's bond comparisons are different. Its
minimum value is -2.84% and its maximum is 4.37%. So, they are only 7.21 percent apart.
The ABF figures are markedly different. And the deviation of the data is relatively small. As
for the inflation rate, this is a dependent variable.
Table 1

Descriptive Statistics Result

N Range Minimum Maximum Mean Std. Deviation

Gold Return 10 48.29% -22.74% 25.55% 6.2057% 15.05990%
KLCC Return 10 116.85% -7.06% 109.79% 16.2156% 34.57195%
ABF Return 10 7.21% -2.84% 4.37% 1.2767% 2.50892%
Inflation Rate 10 4.40% -0.70% 3.70% 1.9000% 1.32665%
Valid N (listwise) 10
Source: Developed for the research

4.3 Correlation Analysis

4.3.1 The correlation between the gold return and inflation rate

Based on Table 2, we can see that the correlation coefficient between the gold return and
inflation rate is -0.216, which indicates a negative association between the two. This suggests
that when inflation increases, gold returns tend to decrease. This result aligns with the
previous study conducted by Ibrahim et al., (2014) where the price of gold, the value of
currencies, and the rate of inflation all have a negative inverse relationship. While there is a

11
negative correlation between the return on gold investment and the rate of inflation, this
correlation is not strong enough to reliably hedge against inflation. Thus, gold investments
tend to perform better in times of deflation, rather than inflation. Besides that, referring to
the same table, it appears that there is no significant correlation between the two variables.
The corresponding p-value of 0.275 is greater than 0.05, which indicates that the observed
relationship between the two variables is not statistically significant and that there is not a
meaningful association between them. Thus, we reject the hypothesis and conclude that there
is no statistically significant relationship between the gold return and the inflation rate.

4.3.2 The correlation between the KLCC return and inflation rate

We can see that the correlation coefficient between the KLCC return, and the rate of inflation
is 0.063. Interpreting this correlation coefficient means that the movements of KLCC return
and inflation rates have a weak positive correlation. Referring to the previous study conducted
by Hoesli (1994) indicates that real estate provides a more effective safeguard against inflation
and according to Case et al. (2012); Booth, (2002); Brounen et al., (2010), real estate returns
have been shown to keep pace with inflation. However, the result suggests that when the
rate of inflation increases, the returns from KLCC will also increase by a small degree and
therefore the real estate assets may not be the most effective way for investors to hedge
against rising costs at least for the KLCC return. Besides that, the corresponding sig. (1-tailed)
is 0.431, p-value greater than 0.05, this means that the results of the statistical analysis
indicate that there is no significant relationship between the two variables being tested. Thus,
we reject the hypothesis and conclude that there is no statistically significant relationship
between KLCC return and the inflation rate.

4.3.2 The correlation between the ABF return and inflation rate

We can see that the correlation coefficient between the ABF rate of return and the inflation
rate is -0.145. The correlation coefficient of -0.145 suggests that there is a weak negative
correlation between the ABF rate of return and the inflation rate. This means that as inflation
rates increase, the rate of return on such investment decreases. This correlation makes the
Malaysian bond index fund (ABF) not strong enough to reliably hedge against inflation. This
finding is aligned with the previous study conducted by Rose and Spiegel in 2015 where they
claimed that bondholders are exposed to capital losses through inflation. The corresponding
sig.(1-tailed) is 0.345, a p-value greater than 0.05, which means they are non-significant to
each other. Thus, we reject the hypothesis and conclude that there is no statistically significant
relationship between ABF return and the inflation rate.

12
Table 2

Correlation Analysis Result

Correlations
Inflation Rate Gold Return KLCC Return ABF Return
Pearson Correlation Inflation Rate 1.000 -.216 .063 -.145
Gold Return -.216 1.000 -.221 .477
KLCC Return .063 -.221 1.000 -.308
ABF Return -.145 .477 -.308 1.000
Sig. (1-tailed) Inflation Rate . .275 .431 .345
Gold Return .275 . .270 .081
KLCC Return .431 .270 . .194
ABF Return .345 .081 .194 .
Source: Developed for the research

4.4 Regression Analysis

Based on Table 3, the R–square value represents the proportion of the variance in the
dependent variable that is explained by the independent variables. An R-squared value close
to 1 indicates that the model is a good fit for the data, while an R-squared value close to 0
indicates that the model does not fit the data well. The result shows that the R-Square value
is 0.048855509 which indicates that only 4.88% of the variance in the data can be explained
by the model. Therefore, this model is not a very good fit for the data and adjustments may
need to be made to improve accuracy. In addition, the standard error value in Table 3
represents the average distance that the observed values of the dependent variable fall from
the predicted values and a lower standard error indicates that the model is a better fit for the
data when we are comparing more than one model. However, in our case, this value is less
useful as we are assessing only one model.
Table 3

Regression Statistics Result

Regression Statistics
Multiple R 0.221032823
R Square 0.048855509
Adjusted R Square -0.426716737
Standard Error 0.015846203
Observations 10
Source: Developed for the research

Table 4 shows the ANOVA statistic result of the study. The F-statistic is a measure of how
well the model fits the data. A lower F-Statistic indicates that the model does not explain the
variation in the data as effectively. In this case, the F-Statistic of 0.102729941 is relatively low

13
and indicates that there is not a strong relationship between the independent variables and
the dependent variable. The significance F-statistic of 0.955477253 indicates that there is no
statistically significant relationship between the independent variables and dependent
variables, meaning that any changes made to the independent variables will not have a
meaningful effect on the dependent variable.
Table 4
ANOVA Statistic Result

ANOVA
df SS MS F Significance F
Regression 3 7.73871E-05 2.57957E-05 0.102729941 0.955477253
Residual 6 0.001506613 0.000251102
Total 9 0.001584
Source: Developed for the research

Table 5 displays the residual statistics from the study. The regression coefficient for Gold
return was observed to be -0.016680255, signifying that these two factors have a negative
relationship, as the Gold return is graphed in percentage, it suggests that if the Gold return
increases by 1%, the Inflation rate is predicted to decline by -0.016680255. Likewise, when
looking at the same table, the regression coefficient of KLCC return shows 0.000167143,
implying that as KLCC return rises by 1% it predicts an increase in the Inflation rate by
0.000167143. Contrarily, ABF return records a regression coefficient of -0.028177853,
indicating that a 1 percentage point increase in ABF return leads to a predicted decrease in
an Inflation rate of -0.028177853.
Table 5
Residual Statistics Result
Standard Lower Upper Lower Upper
Coefficients Error t Stat P-value 95% 95% 95.0% 95.0%
Intercep 0.006794 2.9977 0.0240 0.0037 0.03699 0.0037427 0.0369923
t 0.020367535 208 79142 77115 42707 2363 07 63
- - -
Gold 0.040061 0.4163 0.6916 0.1147 0.08134 0.1147060 0.0813455
Return -0.016680255 02 71197 22335 0604 553 4 3
- -
KLCC 0.016093 0.0103 0.9920 0.0392 0.03954 0.0392120
Return 0.000167143 41 85796 50198 12014 63 14 0.0395463
- - -
ABF 0.246398 0.1143 0.9126 0.6310 0.57473 0.6310924 0.5747367
Return -0.028177853 171 59019 84062 92459 6752 59 52
Source: Developed for the research

14
15
CHAPTER 5: CONCLUSION

16
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 APPENDICES

Gold Inflation
Year Price Return KLCC Return ABF Return Rate
2011 5,827 25.55% 1.88 -2.63% 1.10 0.85% 3.20%
2012 5,541 -4.91% 3.94 110% 1.09 -1.04% 1.60%
-
2013 4,281 22.74% 3.83 -3% 1.06 -2.84% 2.10%
2014 4,166 -2.69% 4.63 21% 1.04 -1.74% 3.20%
2015 4,816 15.60% 5.09 10% 1.05 1.29% 2.10%
2016 5,565 15.55% 6.27 23% 1.09 3.83% 2.10%
2017 5,533 -0.58% 6.84 9% 1.14 4.37% 3.70%
2018 5,418 -2.08% 6.35 -7% 1.19 4.04% 1.00%
2019 6,470 19.42% 6.87 8% 1.21 1.60% 0.70%
2020 7,694 18.92% 6.44 -6% 1.23 2.41% -0.70%

21