The relationship between equity market and exchange rates has often been discussed by economists since them both play important roles in influencing a country’s economic development. Therefore, the objective of this study is to examine the Granger causality effect between Malaysia equity market and exchange rate volatility. The focus of this study is on the overall and sectoral performance of the Malaysian stock market with Malaysian ringgit exchange rate volatility. The multivariate vector autoregression (VAR) framework estimations were utilized to capture the interactions between the equity market performance and exchange rate volatility. In the overall market performance, the results showed that there was a feedback interactions between Malaysia equity market and exchange rate volatility. However, in terms of the sectoral market performance, only the Industrial and Finance sectors that showed similar results as the overall market. Based on the findings, it is important for the Malaysian government to be cautious in their implementation of equity market and exchange rate policies especially those related to the Industrial and Finance sectors because such policies would impact these sectors

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The issue of inter-relation between stock returns and exchange rates has often been discussed by economists since they both play important roles in influencing the development of a country's economy. The specific objective of the study is to identify the Granger causality effect between the stock market and exchange rate volatility in the ASEAN 5 countries. In order to capture the interactions between stock market performance and exchange rate volatility, the multivariate vector autoregression (VAR) framework estimations were utilized. The results showed that there was a bi-directional causality or feedback interaction between stock market and exchange rate volatility in Malaysia and a unidirectional causality effect from stock market to exchange rate volatility in Thailand. However, the findings showed no causality between stock market and exchange rate volatility in Indonesia, the Philippines and Singapore. Based on the findings, the Malaysian government must be cautious in their implementation of equity market and exchange rate policies relatively to the other ASEAN 4 countries because such policies have impact on both markets in Malaysia.Keywords-exchange rate volatilit; equity market; financial crisi; Granger causality effect and GARCH model I.