Impact of the Global Financial Crisis on the Volatility of the Malaysian Stock Market
26 Pages Posted: 17 Aug 2010 Last revised: 23 Aug 2010
Date Written: August 16, 2010
An understanding of volatility in stock markets is important for determining the cost of capital and for assessing investment and leverage decisions as volatility is synonymous with risk. Substantial changes in volatility of financial markets are capable of having significant negative effects on risk-averse investors. We focus on the global crisis of 2007/2008 and its impact on the Malaysian financial market. We use GARCH models to model the volatility in order to determine the effect of the crisis on the KLCI. In order to be able to model the volatility, we first test the efficiency of the market using ARIMA models. We found that the financial crisis there was an increase in the impact of news about volatility from the previous periods but only a slight drop in the persistency of the conditional variance.
Keywords: international financial markets, volatility forecasting
JEL Classification: C32, G15, F47
Suggested Citation: Suggested Citation