The Role of Inflation, Monetary Policy Interest Rates, and Foreign Portfolio Investment on Stock Market Volatility in ASEAN Countries
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Abstract
This study examines the role of inflation, monetary policy interest rates, and foreign portfolio investment (FPI) in driving stock market volatility in ASEAN countries through a systematic literature review (SLR). The review synthesizes empirical evidence from studies conducted between 2000 and 2025, providing insights into how these macroeconomic variables influence stock market behavior in the region. The findings reveal that inflation, particularly when high or volatile, negatively impacts stock market stability by eroding purchasing power and increasing uncertainty. Monetary policy interest rates, especially during periods of tightening, are inversely related to stock market returns, exacerbating volatility. Foreign portfolio investment, while providing liquidity, also introduces risk, with capital inflows and outflows linked to shifts in global economic conditions. The interactions between these variables are complex, often creating feedback loops that amplify stock market fluctuations. The study underscores the need for ASEAN policymakers to balance inflation control and interest rate adjustments to stabilize financial markets, while investors should be mindful of the macroeconomic environment when making decisions. The paper contributes to the broader literature on financial market behavior in emerging economies and suggests avenues for future research to better understand the intricate relationships between these macroeconomic variables.
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