Volatility Persistence and Shock Absorption Capacity of the Malaysian Stock Market

Elgilani Eltahir Elshareif () and Muhammed Kabir ()
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Elgilani Eltahir Elshareif: Canadian University of Dubai
Muhammed Kabir: Canadian University of Dubai

Chapter Chapter 61 in Leadership, Innovation and Entrepreneurship as Driving Forces of the Global Economy, 2017, pp 699-704 from Springer

Abstract: 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.

Keywords: Volatility persistence; Malaysian stock market; Shock absorption capacity; EGARCH-M (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-319-43434-6_61

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DOI: 10.1007/978-3-319-43434-6_61

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