Sub Sector Indices and Crude Oil. Gold, Market Return

Sub Sector Indices and plebeian Oil. deluxe, commercialize Re delveCHAPTER 1INTRODUCTION1.1 IntroductionThe global unrefined anoint wrong has been seen a sharp join on in recent divisions and has been widely account in the day-after-day unused-sprung(prenominal)s write up or TV news. For example, popular bloodline and fiscal US found website Bloomberg has been constantly providing breaking news headlines homogeneous The honey cover peeled petroleum hits to level of $ 120 per barrel or Crude Oil Increases to 25-Month High as Commodities Gain. Besides, video clips atomic number 18 uploaded on the website with commentary by senior investiture analyst on the last traded b argon-assed ill-mannered inunct set with prominent TV host. It has been noted that rising approximative petroleum color outlays has created jittery and uncertainty in the financial mart. For example, either blackball news on price increase or disruption to petroleum supply bequeath ca en gage origination up mart indices like set Seng mogul, Nikkei 225, STI (Straits Times indicant), Shanghai complicated, Seoul Composite, and some sepa respects regional marts to fall sharply stifle jerk reaction from the investors on panic selling .Theoretically, scending of rasping vegetable rock oil prices leave behind cause inflation and inadvertently would cause sake rates to go up. Consequently, this would rival different segments of the financial merchandise in fragmenticular the buy in marketplace. It has been argued that continues rising on global oil price tercet counterbalancetually erode the company profit margin. Basher, Haug, and P. Sadorsky (2010) found that oil price can affect prices at a time by encountering prospective cash melt downs or indirectly through an impact on the post rate utilise to discount future cash f imp all overisheds along with in the absence of accomplish substitution effects surrounded by the factors of production and rising oil price. For example, on that point would be an increase in the toll of doing business as cost of peachy go forthing increase. In financial terms, discounting the free cash flow with the higher discount rate (cost of capital) leave alone cause the fair encourage of spud price military rank to decrease pregnantly from previous valuation. J.Happonen (2009) likewise high luminanceed that spiking high prices on crude oil ordaining affect greatly the poor as fuel cost ar most real in food production and transportation cost. High oil costs also hit mixed economies on a macro-level. good analysts pursue various types of methodology e.g. strainamental or technical psychoanalysis to approximate the future trend of the crude oil price meanwhile investment bankers start to develops and launches a new commodity mutual fund or unit trust products to attract attention on the public. As a precaution and in order to cling to their investment, chance adverse invest ors are moving their assets into the safer assets like valued metal, e.g. aureate, silver and etcetera agree to Basher Sadorsky (2006), oil is the lifeblood of modern economies. When growth of Growth Domestic Product (GDP) of the countries are apace increasing like BRICs (Brazil, Russia, India, and China), total demand oil of the countries give increase significantly. in that respect is a confident(p) consanguinity in the midst of the crude oil price and global metallic price trend in the market. The gene linkage of cash between the risings of crude oil price has been investigated and existential studies belowstand that the 2 commodities are correlated each another(prenominal)s. P. Narayan, S. Narayan and Zheng (2010) examine the long-run alliance between princely and oil spot and futures markets at different levels of matureness and found a significant positive correlation between crude oil and gold price.The most oil producers Organization of the Petroleum expo rting Countries (OPEC) members are from Islamic coun stress such as Iran, Iraq, Saudi Arabia, Libya, and etc. Based on the Islamic historical studies, Islamic law is forbids the use of a promise of payment such as fiat silver USD dollar acting as a medium of exchange. Thus, most of members try to diversify their vast US dollar revenue guardianship into precious metals e.g. trade in gold dinar and Dirham. The concept of capital Dinar System was mooted bulge come in by our piddleer Prime Minister Malaysia Tun Dr. Datuk Seri Mahathir on year 2002 before. The purpose of espouse the gold Dinar and Dirham is to lay out the altogether specie for international trade and prevent the Asia currency crisis 1997 to come up again. Meanwhile, some of the members also ref practice to accept USD as currency trade on the crude oil like Iran and Venezuela put one across been pushing for a sky to the euro to protect the value from further losses. This caused by US government adopted the ease monetary policy on keep printing their specie to curb the recession economy. Ultimately ply to USD dollar depreciated value congeneric with the Middle East oil producers currency.1.2 Problem StatementOil has been an principal(prenominal) commodity and influences the scotch activities of the country. On the other hand, gold has been used as important hedging tools to hedge against inflation which among others has been caused by rising oil prices. At present, with the present escalating oil prices, the world economy is grappling to look at inflation and ensure that the economic growth is not derailed. As a result, commodities like crude oil and gold has been a subject of studies by academics in various countries.Gold has been used as a healthy indicator of evaluate inflation in the market while oil is a barometer for deflation. Thus, when inflation is expected, investors pull up stakes divert their asset to the gold portfolio to protect their asset value. On the other ha nd, when deflation is expected investor will reallocate their funds and start to buy safer government bond. This reaction can partially be explained by behavioral finance whereby the investor is ir symmetrynal and market is an imperfect.A large body of empirical look for has been conducted on the impact of oil prices and other macro variables with relation to the straining market. Wang, CP. Wang, and Huang (2010) attempt to establish the bloods among oil price, gold price, exchange rate and international declination market. They investigated the fluctuations in crude oil price, gold price, and exchange rates of the US dollar against other various currencies on the filiation price indices of the United States, Germany, Japan, Taiwan and China respectively, as well as the long and short-term correlations among these variables. G. Sharma, A. Mahendru, (2010) studies on the impact of macro-economic variables on source prices in India. In Malaysia, Shaharudin and Hon (2009) exten ded the research to investigate the stock produce in relation with firms size and macroeconomic variables (Consumer monetary value king, industrial Production Index, Money Supply, Interbank Money trade Transaction, three months and six months exchequer Bills Discount identify and crude oil prices) and found that stock buckle under were significantly influenced by selected macroeconomic variables.Based on the importance of cardinal commodities prices and gold, this paper is attempt to investigate and address the significant level of relationship between the commodities and the selected 10 major sub- welkin components indices in FBM Kuala Lumpur Composite Index (KLCI). there have been limited researches studies on the different degree of impact of the crude oil price, gold price, market return, and short-term interest rate against sub-sector components index. A small number of studies were chief(prenominal)ly using stock index FBM Kuala Lumpur Composite Index (KLCI) as the gen eral delegate for overall work of stock market. However, the stock index consist a numbers of sub sector components index in FBM Kuala Lumpur Composite Index (KLCI) it may not be a true reflective of a particular plow divide of a sector to the overall stock market index. Thus, in our research will studies on these and examine the degree of significant level for commodities impact to a particular sub sector composite index.1.3 Objective of the StudyThe main(prenominal) objective of the composition is to examine the relationship of lease sub-sector indices between the crude oil prices, gold prices, market return, and short-term interest rate. The memorise will includes the examination of correlation between sub sector indices and 4 other variables as mentioned earlier. A sub-analysis on the gold oil ratio will also be conducted. Gold oil ratio is a barometer of economic vibrancy and when times are good the ratios indicator remains low and these reflect a comparatively robust priceand demandfor crude oil. When fear is permeating or the economy slumps, the ratio is high, as gold is chased by investors looking for a safe haven. In other words, this would infer that when the menstruum ratio is below the benchmark, gold price is either too low-priced or crude oil is too expensive. When the ratio is greater than benchmark, it will mean otherwise.1.4 Significance of the StudyThe economies of the world are now integrated in terms of trade and capital flows with formation of global net across different region. As such, when financial crisis occur, it will have organized effect throughout the world. A clear example is the occurrence of U.S. Sub-prime crisis which happened in 2009 and present year Euro Zone Debt Crisis was created contagion effect to the global economy. With emanation of technology and innovation of financial product, adventure adverse investors should be much alert on the important signals or indicators as a acquire to monitor and time the market to avoid any unexpected risk.The read of this paper is to study the relationship of oil prices, gold price, market return, and short-term interest rate on majors selected sub-sector index. The results on this study will add to the body of knowledge and assist policy crystalisers like Bank Negara Malaysia as well as pratictioners such as corporate managers and investors to participate in the stock market. It also enhance their understanding on the level of impact on the four (4) variables to the selected sub-sector indices.The trade Pricing guess (APT) postulates that every investor believes that the stochastic properties of returns of capital assets are consistent with a factor structure. For the purpose on this study, the APT work was adopted in evaluating the major sub-sector components indices relationship with various macroeconomic risk factors. The conclusion of the study shall enrich investor understanding on some sub-sector industries relationships to macroeco nomic risk factors. Thus, smart investors still have a chance to explore it and gain return on that sub-sector industries.1.5 Definition of damageKLSE (Kuala Lumpur Composite Index)The FBM Kuala Lumpur Composite Index (KLCI) is used as a proxy for the performance of the Kuala Lumpur descent transpose and comprises the largest 30 companies listed on the Main add-in by full market capitalisation that meet the eligibility requirements of the FTSE Bursa Malaysia Ground Rules. The two main eligibility requirements stated in the FTSE Bursa Malaysia Ground Rules are the free ice-cream soda and liquidity requirements.London Bullion Market (LBM) (U$ Troy Ounce) priceIndex shows the performance of gold prices over time per troy troy ounce. The troy ounce is a weight measure for precious metals, which is still used in the Anglo-American zone. It is named for the French city of Troyes.Crude Oil WTI (West Texas Intermediate)Known as Texas devolve sweet, is a type of crude oil used as a be nchmark in oil pricing. It is a light (low density) and sweet (low sulfur) crude oil. It is the underlying commodity of New York Mercantile Exchanges oil futures contracts.T-Bill pack 4T-Bill band 4 is type of money market instrument. The Malaysian treasury Bills (MTB) issued by the Central Bank of Malaysia are tradable on yield rump (discounted rate) ground on bands of remaining tenure (e.g., Band 4 = 68 to 91 days to maturity). The standard trading amount is RM5 million, and it is actively traded in the secondary market. This instrument represents the short-term interest rate in the Malaysia money market. The high or low interest rate will make bonds look more attractive than stock and consequently impact the stock price return.Sub-sector price IndexMajor sub-sector prices index are the 10 majors sub-sector price index consist of Consumer, Plantation, Finance, Trading and Services, Industrial, Industrial Products, Construction, Mining, Properties, and Technology. psychely index is representing overall performance instituted on sub-part of FBM KLCI index.CHAPTER 2THEORETICAL fabric AND LITERATURE REVIEW2.1 IntroductionThis chapter departs a comprehensive review on the empirical evidences on four (4) variables and the theories on trade pricing Theory (APT) gravel and Efficient Market Hypothesis (EMH). It will provide a better understanding of the relationship between variables and sub-sector component indices performance.2.2 Macroeconomic FactorsChoo, lee and Ung (2011) investigates the behavior of Japanese stock market volatility with respect to a few macroeconomic variables including gold price, crude oil price and currency exchange rates (Yen/US$). The authors using the performance of GARCH models and Ad Hoc methods to carried out a comparison study.Their results show that macroeconomic variables used in this study have no impact on the volatility of Japanese stock markets and the simplest GARCH (1, 1) model yields the best result. Maysami et a l. (2004) study on relationship between macroeconomic variables and stock market indices co-integration Evidence from Stock Exchange of Singapores All-S Sector Indices and found on the study concludes that the Singapores stock market and the property index form co-integrating relationship with changes in the short and long-term interest rates, industrial production, price levels, exchange rate and money supply.2.3 Crude oilBased on the past study from Huang et. Al, (1996), they found that oil future returns do not have much impact on SP 500 Index. On the other hand, Al-Rjoub,Samer Am* (2005) investigated the effect of oil price shocks in the U.S. for 1985-2004 using volt-ampere Mixed Dynamic and Granger Causality Approaches to study the whether the U.S. stock market react to the oil shocks, a big importer of crude oil. They found that from var declares that oil shock affect the stock market returns in the U.S. oil price are important in explaining the stock market reactions. Acco rding to Basher Sadorsky (2006), oil is the lifeblood of modern economies and can have significant impact on the growth of a countrys economy.In addition, Driesprong, Jacobsen and Maat (2004) found that investors in stock markets under react to oil price changes in the short run. Recent study by Charles (2009) found that higher volatility in both gold price and oil price reduces volatility of stock price. Some studies directly tested the relationship between oil prices and stock values. Huang, Masulis and Stoll (1996) applied transmitter autocorrelation models to find the time-serial publication relationship and concluded that crude oil futures lead stock prices of oil companies. However, they were unable to bring a conclusion for any significant relationship to other stock prices. In addition, the volatilities of crude oil futures lead the volatilities of oil industry stock index. A related study (Sadorsky, 1999) had different conclusion. It showed that oil prices as an important factor which guesss stock prices very well. Sadorsky (2003) used vector autocorrelation model to verify the importance of oil price, federal fund rate, CPI, foreign exchange as variables to describe the performance of technology stock prices.Hamilton (2008) examines the factors responsible for changes in crude oil prices and the statistical behavior of oil prices. The study includes the role of commodity speculation, Organization of the Petroleum Exporting Countries (OPEC), and imaginativeness depletion and found that although scarcity rent made a negligible contribution to the price of oil in 1997, the situation at present would be different and crude oil prices might play an important role.2.4 GoldMelvin and Sultan (1990) consider a different approach of establishing the relationship between gold and oil markets. Their study was based on the implication of the gold prices through the export revenue channel. As gold is an integral part of the international reserve asset of severa l countries, including the oil producing countries, their finding give away that stock shock will leads to expectations of official gold leveragings and this in turn will make the expected future price of gold to soar higher. Sultan (1990) argue that when oil price rises, the oil exporters countries will get in terms of higher oil revenues. This in turn may have implications on the price of gold especially when the gold consists of a significant share of the asset portfolio of oil exporters (relative to other nations) and oil exporters purchase gold in proportion to their wealth. The impact on this will lead to an increase in demand for gold and subsequently rise in price of gold and ultimately an oil price rise leads to a rise in gold price.Ismail et al. (2009) develop a forecasting model for gold prices using Multiple Linear Regression Method to predict gold prices based on economic factors such as inflation, currency price movements and others. They argue that investor starts to invest their asset in gold because of dispraise of US dollar currency and gold as an important stabilize role for investment portfolios. based on their findings, they conclude that many factors finalise the price of gold and several economic factors such as Commodity Research Bureau future index (CRB) USD/Euro Foreign Exchange Rate (EUROUSD) Inflation rate (INF) Money Supply (M1) New York Stock Exchange (NYSE) Standard and Poor 500 (SPX) exchequer Bill (T-BILL) and US buck index (USDX) were considered to have influence on the gold prices.2.5 T- snoot (short term interest Rate)T-Bill rate is a benchmarking for short-term interest rate and is deemed as risk free. As such, T-Bill rate is normally taken into consideration for financial valuation purpose and widely used by financial institutions and academics especially to figure the fair value of stock pricing. Chan et al. (1992) reaffirmed that the short-term riskless interest rate is one of the most fundamental and important p rices determined in financial markets.In referred to Damodaran (2002) published textbook Investment Valuation Tools and Techniques for Determining the measure out of Any Asset, Choice of risk-free security the returns on both Treasury bill (t-bills) and treasury bonds (t-bonds), and the risk bountifulness for stocks can be estimated relative to each other. This was based on the yield curve in the US that has been on upward-sloping for most of the past seven decades. The risk premium is bigger when estimated relative to short-term government securities (such as Treasury bills). Damodaran (2002) also stated that the risk risk-free rate chosen in computing the premium has to be consistent with the risk-free rate used to compute expected returns. So, if the Treasury bill rate is taken into consideration as a risk-free rate, the premium has to be make by stock over that rate. This applies to the Treasury bond rate as well and premium has to be estimated relative to that rate. He als o mentioned that for the most part, in corporate finance and valuation, the risk-free rate will be a long-term remissness free (government) bond rate and not a Treasury bill rate. Thus, the risk premium used should be the premium bring ined by stocks over Treasury bonds.2.6 FBM Kuala Lumpur Composite Index (KLCI)The FBM KLCI is taken as a proxy to represent the market growth optimal portfolio. This research paper attempt to construct and compare various total-return world stock indices based on daily data. The data was collected from infoStream Advance cover the stop consonant from 01 January 1973 to 31 August 2006. Due to the diversification, these indices are noticeably similar. This proposed method of constructing a proxy for the growth optimal portfolio has specific receiptss over the methodologies of diversity weightiness and market capitalization weighting. The diversified world stock index has applications to derived pricing and investment management.Petttengill et al. (1995) true a conditional relationship between return and beta that depends on whether the excess return on the market index is positive or negative. When the excess return on the market index is positive (negative), on that point should be a positive (negative) relationship between beta and return. Their empirical results support the conclusion that there is a positive and statistically significant relationship between beta and complete returns. Furthermore, consistent with Hodoshima et al. (2000), the results are similar when the test is done on 20 beta sorted portfolios. However, it seems that the negative relationships during down market are bluff in Tokyo Stock Exchanges (TSE), which seems to have contributed to have negative rewards for holding beta risk in the long run. Consistent with the findings of Pettengill et al. (1995) in the ground forces and Hodoshima et al. (2000) in the Tokyo Stock Exchange (TSE), the result found that there is a significantly positive relat ionship between portfolio beta and portfolio return during up markets and the relationship is significantly negative during down markets. Moreover, the test of single(a) stock return shows that this conditional relationship can even be seen in individual stock returns. That is, there is a significantly positive (negative) relationship between individual stock beta and individual stock return up (down) markets. However, the results of the study suggest that the beta-return relation, in the Tokyo Stock Exchange (TSE), seems to be negatively steeper during down markets, which seems to have contributed to have a negative reward for holding beta risk even in periods where the sightly market excess return is positive. Therefore, in conclusion, the results suggest that, though the slopes during down markets seem to be steeper than up markets, there seems to have a conditional relationship between beta and return, which justifies the keep use of beta as a measure of market risk.2.7 trad e Pricing Theory (APT)The Capital Asset Pricing Method (CAPM) is a single factor model it specific risk as a function of only one factor, the securitys beta coefficient. CAPM has been considered as one of the main tools to study for the risk-return trade-off assets. CAPM has been widely referred and used in academic research and business financial studies. As long as the return for any asset is interrelated to one variable with its market beta, or the magisterial risk, it is defined as the covariance of an assets return and the market return. CAPM implies that expected returns and market beta exists, and only market beta that efficiently exanimate the time series and cross-sectional tests for asset returns.CAPM has its restrictions, assume investors are rational and based on several assumptions that were not practical in the real world. According to empirical studies by Fama and MacBeth (1973), there are several variables e.g. the market value of candor ratio (MVE), the earnings to stock price ratio (E/P), and the book-to-market equity ratio that having greater influence compare to market beta. another(prenominal) study was carried out by Ross (1976) on the Arbitrage Pricing Theory (APT) which was considered a new modeling for CAPM. Ross refute through Arbitrage Pricing Theory (APT) that market beta is not the only variable to measure the systematic risk. There are multiple variables that have an effect on the stock returns beside market beta. The study tested on systematic, unconditional, and positive trade-off between average returns and beta.Perhaps the risk-return relationship is more manifold, with a stocks need return a function more than one factor. For example, what if investors, because personal tax rate on capital gain are lower than those on dividends, value capital gains more highly than dividends. Then, if two stocks had the same market risk, the stock remunerative higher dividend would have the higher required rate of return. In that case, required returns would be a function of two factors, market risk and dividend policy. The Arbitrage Pricing Theory (APT) can include any number of risk factors. So the required rate of return could function of two, three, four or more factors. The Arbitrage Pricing Theory (APT) is based on complex mathematical and statistical theory that goes far beyond the scope for intervention in this paper.Even though the Arbitrage Pricing Theory (APT) model is widely discussed in academic literature, the practical usage to date has been limited. The concepts of Arbitrage Pricing Theory (APT) which assume that all stocks return depend on only three factors Inflation, industrial productions, and the aggregate degree of risk plague (the cost of bearing risk, it was assume that this will be reflected in the outspread between the yields on Treasury and low-grade bonds). The primarily theoretical advantage of the Arbitrage Pricing Theory (APT) is that it permits several economic factors to influen ce individual stock returns, whereas the CAPM assumes that the effect of all factors, except those unique to the firm, can be captured in a single measure fewer assumptions than the CAPM and hence is more general.Efficient Market Hypothesis (EMH)The Efficient Market Hypothesis (EMH) was genuine by Professor Eugene Fama. He said that an efficient capital market theory is one in which security prices adjust rapidly to the reaching of new instruction and, therefore, the current prices of securities should be reflected all information well-nigh the security. In simple terms, it means that no investor should be able to employ readily available information in order to predict stock price movements quickly enough so as to make a profit through trading shares. If markets are efficient, stock price will rapidly reflected all available information. There are different types of information available to incorporate into stock prices. Financial theorist have been developed the three form of m arket efficiency. There are three common forms in which the efficient-market hypothesis is commonly statedweak-form efficiency, semi- soaked-form efficiency and strong-form efficiency, each of forms has different implications for how markets work.In weak-form efficiency, future prices cannot be predicted by analyzing prices from the past. The supernormal return cannot be earned in the long run by using investment strategies solely depend on historical data share prices. Moreover, technical analysis techniques will not be able to consistently produce an abnormal profit, though some forms of fundamental analysis may still provide excess returns.In semi-strong-form efficiency, it is implied that share prices adjust to publicly available new information very rapidly and in an unbiased fashion, such that no excess returns can be earned by trading on that information. Semi-strong-form efficiency implies that neither fundamental analysis nor technical analysis techniques will be able to r eliably produce abnormal return. However, in strong-form efficiency, share prices reflect all information, public and private, and no one can earn excess returns. If there are legal barriers to private information comme il faut public, as with insider trading laws, strong-form efficiency is impossible, except in the case where the laws are universally ignored.CHAPTER 3RESEARCH METHODOLOGYThis chapter provides an outline of the research help designed to investigate the relationship between economic variables and Sub-sector price index.3.1 The DataIn this section, we will summarize our models data and present the methodology of our model. The daily data for interdependent and dependable variables e.g. FBM KLSE (Kuala Lumpur Composite Index), T-Bill band 4, Crude oil WTI (West Texas Intermediate) price, London Bullion Market (LBM) (U$ Troy Ounce) price, and Sub-sector Price Index are collected from the DataStream and cover from period 17/04/2000 to 18/04/2011. There are 2610 daily obs ervations obtained from DataStream. The data set is given in the Appendix of this paper. In relation on this, dependable variable are consists of ten (10) majors price index e.g., Consumer Product, Plantation, Finance, Trading and Services, Industrial, Industrial Products, Construction, Mining, Properties, and Technology.As can be seen from figure 1, there is an increasing trend on global gold price and reached its the highest point, $ 1,492.06, on 18th April, 2011. The gold price was tending to increase since year October, 2008. We believe this trend will continues increasing due to strong demand and short supply gold in the commodities market. Moreover, some expertness research firms like GFMS, a leading global precious metals consultancy, released its 2011 Gold Survey and GFMS expects that gold will reach $1,600 by the end of 2011.Another independent variable, Crude oil WTI (West Texas Intermediate) price known as Texas light sweet, is a type of crude oil used as a benchmark in o il pricing. As refer to figure 2, the oil price increase significantly during year 2007 and the reasons behind can be explained by the Asian growing demand on oil to stomach their economy growth. The past researchers also been reported, that oil consumption in India was increase approximately 8.7% according 1998 and 6.5% according to 2006. Mehmet Eryigit (2009) has studied and found that in year 2007, USA has been consumed the 23.9% of the total oil, however total share of the world oil consumption for China, India and Turkey in 2009 is only accounted 13.4% (China consumed 9.3%, India consumed 3.3%, and Turkey consumed 0.8%). Meanwhile, back to pump of year 2008 Sub-prime crisis was happened in U.S financial system and the crude oil price has reached to a minimum price $31, that is a minimum last monger price was reported since year 2004. After decreasing trend along the year 2008, early of 2009 crude oil price are at the recovery stages and maintained a reasonable price between $ 65 -$ 100 per barrels. We expect the crude oil price bullish will continue increasing.The next independent variable is Market returns FBM Kuala Lumpur Composite Index (KLCI). The Kuala Lumpur Composite Index (KLCI) is used as a proxy for the performance of the Kuala Lumpur Stock Exchange and comprises the largest 30 companies listed on the Main Board by full market capitalization.The last independent variable is T-Bill band 4. T-Bill band 4 is type of money market instrument. The Malaysian Treasury Bills (MTB) issued by the Central Bank of Malaysia Are tradable on yield basis (discounted rate) based on bands of remaining tenure (e.g., Band 4 = 68 to 91 days to maturity). This instrument are represents the short-term interest rate in the Malaysia money market. The high or low interest rate will make bonds look more attractive than stock and consequently impact the stock price return.Figure 1 London Bullion Market (LBM) (U$ Troy Ounce) PriceFigure 2 Crude Oil WTI (West Texas Interme diate) Price3.2 Conceptual Framework1. Crude Oil WTI2. London Bullion Market (LBM) (U$Troy Ounces)3. KLSE (Kuala Lumpur Composite Index)4. T-Bill Band 4Sub Sector Price IndexConsumer Product,Plantation,FinanceTrading and Services,Industrial,Industrial Products,Construction,Mining,Properties, andTechnology.The conceptual framework of this study was derived from literature review where proven macroeconomic variables like FBM Kuala Lumpur Composite Index (KLCI) are used as independent variables. The Crude oil WTI (West Texas Intermediate) future contract price, London Bullion Market (LBM) (U$ Troy Ounce) price, and T-bill band 4 had been widely used in evaluating a significant statistical rel