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Corresponding Author ORCID Identifer

Norizarina Ishak https://orcid.org/0000-0002-2477-1489

Document Type

Research

Abstract

This study uses the Wilkie Investment Model in the context of the Malaysian stock exchange, incorporating inflation as a significant factor in explaining investment behavior in line with local economic conditions. Although the Wilkie model is broadly utilised in actuarial science and has been assessed in many developed countries, its use in emerging markets such as Malaysia is still limited. Based on historical data from Malaysia, both the dividend yield and inflation series were revealed to be stationary using the Augmented Dickey-Fuller (ADF) test. Therefore, the series is applicable for time series analysis. The study used Malaysian data to estimate the Wilkie model and compare it with the original model’s parameters used in the United Kingdom market. The study employs the Mean Absolute Percentage Error (MAPE) to evaluate the model’s forecasting accuracy and the Impulse Response Function (IRF) to assess the interaction between inflation and the dividend yield. The Malaysia-calibrated model surpassed the Wilkie parameters in predictive power, achieving an MAPE of 16%, a satisfactory level of predictive accuracy. The IRF results demonstrated that, in the short term, inflation shocks possess a negative impact on dividend yields, implying that inflation dampens dividend yields. Overall, this study presents the need to localize model parameters and the impact of inflation on dividend yields in emerging economies.

Keywords

Dividend Yield, Inflation, Impulse Response Function (IRF), Wilkie Investment Model

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