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th, money supply and inflation as well. The selection of these variables is chosen based from the past studies which is relevance in Malaysia.

1.8.3 Interest Rate

This economic indicator has been chosen because it would affect the future cash flow of property firms and discount rate. Usually higher interest rate would increase debt service on property companies and reduce future net income. It does affect the investor rather not to invest in stock market but they will save their money in the bank which is fixed deposit that will give higher interest rate.

1.8.4 GDP

Growth GDP is a measure of all currently produced final goods and services valued at market prices and the aggregated value of all the industries in an economy. Since real estate is a significant asset of a nation’s economy, the economic growth should reflect the property market conditions. Consequently, the GDP growth could have predicative power to property stock returns. Accordingly growth in GDP is expected to have a positive influence on the excess returns for property stocks.

1.8.5 Money Supply

When talking about the money supply (M3), its rationale to put this as a relevant macroeconomic factor. This is the broadest measure of money (comprise M1 and M2) as it is used by economists to estimate the entire supply of money within an economy. Changes in money supply will affect the equilibrium position of money and automatically altering the composition and price of asset in an investor portfolio. Second changes in money supply may impact on real economic variables and having a lagged influence on stock and property stock returns. However, increases in money supply may also give rise to greater inflation uncertainty thus can have an adverse impact on real estate market in Malaysia.

1.8.6 Inflation

When money supplies increase it can give rise in inflation and the economy. It’s generally measured by changes in Consumer Price Index (CPI) which measure the retail prices of several thousand goods and services purchased by household. An increase in inflation it will make an investor refused to put their money to invest in stock.

Summary

This study employs some important macroeconomic factors such as interest rate, GDP growth, money supply and inflation. Analysis is applied to find the significant although positive or negative relationship between them. This paper also represents an important step toward addressing the issue to identification between the macroeconomic environment and the property stock market and the implication to the country.

CHAPTER 2

literature review

2.0 Introduction

Stock market gives an important role to economic growth of a country. It is the lifeblood of the economy of a nation that concerns individuals, firms as well as government. However, stock market is a volatile financial market, in which various factors can affect the return that investors can gain from investing in stocks. Any change in such economic variables as real output, money supply, interest rate, inflation and others may affect stock prices through their influences on firms’ cash flows and discount factors.

History has shown that, the relationship between macroeconomic variables and of stock market are always being a subject to academics and researchers around the globe. It’s al