A comparative study of the effects of the selected economic and financial market variables on stock market returns of Malaysia and Bangladesh

Malaysia and Bangladesh are two Asian countries that have some common aspects of religion and history. Both countries have growing capital markets in line with their economies. In light of this background, a comparative analysis is conducted in this study on the basis of the stock market return. The effects of selected economic and financial market variables are examined, and a comparative study is then conducted between the two markets on the basis of these effects. This study is aimed at finding the relationship of stock market return and selected economic and financial market variables grounded by the arbitrage pricing theories. The Generalized Method of Moments (GMM) is used to examine the effects of financial market variables (market capitalization, earning per share, price-earning multiples, dividend yield, and trading volume) on the stock market returns for both countries. The economic variables used in this study are interest rate, exchange rate, GDP and trade openness. This study incorporates secondary data from 2005 to 2016. Random effect panel data models are used for the analysis of the effects of economic variables. The regression result of the financial market variables and stock market return shows that, except for trading volume, all the selected financial market variables play significant roles in the stock market returns for both countries. The regression result of economic variables and stock market return shows that, except for the interest rate and trade openness, all the selected economic variables play a significant role in explaining stock market return for both of the countries. The comparative study on the basis of the effects of financial market variables was conducted using the panel data analysis method. The result shows that in Malaysia, both economic and financial market variables have more effects on the stock market return than that of in Bangladesh. The outcome of this study can contribute by helping the domestic and global investors formulate strategies to minimize their risks. Also, policy administrators may use the outcomes of this study to inform the micro and macro-level policy formulation. Moreover, the present study will contribute to filling the gap in knowledge concerning the new release of factors affecting stock market return and the comparative study of two capital markets.