Analyzing Cambodia Securities Exchange Index Returns using the Markov-Switching Autoregressive Model

Siphat Lim (), Edman Flores (), Casey Barnett () and Md Monirul Islam ()
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Siphat Lim: CamEd Business School, Phnom Penh, Cambodia
Edman Flores: CamEd Business School, Phnom Penh, Cambodia
Casey Barnett: CamEd Business School, Phnom Penh, Cambodia
Md Monirul Islam: CamEd Business School, Phnom Penh, Cambodia

International Journal of Economics and Financial Issues, 2025, vol. 15, issue 2, 98-105

Abstract: The examination of the weekly return behavior of the Cambodia Securities Exchange (CSX) index, spanning from 2012 to 2024, was categorized into two distinct states or regimes using the Markov-Switching Autoregressive model. The research findings indicated that the MS(2)-AR(1) model, which includes two states or regimes and a first-order autoregressive component, was the most suitable model. The empirical results showed that both the first-order lag of the dependent variable and the intercept term had a significant positive effect on the return of the CSX index at a 1% significance level, applicable to both Regime 1 and Regime 2 models. In contrast, the first-order autoregressive variable in the Regime 1 model demonstrated a significant negative effect on the return of the CSX index at the same 1% significance level, a relationship not observed in the Regime 2 model. The empirical results indicated a 38.35% likelihood of the CSX index transitioning from Regime 2 to Regime 1, while the probability of exiting Regime 1 was notably lower at 17.39%, as shown by the probability transition matrix. Additionally, the volatility of the CSX index returns in Regime 2 was found to be greater than that observed in Regime 1.

Keywords: Cambodia Securities Exchange Index; Markov-Switching Autoregressive Model; Probability Transition Matrix (search for similar items in EconPapers)
Date: 2025
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DOI: 10.32479/ijefi.17647

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