The relationship between soybeans and crude oil with palm oils indexes has been the subject of limited studies, particularly in Malaysia. The previous paragraphs have mentioned that existing studies mostly focus on the relationship of commodity prices like soybean and crude oil prices to CPO (a href="https://www.mdpi.com/2227-799/10/10/237#B30–economies-10-00237 title ="">Vo) 2019). The methodology used in this study is considered novel as previous studies looked at the relation between the energy commodity and indexes for stock market. Miller and Ratti 2009 revealed that crude oil had an enviable relationship with six stock indices from OECD countries. A shock to the crude oil market also affected the stock market of Greece ( filis2010). The Toronto Stock Exchange, NYSE and AMEX were also affected by the impact of crude oil ( Kang 2013 and Ratti 2013 ) as well as Dow Jones Global Islamic Index (a href="https://www.mdpi.com/2227-799/10/10/237#B21–economies-10-00237") title ="">Mishra and. the. 2019). Researchers have found that emerging markets were more vulnerable due to the short-term causality of crude oil to stock exchanges in India, Brazil and Thailand (a href="https://www.mdpi.com/2227-799/10/10/237#B28–economies-10-00237") title ="">Raza. 2016). Another study done in China found that shocks to oil can affect profitability because of fluctuating production and inflation and the decline in real consumption ( Zhou 2015; title ="">Zhao 2016). These studies didn't find any evidence that stock indexes can influence the price of crude oil, which suggests there is only one causality.
It is easy to understand how other commodities relate with indexes of the stock market and CPO. This does not answer the question regarding whether prices for commodities like soybean or crude oil, could be linked to the palm oil market. This information is essential for fund managers, share investors and other industrial players trading in palm oil market indexes. It will help them make informed decisions regarding investment trading, hedging, and managing risk. Thus, this paper contributes to the field by providing new information and evidence regarding the relation between palm oil indexes with soybean and crude oil futures. These findings could aid in decision making by managers of palm oil companies, market participants like traders, investors, and fund managers who previously been closely monitoring the CPO movements.
Like other commodities that are traded, the palm oil company's share price performance is subjected to the risk of market. The CPO is also subject to significant price swings. Several studies have been done in the past ( Alias 1998 and title ="">Yu and al. 2006; Khin et al. 2013; Rahman 2013; Bergmann et al. 2016; Lestari and Oktavilia 2020; Isa et al. 2020; Zaidi et al. 2022) to identify the potential variables that affect the price movements of CPO are also in support of this idea. These studies revealed that macroeconomic variables like export, production, as well as stockpile, have a strong relationship with CPO over the long term. Therefore, movements in export, production and stockpile can affect CPO prices (a href="https://www.mdpi.com/2227-799/10/10/237#B18economies-10-00237 title ="">Khin, and. 2013; Rahman 2013 (Ziaei & Ali 2021). CPO's interest rate, exchange rates, and the industrial production index (IPI) are also linked in significant relationships (a>>>https://www.mdpi.com/2227–7099/10/10/237#B1economies-10-00237 title ="">Ahmed 2020). Fund managers traders, investors and traders are still struggling to estimate CPO prices using these variables, despite the overwhelming evidence. The data may not be accessible on a monthly basis, but information on trading in CPOs shares of palm oil companies is available every day. Other variables can affect CPOs as well as palm oil company shares' prices.
Studies have also shown that the price of CPO is affected by crude oil. This creates an important relationship between CPO (ahref="https://www.mdpi.com/22277099/10/10/237#B31–economies-10-00237") title ="">Yu and others. 2006; Campiche et al. 2007; Nazlioglu 2012 ; and Soytas (2012); Bergmann and colleagues. 2016). This explains the CPO's response to the price movement of crude oil in Malaysia particularly in the context that Malaysia is taking steps to introduce biodiesel as an alternative to crude oil. CPO was one the feedstocks for biodiesel. This means that the rise in biodiesel production simultaneously increases CPO export demand and lowers the consumption of crude oil ( murti 2017). The studies that were related also demonstrated that the results of crude oil's influence on stock prices were significant. They can aid with making investment decisions, the valuation of derivatives, as well as hedge strategies. 2016; Mishra et al. 2019).
Recall, there was a strong correlation between crude oil futures for soybean and crude palm oil. A number of studies also examined the relationship between the crude oil futures with stock market indexes. Most studies focus on palm oil crude in both the physical and futures markets. Unfortunately, there are not many studies that focus on the palm oils indexes. This study takes the opposite approach, by studying the results of indexes based on palm oil which are where companies that deal with palm oil are listed and every investor can participate by owning palm oil-related stocks. Because the stocks are listed publicly and are traded on the stock exchange, price fluctuations do not just affect the companies as well as the people who own shares. This palm oil indexes will assist investors, specifically fund managers, track the performance of palm oil-related businesses. This research will assist investors to better understand these indexes, particularly with regard to the factors that could cause price fluctuations for palm oil companies listed on the index.
According to the FTSE statistical report ( 2022), Malaysia isn't the biggest producer of palm oil. But Malaysia is the leader in bringing palm oil-related businesses onto the market. Malaysia is the second largest producer of palm oil, with 30.87 percent of it being produced by Singapore and Singapore, while Indonesia is at 9.01 percent. Indonesia is the largest crude palm oil exporter and producer. But there are many private companies within the country. The top five palm oil companies in Malaysia included Sime Darby Kepong (Kuala Lumpur Kepong) and IOI. Meanwhile, the top two companies in Singapore are Wilmar Limited and Golden Agri Resources. Malaysia has become a haven for investors, particularly fund managers who want to invest in palm oil companies and earn capital gains or dividends. The author preferred Malaysian markets over the markets of Singapore and Indonesia because of these reasons. We will include these two markets later in the future for research that could be regarding palm oil indexes.
As CPO business activities increased over time and palm oil companies grew in number, they have decided to put their shares on the Kuala Lumpur Stock Exchange (KLSE) and to make Bursa Malaysia their home. To date 42 companies have been listed and have a market capitalisation of over 100 billion MYR. The share price performance of these 42 palm oil firms can be observed by the overall performance of the Plantation index. CPO's demand has been steadily growing due to its wide use in cooking oil ( Arshad & Mohamed 1991, Lestari & Oktavilia2020). Bursa Malaysia launched three additional palm oil indexes. These were the Malaysian palm as well as the Asian palm in Malaysian Ringgits, and the Asian palm in American dollars (USD) ( Asia Asset Management 2009.). The indexes serve the purpose of increasing and exposing the interest of foreign investors in palm oil companies. Indexes that are more comprehensive permit fund managers, investors and traders to follow the performance of palm oil-related businesses that earn substantial revenues from palm oil-related operations.
Particularly in Malaysia There have been relatively few studies that have examined the relation between soybean oil and crude oil with indexes of palm oil. As stated earlier, most studies focus on the relationship between commodity markets such as soybean and oil that have CPOs (ahref="https://www.mdpi.com/22277099/10/10/237#B30–economies-10-00237") title ="">Vo. 2019). The current study is novel as no previous research has examined the relationship between the energy commodities and stock market indexes, or any similar approach. Miller, Ratti 2009 and an index of stocks from an OECD country ( Miller & Ratti 2009 ) as well as a stock market shock in Greece ( filis 2010) revealed that crude oil had a relationship with six OECD indexes ( Miller & Ratti 2009 ). Crude oil also affected Toronto Stock Exchange, NYSE, AMEX, NASDAQ ( Kang and Ratti 2013), and Dow Jones Global Islamic Index (Mishra et al. 2019). Research also showed that there was significant short-term causality between stock exchanges in India and Brazil. This made emerging stock markets more susceptible to risk. 2016). Another study conducted in China showed that oil shocks impacted a firm's profitability due to fluctuations in production and inflation and a decline in real consumption ( Sim and Zhou 2015 Sim and Zhou 2015; href="https://www.mdpi.com/2227-7099/10/10/237#B34-economies-10-00237" title ="">Zhao and Zhou. 2016). These studies did not find that stock indexes have an effect on the price of crude oil. This implies that there is only one way of causality.
However, very few studies have examined the connection between soybeans and crude oils with palm oil indexes, particularly in Malaysia. The existing studies focus mainly on the relationship between commodity price like soybeans and crude oils , and CPO prices (a>> ="">Vo.et and. 2019). This study is unique because there is a lack of studies that have previously looked at the relationship between energy commodities & indicator of stock markets. Miller, Ratti 2009 and an index of stocks of OECD country ( Miller & Ratti Miller & Ratti, 2009 ), while a stock market shock in Greece ( filis 2010) demonstrated that crude oil showed an impact on six OECD indexes of stocks ( Miller & Ratti 2009 ). Crude oil also affected the Toronto Stock Exchange, NYSE, AMEX, NASDAQ ( Kang and Ratti 2013) as well as the Dow Jones Global Islamic Index (Mishra and others. 2019). Researchers discovered that an emerging stock market was more vulnerable because of an important short-term connection between crude oil prices to stock exchanges. 2016). Another study conducted in China revealed that oil shocks had a negative impact on the profitability of a company because of fluctuations in production and inflation as well as a decline in real consumption ( Sim and Zhou 2015 Sim and Zhou 2015; href="https://www.mdpi.com/2227-7099/10/10/237#B34-economies-10-00237" title ="">Zhao and Zhou. 2016). These studies did not find that stock indexes have an effect on the cost of crude oil. This indicates that there's only one possible causality.
Other studies have shown that the cost of CPO is affected by crude oil. This results in an important relationship between CPO (ahref="https://www.mdpi.com/22277099/10/10/237#B31–economies-10-00237") title ="">Yu and other. 2006; Campiche et al. 2007; Nazlioglu and Soytas 2012, Bergmann et.al. 2016). This is why the CPO was able to respond to the increase in crude oil prices in Malaysia. Malaysia is also taking steps to allow biodiesel to be an alternative to crude oil. CPO was a feedstock used in biodiesel, so the increased production of biodiesel increases CPO's demand while reducing consumption of crude oil. Murti 2017, Some of the researchers involved in these studies believed that their study on crude oil's impact on the price of stocks was important and could play a significant role in investment decisions, derivatives valuations, and hedge strategies (ahref="https://www.mdpi.com/2227-799/10/10/237#B28–economies-10-00237") title ="">Raza and the others. 2016; Mishra et al. 2019).
As with all commodities, palm oil companies' share price performance is subjected risk in the market. CPO prices can also fluctuate significantly. Numerous studies have been conducted in the past ( Alias 1998 and the title ="">Yu and co. 2006; Khin et al. 2013; Rahman 2013; Bergmann et al. 2016; Lestari and Oktavilia 2020; Isa et al. 2020; Zaidi et al. This viewpoint was backed by Zaidi, et . al. 2022 to study the influences that could affect the price of CPO. These studies proved that macroeconomic variables such production as well as exports and stockpiles have a strong correlation with CPO prices in the past. The CPO price will reflect the changes in export, production and stockpile. 2013; Rahman 2013; Ziaei and Ali 2021). CPO's interest rates, exchange rate and industrial production Index (IPI) are all linked by significant relationships (a>>>https://www.mdpi.com/2227–7099/10/10/237#B1economies-10-00237 title ="">Ahmed 2020). Fund managers, investors, traders and traders are still struggling to predict CPO prices with these variables, in spite of all evidence. The data may not be available on a monthly basis, but information on the trading of CPOs shares of palm oils companies is readily available on a daily basis. There are many factors which can affect CPO prices and stock prices for palm oil companies.
CPO trading integrates into the international financial markets. Thus, it is vital to examine the price movement of the other commodities. Numerous studies have revealed significant relationships between CPO pricesand commodity prices in different sectors of the energy and agricultural sector ( Yusoff 1988; Alias & Othman 1998) title ="">Vo and titleVo and. 2019). Soybeans' prices as an alternative to cooking oils are stable and respond positively to changes in CPO's price (a href="https://www.mdpi.com/22277099/10/10/237#B33–economies-10-00237") title Zaidi et.al. 2022). This association is consistent with the classic demand hypothesis that states that an increase in prices of palm oil for substitute products will raise palm oil demand which, in turn, increases palm oil prices. Furthermore, soybeans and CPO affect each other, or have a bi-directional relation (Yu and co. 2006).
To recap, many studies showed a link between soybean and crude oil futures and crude palm oil. Many studies have examined the relationship of crude oil futures and indexes of the stock market. Most studies concentrate on palm oil crude, both in the physical and futures markets. The literature lacks studies specifically addressing indicators of palm oil. This study explores indexes of palm oil. Here palm oil-related businesses are listed, and investors can participate in the stock market for palm oil. Because the stocks are listed publicly, price fluctuations not only impact the businesses however, but also the general public who hold stocks. Investors, such as fund managers must invest on low-risk investments. This index can assist them in tracking the stocks of palm oil-related companies. This study will help investors better understand these indexes, particularly with regard to the aspects that can cause price volatility for palm oil companies listed on the index.
The theoretical link between crude palm oil and soybean oil has been well described in research. The relationships between soybeans and crude oil futures as well as crude palm oil have been established in numerous empirical studies ( Yusoff 1988; Alias and Othman 1998; a href="https://www.mdpi.com/2227-7099/10/10/237#B31-economies-10-00237" title ="">Yu and co. 2006; Nazlioglu. al. 2012; Bergmann, et. al. 2016; Vo et al. 2019; Zaidi et al. 2022). Research on crude oil futures with indexes of the stock market have also been proven (see Miller & Ratti 2009, Filis 2010, and Kang & Ratti 2013); a>="https://www.mdpi.com/22277099/10/10/237#B28–economies-10-00237 title ="">Raza. and. 2016; Mishra et al. 2019). In light of these conclusive evidence-based findings regarding both commodity (crude palm oil) and equity (stock market index) and equity (stock market index), the same link or notion could be established between soybean and crude oil futures as well as indexes of palm oil (equity). Feng 2003 also supports this view. When they conducted their research on palm oil they proposed that they include soybean and crude oil futures. This study, which is similar to indexes of the stock market as well as crude palm oil predicted a positive connection of indexes for palm oil to soybean futures. However it did not forecast an adverse relationship to crude futures for crude oil.
However, other studies have indicated that crude oils are equally important than soybean in the determination of CPO prices. This results in a significant relationship CPO/crude oil (ahref="https://www.mdpi.com/22277099/10/10/237#B31 economies-10-00237") title ="">Yu. 2006; Campiche et al. 2007; Nazlioglu and Soytas 2012. Bergmann. 2016). This is why the CPO was able to respond to the increase in the price of crude oil in Malaysia. Malaysia is also taking steps to allow biodiesel to be an alternative in place of crude oil. CPO was a feedstock used in biodiesel. Therefore, the increasing production of biodiesel will increase CPO's need while reducing crude oil consumption. Murti 2017, Studies on the subject also proved that the findings of crude oil's impact on stock prices were significant. They could aid in making investment decisions, the valuation of derivatives, as well as hedge strategies. 2016; Mishra et al. 2019).
As with other commodities the performance of share prices for palm oil firms is susceptible to market risk and the CPO is subject to significant price fluctuation. A number of earlier research studies ( Alias & Othman 1998) have been published. Title ="">Yu and others. 2006; Khin et al. 2013; Rahman 2013; Bergmann et al. 2016; Lestari and Oktavilia 2020; Isa et al. 2020; Zaidi et al. These studies also support Zaidi's view and colleagues (2022) in which they examine the various influences on the price movement for CPO. The studies revealed that macroeconomic variables such as export, productions and stockpiles all are in a long-term, significant connection with CPO. Thus, the movement in production, export, and stockpile will be affected by the CPO price (Khin and co. 2013; Rahman (2013); Ziaei (2021) The interest rate, exchange rate, and industrial production index (IPI) also have a significant relationship to CPO (Ahmed and colleagues. 2020). Despite this solid evidence the fund managers, investors, and traders have a difficult time in forecasting CPO prices using these factors. One of the major drawbacks is the fact that these figures are only available monthly, while the information about the trading of CPOs and shares of palm oil companies are available daily. CPOs and stocks of palm oil companies could be affected by other variables.
The structure of the article is the following. The next section will explain the data and methodology; the following section discusses the empirical findings; and the final section summarizes the research findings and includes some recommendations to future research directions.
The paper is organised in the following manner. The next section explains the methodology and the data. The next section examines the empirical findings. The final section concludes the paper with suggestions for future research directions.
CPO trading has international integration and financial markets. It is therefore crucial to keep track of the price movements for other commodities. Numerous studies have demonstrated strong correlations between CPO price movements and other commodity prices ( Yusoff 1998; Alias, Othman 1998); a rel="https://www.mdpi.com/22277099/10/10/237#B30–economies-10-00237" title ="">Vo and et al. 2019). Soybeans' prices as an alternative to cooking oils remain stable and react positively to changes in CPO's price (a href="https://www.mdpi.com/22277099/10/10/237#B33–economies-10-00237") title Zaidi et.al. 2022). This is in line with the traditional need hypothesis. Based on this theory that a rise in the palm oil price for substitute products can lead to increase in the consumption of palm oil which will in turn increase prices for palm oil. Additionally, soybeans and CPO influence each other or share a bi-directional connection (Yu et al. 2006).
In the end, numerous studies demonstrate a link between the soybean futures market and crude oil, as well as crude palm oil. A number of studies also examined the relationship between the crude oil futures and indexes of the stock market. The majority of studies on crude palmoil can be found on the futures market as well as physical markets. There aren't many studies that specifically address the indicators of palm oil. This study examines palm oil indexes. These businesses that deal with palm oil are listed and investors can participate in the palm oil stock market. Since these stocks are publicly listed, price fluctuations not only affect the company as well as the people who own stocks as well. Fund managers, as well as investors, are required to only invest in low-risk investments. This index can help them track stocks of palm oil-related businesses. This research will aid investors to understand the indexes and the variables which cause price variations among listed palm oil firms.
