An Analysis of Volatility Co-Movement between Malaysia, US, UK and Japan Stock Markets
Abstract
The main objective of this paper is to investigate the reaction of the Malaysian stock market on the international financial arena as a result of different inflows of information and economic shocks from the international stock markets. Simultaneously, the study will also encapsulate how stock market volatility has implications on financial and economic activities in Malaysia and the dynamics of major stock markets around the world can have ramifications on the Malaysian stock market. Using the stock price indices and returns over the period of 2000-2008, an analysis of volatility co-movement of Malaysian stock market with US, UK and Japan were estimated via Univariate GARCH model with asymmetric extensions and Vector Autoregression (VAR). The findings observed that the co-movements between the Malaysian market and other markets in the analysis is minimal and is not in line with the findings in the existing literature as it has been observed that Asian markets are vulnerable to movements with the US market. Additionally, Malaysian returns do not much affect other markets and is also quite contrary to the findings in the literature. The degree of co-movements indicates that there is still much scope for reaping risk minimization and return maximization benefits of portfolio diversification, at least in the short term by investing in Malaysia, as integration of the Malaysian market is not of a very high order. This leaves sufficient room for switching between mature markets such as that of US, UK or JapanSubmission of an article implies that the work described has not been published previously (except in the form of an abstract or as part of a published lecture or academic thesis), that it is not under consideration for publication elsewhere, that its publication is approved by all authors and tacitly or explicitly by the responsible authorities where the work was carried out, and that, if accepted, will not be published elsewhere in the same form, in English or in any other language, without the written consent of the Publisher. The Editors reserve the right to edit or otherwise alter all contributions, but authors will receive proofs for approval before publication.
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