Impact of Index Options on Emerging Market Volatility: The Case of the Malaysian Equity Market
Md. Mohibul Islam and
Anisul M. Islam
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Md. Mohibul Islam: University of Liberal Arts Bangladesh
Anisul M. Islam: Ph.D. University of Houston-Downtown, Texas, USA
International Journal of Economics and Financial Research, 2017, vol. 3, issue 9, 157--172
This study investigates the impact of the introduction of index options on emerging market volatility in the context of Malaysia. Company specific daily closing prices for 29 listed companies were examined to determine the conditional volatility shifts before and after the introduction of index options. Multiple window periods are examined to avoid year-end effects.The exponential generalized autoregressive conditional heteroskedasticity (EGARCH) (1.1) model is used to determine the conditional volatility shift before and after the introduction of index options in Malaysia. The findings of this study suggest that the introduction of index options reduced market volatility in the Malaysia equity market at the 0.01 level of statistical significance. Further, this study contributed to extant literature because it uses company-specific daily equity price data and no such previous study exists on the impact of index options for this important emerging market. The study will be useful for academics, researchers, domestic and foreign investors and policy-makers, among others.
Keywords: Emerging market; Index options; Conditional volatility; EGARCH model (search for similar items in EconPapers)
JEL-codes: G00 G10 G15 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:arp:ijefrr:2017:p:157--172
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