Volatility Persistence and Shock Absorption Capacity of the Malaysian Stock Market

Date

2017

Journal Title

Journal ISSN

Volume Title

Publisher

Springer Science and Business Media B.V.

Abstract

Estimation of the extent of volatility in stock markets induced by external shocks and the persistence of it is very important and has policy significance for the macroeconomic policy makers, central bankers, and the financial market participants. In the current study, we examine the overestimation bias of volatility and its persistence using EGARCH-M models for the Malaysian stock market composite index (KLCI), as well as three sub-sectoral indices. The empirical evidence shows that there are asymmetric responses by the stock indices whereby volatility originating from ascending versus descending stock market has different impacts. In addition, we have found that the volatility is highly persistent and the shock absorption capacity of the stock market has been underestimated. However, this finding suggests that there might have been some estimation bias due to misspecification of the model. This implies that the policy makers and market participants must exercise caution in drawing conclusions from this class of models. © 2017, Springer International Publishing Switzerland.

Description

Keywords

EGARCH-M, Malaysian stock market, Shock absorption capacity, Volatility persistence

Citation

Elshareif, E.E. & Kabir, M. (2017). Volatility Persistence and Shock Absorption Capacity of the Malaysian Stock Market. Paper presented at the Springer Proceedings in Business and Economics, 699 - 704. https://doi.org/10.1007/978-3-319-43434-6_61

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