Microsoft Word - 1908-7496-1-RV-writer2-new-final A Receive doi:10.5 Abstra The ma on the econom encapsu in Mal ramifica the peri with U extensio between with th vulnera affect o co-mov return investin An Ana Mala departm departm ed: June 5, 2 5296/ajfa.v4 ct ain objective internation mic shocks f ulate how st laysia and ations on th iod of 2000 S, UK and ons and Vec n the Malay he findings able to mov other market vements ind maximizati ng in Malay alysis o aysia, U ment of finan E ment of finan 2012 A 4i2.1908 e of this pa nal financia from the in tock market the dynam he Malaysia 0-2008, an d Japan we ctor Autore ysian marke in the exis ements with ts and is als dicates that on benefits ysia, as integ f Volati US, UK Moham nce and ban university E-mail: moh T. nce and ban university E-mail: Accepted: Au URL: http aper is to inv al arena as nternational t volatility h mics of m an stock ma analysis of re estimate egression (V et and other ting literatu h the US m so quite con there is st s of portfo gration of th 155 ility Co K and Ja med Shikh A nking, facult y of Malaya hamedbaity . Shanmuga nking, facult y of Malaya dtshan@ya ugust 7, 201 p://dx.doi.or vestigate th s a result o stock mark has implica major stock arket. Using f volatility c ed via Univ VAR). The f r markets in ure as it ha market. Add ntrary to th till much s olio diversi he Malaysia Asian o-Move apan Sto Albaity ty of busine a, Malaysia @gmail.com am ty of busine a, Malaysia ahoo.com 12 Pub rg/10.5296/a he reaction o of different kets. Simul tions on fin markets g the stock co-moveme variate GAR findings ob n the analysi as been obs ditionally, M e findings i scope for re ification, at an market is n Journal of F ement b ock Ma ess and acco m ess and acco blished: De ajfa.v4i2.19 of the Mala t inflows o ltaneously, nancial and around the price indice ent of Mala RCH mode served that is is minima served that Malaysian re in the literat eaping risk t least in t s not of a ve Finance & Ac ISSN 19 2012, Vol. www.macrothi betwee arkets ountancy ountancy ecember 1, 2 908 aysian stock of informat the study w economic a e world ca es and retur aysian stock el with asym t the co-mov al and is no Asian mar eturns do n ature. The d k minimizat the short t ery high ord ccounting 946-052X 4, No. 2 ink.org/ajfa n 2012 k market tion and will also activities an have rns over k market mmetric vements ot in line rkets are ot much egree of tion and term by der. This leaves Japan. Keywo sufficient r rds: volatil room for sw lity co-move witching be ement, GAR 156 etween mat RCH model Asian ure market l, VAR n Journal of F s such as t Finance & Ac ISSN 19 2012, Vol. www.macrothi that of US, ccounting 946-052X 4, No. 2 ink.org/ajfa , UK or 1. Intro Asian s the US small to and lib markets remova investm resourc increase co-mov domesti from th markets moving The de importa area. Pr capital internat countrie Karolyi Cheong volatilit Many r great po and Jap literatur done on The sca co-mov the Mal if there if each strong weak m 2008). 2. Obje The Ma liberaliz greater oduction stock marke and UK m o middle siz eralization s. The curre al of tariff b ment channe es such as g es in intern vements bet ic markets a he rest of t s around th g rapidly acr egree of int ant issue in rimarily, re flows and f tional portf es. Several i and Stultz, g and Abu ty, integratio researchers ortion of th pan. Only o re on volati n volatility c arcity of suc vements bet laysian stoc are any com individual linkage red market linka ectives of th alaysian eco zation, grea financial d ets have gro markets. Wi ze. These g by removin ent trend in barriers, issu els (Nurasyi goods, labor national inv tween stock and increase the world. he world h ross countri terdependen financial ec searchers a financial ma folio diversi studies (Eu , 1996; Sham Hassan, 20 on and vola have studi hese studies of late, Asia lity co-mov co-moveme ch literature tween Mala ck market’s mmon force stock index duces the in age offers po he Study onomy in re ater openne developmen own especia ith the exce governments ng statutory n Asia witne uance of sec kin, Farrah r, finance an vestment an k markets g ed their abil In view o have grown ies nce between conomics an and policym arket integr ification as un and Shim msuddin an 007; Mukhe atility transm ed the mov s generally an stock ma vement of st ent between has spurred aysian mark linkages wi es driving th x or return nsulation of otential gain ecent years ss to world t. The incre 157 ally fast, wi eption of Ja s have grad y controls esses the es curities ove and Shahn nd personne nd capital globally. Th lity to react of these dev n stronger a n the inter nd is eviden makers are a ration; as su s well as th m, 1989; B nd Kim, 200 erjee and B mission hav vements of focuses on arkets are g tock market n the Asian s d the interes ket with maj ith other sto he long-run is driven s f domestic ns from int has been ch d trade, a hi eased libera Asian ith total trad apan, howe dually move over their stablishmen erseas and t az, 2008). O el have flow movements hese factors t promptly t velopments and trends rnational eq nced by the attracted to uch linkages he macroeco ecker et al 02; Syriopou Bose, 2008) ve increased f aggregate volatility i given some ts is sparse. stock marke st of this stu jor stock m ock markets movement solely by it market fro ernational d haracterized igher degre alization an n Journal of F ding volum ever, Asia’s ed towards i foreign exc nt of multin he availabil On a global wed smoothl s leading to have reduc to news and , the linkag of stock m quity marke numerous s o questions s have serio onomic pol 1990; Koc ulos, 2005; ) have conc d in recent y stock mark in United S considerabl Comparativ ets with the udy to inves markets. The s can be ana of stock in s own fund om any glo diversificati d by a trend e of financ nd openness Finance & Ac ISSN 19 2012, Vol. www.macrothi mes that nea s stock mar internationa change and national ente lity of inter level, inter hly bringing o the form ced the isol d shocks ori ages betwee market vola ets has bec studies done about cros ous implicat licies of co ck and Kock Ciner, 2006 cluded that years ket volatilit States (US), le attention ively, little h developed stigate the v e notion of alyzed to de ndexes or ret damentals. B obal shock ions (Priyan d towards in cial integrat s have mot ccounting 946-052X 4, No. 2 ink.org/ajfa arly rival rkets are alization d capital erprises, rnational rnational in rapid ation of lation of ginating en stock atility is come an e on this s-border tions for oncerned k, 1991; 6; Zaidi, t market ty and a Europe n but the has been markets. volatility whether etermine turns, or Besides, whereas nka et al ncreased ion, and tivated a high rat study i behaves informa study tr econom can hav The cho as the Malays Malays 1989 w retail/in infrastru the trad Decemb market factors. Ringgit have sh The Ma liberaliz greater high ra market Kuala impress to 132% among reason, the cou market emergin financia market takes p co-mov degrees A lot of of one co-mov serves t te of increa s to invest s on the in ation and e ries to enc mic activitie ve ramificati oice of Mal focus of th ia has und ian and Sin was a milesto ndividual, i ucture was ding particip ber 2007 (N like the U The real G t has strengt hown favora alaysian eco zation, grea financial d ate of incre liberalizatio Lumpur S sive. The ra % by the end the highest this study s untry. The a becomes re ng market. al crisis of volatility ( place in oth ves with tha s on its corp f work has b market on vement with to fill that ase in cross- tigate close nternational conomic sh capsulate ho s in Malays ions on the aysia’s stoc his study m dergone a ngaporean c one in the d institutional developed pation by re Nurasyikin e S, Malaysia GDP 2006 thened. Fur able result a onomy in re ater openne developmen ase in cros on of Dece tock Exch atio of mark d of 2001 (B t market ca span the yea analysis of t elevant for In addition 1998, also Garay, 2003 her major at market. porate capita been done o another. W h a focus on gap and to -border capi ely and dee l financial hocks from ow stock m sia and the Malaysian ck market co makes the a robust dev companies f development l, and fore accordingly tail investor et al 2008). an capital m beats the fo rther to this and the impl ecent years ss to world t. The incre ss-border ca mber 1988, ange (KLS ket capitaliz Beck et al 2 apitalization ars of devel the possible our unders n, Malaysia created an 3). With vo markets an Such volati al budgeting on market li What the lite n the Malay o contribute 158 ital and dire eply under arena and m the interna market vola dynamics o stock mark o-movemen analysis esp velopment from their t of Malays eign investo y. Recent s rs has grow Despite the market rem forecasts at , the reform lementation has been ch d trade, a hi eased libera apital and d , expansion SE) (now ation over G 2003), comp n ratios in lopment of t e impact of standing of a's capital ideal labora olatility bein nd how vo ility co-mo g decisions, inkages, ma erature lack ysian marke e to this are Asian ect investm stand how how they ational stoc atility has i of major st et. nt against ot pecially rel since the respective s sia’s equity ors increas tatistics fro wn from 28% e issues faci mains compe 5.9%; infla ms of govern n of the 9th M haracterized igher degre alization an direct inves n in the stoc known as GDP was 6 parable to th the emergin the stock m these event the functio control me atory to inv ng contagio olatility in ovement can investor’s arket integra ks are stud t in relation ea by exam n Journal of F ment flows. T the Malay react on d ck markets. implications ock market ther interna levant. The late 1980s. stock excha market. Equ ed substan om Bursa M % in 2005 to ng the key p etitive due ation is man nment-link Malaysian P d by a trend e of financ nd openness stment flow ck market c Bursa Ma 0% in 1985 hat of develo ng markets arket, and f ts in the be oning of cap asures, intr vestigate the ous, it is cru the Malay n impact M decisions an ation, influe ies on stoc n to world m mining volat Finance & Ac ISSN 19 2012, Vol. www.macrothi The purpos ysian stock different inf . Conspirin ns on financ ts around th ational stock e capital m . The delis anges at the uity investm ntially, and Malaysia sho o 36% at th player of th to several anageable w companies Plan is on tr d towards in cial integrat s have mot ws. After th capitalizatio alaysia) wa 5, but had in oped countr s universe. financial op ehavior of th pital marke roduced du e behavior ucial to kno ysian stock Malaysia in nd business ences and sp ck market v markets. Th atility co-mo ccounting 946-052X 4, No. 2 ink.org/ajfa e of this k market flows of gly, this cial and he world k market market in sting of e end of ments by market ows that he end of he global positive while the (GLCs) rack. ncreased ion, and tivated a he stock on of the as truly ncreased ries, and For this ening of he stock ets in an ring the of stock ow what market varying s cycle. pillovers volatility his study ovement between (US), U North A address i. market ii. movem 3. Liter On a br time an that exi literatur of 1987 period a US and countrie There h prior to adoptin (1970), found l found i through between policies investm of Whe 1960–1 Conver markets initially Japan, b These particul Bose, 2 Among (1989). Canada nationa n the Malay United King America, Eu sed: What is the with that of How much ments and inn rature Revi rief review nd studies o ist among res, there is 7. Earlier fi after the cra d the interde es from Eur have been nu o the crash ng simple c Levy and S little or no in these pa h internation n the stock s in each ments, and a eatley (1988 985, suppor sely, since s or stock pr y had been but the pos studies hav larly betwee 2008). g the early Analyzing a, Switzerla l stock mar ysian stock gdom (UK) urope and A e degree and f US, UK an h of the mo novations o iew of the fina of co-integr world mar a glaring d indings foun ash as early ependence rope and As umerous stu in 1987. U correlation a Sarnet (1970 correlation apers are th nal portfolio markets ar country, h a low degree 8) who used rts the notio the stock m rice co-mov conducted st-Asian cri ve consisten en those wit contributio g the daily and, Germa rkets with market wit and Japan r Asia respect d nature of v nd Japan sto ovements in or shocks in ancial litera ration, co-m rkets are w difference in nd vague c contributio of other sto sia. udies exami Using weekl and regress 0), Grubel a between n hat nationa o diversific re explained higher taxe e of informa d data on th on of equity market crash vement has for develop ses literatur ntly indicat th close eco ns to the l stock mark any, US an US were e 159 th three ma representing tively. The volatility co ock markets n the Mala the US, UK ature, much movement, c widely avail n the finding correlation b ons to the li ock market ining the re ly or month sion method and Fadner national stoc al stock ma ation is pos d by barrier es and tran ation about the US and y market int h of Octob been studie ped market re has start ated strong onomic ties literature af ket returns o nd the UK, established Asian ajor stock m g three maj following t o-movemen s? ysian stock K and Japan research o contagion, c lable. On a gs before an between sto terature afte s but the la elationships hly data fro ds, studies (1971), Ag ck markets. arkets are s ssible. The rs of interna nsaction co foreign sec seventeen egration. ber 1987, th ed extensive ts, such as ted to focus linkages a or geograp fter the ma of Australia substantia with a one n Journal of F markets, nam or regions o two researc nt between t k market ca n stock mark n stock ma correlation, a closer exa nd after the ock markets er the mark ater studies among nati om the 1960 by Grange mon (1972) . General c segmented low degree ational capi osts on in curities. Nev other count he integratio ely. Though those of th s on emergi among wor phic proxim rket crash a, Hong Ko l interdepen e or two da Finance & Ac ISSN 19 2012, Vol. www.macrothi mely Unite of the worl ch questions the Malaysi an be expla kets? arket volatil spillover, amination o stock mark s as oppose ket crash foc incorporate ional stock 0’s and 197 er and Mor ) and Ripley onclusions and risk re es of co-mov ital flows, d nternational vertheless, ntries for the on of globa h most of the he US, Euro ing Asian m rld equity m mity (Mukhe are Eun an ong, Japan, endence am ays lag aga ccounting 946-052X 4, No. 2 ink.org/ajfa ed States ld that is s will be an stock ained by lity over linkages of these ket crash ed to the cused on ed more markets 70’s and genstein y (1973) that are eduction vements differing capital findings e period al equity e studies ope, and markets. markets, erjee and nd Shim France, mong the ainst US innovat equity m ascertai Pacific- Singapo Thailan of Pacif and Lam markets large nu Using d bi-direc returns cross-m York an of equit Austral with the Lakshm assessin daily re Singapo results i market Mukher a defini do not unique but also Hyginu markets the obs both ma of the a manage of stock 4.Data 4.1 Sam As the stock m tions and sh markets of t in the influ -Basin’s sto ore, Hong K nd had little fic-Basin co mba (1998) s concluded umber of cro daily and int ctional linka can signifi market inter nd Tokyo m ty markets ia, China, H e stock mark mi and Gam ng investme eturns from ore stock m indicate tha and that o rjee and Bo ite informat uniquely in role in the o to be influ us (2006) fin s that are si served volat arkets. As s authorities. ement practi k market vo and Metho mpling Desig study inve markets in th hocks. Park the Pacific- uence of U ock movem Kong and N linkage to ountries are ) who empi d that marke oss-border l traday price ages betwe cantly influ dependence markets. Joh in Asia wit Hong Kong ket in Japan mini (2004) ent and lev m 1992 to 20 market and t at there is a of Hong K se (2008) e tion leadersh nfluence the integration uenced by in nd results f imilar to tho tility and c such, policie Consequen ices in finan olatility. odology gn stigates the he world, th k and Fatem Basin coun US compar ments. Aus New Zealan any of thes e influenced irically exam ets that are listings exer e and stock en US, Eur uence the do e in returns hnson and S th Japan’s e g, Malaysia, n. ) investigate verage deci 002, they in the markets high degree Kong, US, xamined th hip from the e integratio of Asian m nformation f for the distr ose in devel o-movemen es to mitiga ntly, defensi ncial institu e volatility hree regions 160 mi (1993) ntries to thos red to UK stralia is se nd exhibite se markets w d by domes mined the l geographic rt significan returns data urope and A omestic ret s and volati Soenen (200 equity mark , New Zeal ed the imp sions as vo nvestigated s of US, UK e of volatilit Japan and e stock mov e US marke on of Asian markets. The from most o ribution of loped stock nt can be e ate the obse ive measure utions, may co-moveme s were ident Asian and examin se of the US K and Japa ensitive to d moderate with the con stic factors. linkages be cally and ec nt influence a, Lin, Engl Asian count turns as in t ilities is bi- 02) investig ket. They fou land, and Si portance of olatility is d the volatil K, Hong K ty co-movem UK (in th vements of et to all Asi n markets w e US marke of the major realized vo k markets. T explained by rved volatil es, such as be the best ent of the M tified name n Journal of F ned the lin S, UK and J n at differ the US m e linkages. K nclusion tha . Neverthele etween the P conomically e over each o le and Ito (1 tries. They the case of -directional gated the de und that the ingapore ar volatility i synonymou ity co-mov ong and Jap ment betwe hat order). Indian stock an markets while Japan t is seen no r Asian mar olatility in tw The results s y external f lity may be improved t policies to Malaysian ly North Am Finance & Ac ISSN 19 2012, Vol. www.macrothi nkages betw Japan. The ring levels market whe Korea, Taiw at stock mov ess, Janakir Pacific-Bas y close and/ other. 1994) exam found that f Japan and l between t egree of int e equity ma re highly in in stock m us with risk vement betw apan. The em een Singapo In anothe k market an but the US is found to ot only to in rkets. two emergin suggest tha factors com outside the regulation o contain the market wit merica, Eur ccounting 946-052X 4, No. 2 ink.org/ajfa ween the findings on the ere else wan and vements ramanan sin stock /or have mined the foreign US and the New tegration arkets of ntegrated market in k. Using ween the mpirical ore stock er study, nd found indexes o play a nfluence, ng stock at part of mmon to e control and risk e impact th major rope and Asia. B UK stoc the vibr 4.2 Per The dat United of 2252 The spe stock m liberaliz greater characte monthly from M formula Table 1 this stud trading (Malays occur in lag. Con market Table 1 Country Index Local Ti GMT Sample Period Observa 4.2 Dat 4.2.1 Co Table 2 From th UK; the integrat Based on the ck markets rancy and ro riod Selectio ta used for Kingdom (U 2 observatio ecific reaso market in t zation, grea financial d eristics of y data may Malaysia, U ae y1 = (lnPt below prov dy with the is: Japan, sian Stock n Japan will nspicuously on the same . Market In y JAP Nikk ime 09:0 00:0 4.1.2 27.2 ations 2252 ta Descripti orrelation A represents he tables, al e UK has i tion with M e criteria of were chose obustness o on r the study UK) and Ja ons in each o n to choose the 21st. ce ater openne developmen capturing a block out in US, UK, an – lnPt-1) * vides inform eir indices a Malaysia, t Market) ov l affect the y, shocks fr e day but gi ndices, Mark PAN kei 225 0 – 15:00 0 – 06:00 2000 – .2009 2 ion Analysis the correlat ll markets s integration Malaysia but leadership en to represe f Japan stoc were daily apan from Ja of the select e the time-f entury as t ss to world nt. The rati all possible nteractions nd Japan w 100. mation on th and the sam the UK and verlaps with Malaysian om the US ives effect t ket Operatin MALAYS KL Co Index (KLCI) 09:00 – 16 01:00 – 08 – 3.1.2000 27.2.2009 2252 tion coeffici hows at lea with US an a weaker in 161 and influen ent Norther ck market w y stock retu anuary 2000 ted markets frame was t the Malays d trade, a hi onale of us e interaction that last for were subseq he operating mple period. d US. The h the exchan stock mark and UK m the followin ng Times an SIA UK omposite FT 6:00 08 8:00 08 – 4. 26 22 ients betwe ast a single i and Japan; a ntegration is Asian nce in their r rn America will represen urns from M 0 to Februa s. to analyze t sian econom igher degre sing the da ns within t r only a few quently com g times of th The order operations nges in Jap ket on the ve markets do n ng day. nd Sample P K TSE 100 8:00 – 16:20 8:00 – 16:20 1.2000 6.11.2008 252 een daily ma integration and the Jap s visible wit n Journal of F respective r and Europe nt the Asian Malaysia, U ry 2009 and the perform my moves e of financ aily returns the market. w days. The mputed for he various s in which th timing of t an and conc ery same da not overlap w Period US Dow Jo (DJIA) 09:30 – 14:30 – – 3.1.200 2252 arkets return namely the panese mark th UK. Finance & Ac ISSN 19 2012, Vol. www.macrothi regions, the e respective n region. United State d adjusted t mance of M towards in cial integrat data is du . Using we e daily stock y1 data us selected mar he markets o the Bursa M ncurring sho ay without a with the M ones Industria – 16:00 – 21:00 00 – 15.12.200 ns from 200 e US integra ket shows ccounting 946-052X 4, No. 2 ink.org/ajfa e US and ely while es (US), to a total alaysian ncreased ion, and ue to its eekly or k returns sing the rkets for open for Malaysia ocks that any time Malaysian al Average 08 00-2008. ates with a strong Table 2 INDEX NIKKEI KLCI FTSE100 DOWJO * and ** 4.2.2 D Figure respecti price in correlat some c proven downw 2. Correlatio I 0 ONES denotes statis escription o 1 shows th ively over t ndices show tion discuss comparing m to be corr ard trend af on Coefficie NIKKEI (Japan) 1.000 0.116* 0.048** 0.018 stical significa of Market In he plot of st the period o ws similar t sed earlier ( movements related too fter 2007 an ents between K (M 1 -0 0 ance at the 1% ndices and R tock price i of 8 years. O trends and (Table 2). M with the J (Table 2) nd this is sup 162 n Daily Ma KLCI Malaysia) .000 0.031 .005 % and 5% resp Returns indices and On compar pattern and Malaysian s Japanese st . All mark pported by Asian rket Return FTSE (UK) 1.000 -0.061 pectively returns of rison, the m d this is su stock price tock market ket indices the global e n Journal of F s: 2000 – 20 E100 1* US, UK, M movement of ubstantiated indices and t and it ha exhibits a economic cr Finance & Ac ISSN 19 2012, Vol. www.macrothi 008 DOWJON (US) 1.000 Malaysia an f US and U d by the sig d returns do as been stat a consistent risis. ccounting 946-052X 4, No. 2 ink.org/ajfa NES nd Japan UK stock gnificant oes have tistically t dip or Figure 1 4.2.3 St Table 3 On com 1. Plot of St tatistical De provides so mparing the STOC tock Price In escription of ome statisti e mean for K PRICE IN ndices and R f the Marke cal properti the logged NDICES 163 Returns for 2008 ets ies of daily stock mark Asian US, UK, Ja market retu ket indices, ST n Journal of F apan & Mal urns for the Malaysia TOCK RETUR Finance & Ac ISSN 19 2012, Vol. www.macrothi laysia from four stock m exhibits the RNS ccounting 946-052X 4, No. 2 ink.org/ajfa m 2000 – markets. e lowest positive Mean i period positive be draw tends to thus im Table 3 INDEX Mean Median Maximu Minimu Std. Dev Skewne Kurtosi Jarque- Observa Japan e dispersi deviatio is that t the stoc market standard theory o return ( To furth Jarque- with tho returns most ex volatilit As a co also cha of volat 4.3 Dat Most st laid th e mean retu s a categor compared e excess Ku wn from the o contain ex mplying the p . Descriptiv um um v. ss s -Bera ations exhibits the ion or spre on is used b the standard ck’s averag is characte d deviation of investme as opposed her test whe Bera test st ose from the series for a xtreme valu ty is compa oncluding re aracterized tility compa ta Analysis tudies on th he emphasi urns of 0.0 ry of return to other m urtosis abov ese values xtreme value presence of ve Statistics NIKKE (Japan) -0.041 -0.01 13.23 -12.11 1.64 -0.34 9.77 4346.69 2252 e highest st ead in the by investors d deviation e return, th erized by t n exhibited ent, Malays to high risk ether the ser tatistic mea e normal di all four mar ues for the aratively mu emark, Mala by presenc ared to other Techniques he co-move is on usin 04 as comp ns and Mala more establi ve 3 and are are the dist es. This is s variances in for Daily M EI ) KL (Ma 0.0 0.0 4.5 -9.9 0.9 -0.8 11. 9 743 225 andard dev series and as a gauge is a measur he more vol the trade-o is the lowe ia can be su k, high retur ries is norm asures the d stribution. A rkets. It can daily mark uch higher in aysian stock e of varianc r markets in ements betw ng GARCH 164 pared to ne aysia record shed marke e seen to ha tribution of supported by n the stock Market Retur LCI alaysia) 004 03 50 98 99 87 .73 37.03 52 viation of 1 is a measu for the amo re of volatil latile the st off between est among t ummoned a rns). mally distrib difference o According t n be said th ket returns n the Malay k market ex ces in the s n the analyz ween the sto H, VAR o Asian egative mea ded a posit ets. All ma ave heavy t f stock mar y the negati market indi rns in Local FTSE10 (UK) -0.022 0.02 9.38 -9.27 1.32 -0.14 9.93 4509.42 2252 .64. Standa ure of risk ount of exp lity: the mo ock is said n risk and the markets as a market buted, the Ja f the skewn to the test, n hat the Mala compared ysian marke xhibits a pos stock marke zed period o ock market or co-integ n Journal of F an recorded ive return d arkets have ails. The im rket indices ive skewnes ices. l Currency T 0 DO (US -0.0 0.0 10 -8.2 1.2 -0.0 11 69 22 ard deviatio of a stock ected volati re a stock’s to be. Acc return. As with 0.99. t with lowe arque-Bera w ness and ku normality is aysian stock to others. et. sitive return et indices w of 2000-200 t returns of gration met Finance & Ac ISSN 19 2012, Vol. www.macrothi d in other m during the e distributio mplications s in these c ss in all the Terms: 2000 OWJONES S) 013 04 0.50 20 29 01 1.63 989.21 252 on is a mea k market. S ility. The ba s return vari cordingly, th for Malay . And going st risk and was compu urtosis of th s rejected fo k market sh This indica n with low r with a highe 08. f different c thods to t ccounting 946-052X 4, No. 2 ink.org/ajfa markets. analysis ons with that can countries markets 0 – 2008 asure of Standard asic idea ies from he stock ysia, the g by the positive ted. The he series or all the hows the ates that risk. It is r degree countries test the co-mov (2004), study. The est based Autoreg 4.3.1 Th A comm tend to changes serially conditio conditio (1982) conditio model t where ω model g large sh Bollersl conditio model t The inte model i conditio of whic non-neg Nelson’ Firstly, in stock effect c defining movem vements. Me and Chin timation of using a U gression (VA he Univaria mon observ be followe s, in either correlated onal hetero onal on the and genera onal varianc the conditio ω and αi are given by eq hocks to the lev extende onal varian to be consid ention of G is common onal varianc ch σt 2 is a f gative const ’s (1991) EG EGARCH k return indi can be capt g the down ments. As no ethodologic (2008), wh f volatility c Univariate AR). ate GARCH ation about ed by larger r direction. d. The eco oscedasticity ir past real alized (GAR ce as a deter onal varianc e non-negat quation (1) dependent ed Engle’s s ce equation derably redu GARCH is th nly used in ce is given b function of tants. GARCH sp represents ices based o tured and N n movement oted in Ham cally, this re hich develo co-moveme GARCH H Model and t the unexpe r shocks, an In other w nometric t y (ARCH), izations. Th RCH) by B rministic fu e is given b tive constan above and i variable. specification n. This repr uced and all hat it can re its most si by : ∑ f lagged val ecifications a more succ on a general Nelson was ts are more ilton (1994) 165 esearch is ba oped in thei ents in the M model wit d Asymmetr ected comp nd small sh words, the term descri , which sta he standard Bollerslev ( unction of la by: nts (in orde is formulate n by introdu resentation lows past co epresent a h imple form lues of εt 2 a s possess so cessful atte lized expon the first in influential ), evidence Asian ased on the ir works th Malaysia, U th asymme ry Extension onent of as hocks tend t volatility o ibing this ates that th d ARCH mo (1986). In agged squar er for σt 2 to ed to depict ucing lagge allows the onditional v higher order m, the GAR …… . ∑ and ω ,{αi}, ome advanta empt to mod nential distri nvestigator for predict on asymme n Journal of F papers of L he model im US, Japan a etric exten ns set returns i to be follow of asset retu feature is he variance odel was in his model, red residual be non-neg t volatility ed condition number of variances to r ARCH pro RCH(p,q) m ∑ , i=1…p an ages over th del excess c ibution. Sec to model l ting volatili etry in stock Finance & Ac ISSN 19 2012, Vol. www.macrothi Laksmi and mplemented and UK ma nsions and is that large wed by mo urns appear the autore e of time s ntroduced b Engle def ls. In the AR gative). The as the clust nal variance f parameter o enter equa ocess. The G model, in wh nd {βi}, j=1 he GARCH conditional condly, the l leverage ef ity than the k price beha ccounting 946-052X 4, No. 2 ink.org/ajfa d Gamini d in this arkets is Vector e shocks re small rs to be egressive series is by Engle fines the RCH (q) 1 e ARCH tering of es in the rs in the ation (1). GARCH hich the 2 1…q are models. kurtosis leverage ffects by upward avior has been fo more th to corpo increase exponen Equatio The EG Since th than neg The Th Glosten given b Where 0), have bad new news im bad or n 4.3.2 Ve The VA reduced VAR ca general by inclu the lags of VAR alternat ound by man han positive orate debt, e the risk of ntial EGAR on (3) allow GARCH mo his coeffici gative retur hreshold AR n, Jaganatha y: dt = 1 if εt < e differentia ws has an im mpact is asy negative new Vector Autore AR model w d-form equa an capture izing the un uding for ea s of all the o R models as tive to the ny research e surprises d a sharp dec f holding sto RCH model ws positive a del is asym ient is typic rn shocks as RCH or TA an and Run < 0, and 0 o al effects on mpact of (α ymmetric. H ws. egression (V was develop ations that h the evolut nivariate AR ach variable other variab s a theory-f "incredibl hers, such th do. Since a l cline in stoc ocks. The g can be repr and negativ mmetric beca cally negat ssuming oth ARCH was nkle (1993) otherwise. I n the condit α + γ). If γ > Hence it can VAR) Mode ped by Sims have unifor tion and th R models. A e an equatio bles in the m free method e identifica 166 hat the nega lower stock ck prices inc general notio resented as f ve values of ause the lev tive, positiv her factors r s introduced ). The spec In this mod tional varian >0, the lev n be seen tha el s (1980) wi rm sets of l he interdepe All the vari on explainin model. Base d to estima ation restri Asian ative surpri k price reduc creases corp on is that εt follows: f εt to have vel |εt-i | /σ t-i ve returns s emains unc d independ cification fo del, good ne nce: good n erage effect at markets a ith the purp lagged depe endencies b ables in a V ng its evolu ed on this fe ate economi ictions" in n Journal of F ses seem to ces the valu porate lever has a norm different im i is included shocks gene hanged. ently by Z or the cond ws (εt > 0), news has an t exists. Inv are more vo pose of estim endent varia between mu VAR are tre tion based o eature, Sim ic relationsh structural Finance & Ac ISSN 19 2012, Vol. www.macrothi o increase v ue of equity rage and co mal distributi 3 mpacts on v d with coeff erate less v Zakoian (19 ditional var 4 , and bad ne n impact of versely if γ olatile when mating unre ables as reg ultiple time eated symm on its own ms advocates hips, thus b models. S ccounting 946-052X 4, No. 2 ink.org/ajfa volatility y relative ould thus ion. The volatility. ficient γi. volatility 990) and riance is ews (εt < α, while ≠ 0, the n there is estricted gressors. e series, metrically lags and s the use being an ince no restricti can be model o can be u study, th where Z UK, an respecti innovat The est express where innovat after a u althoug In orde triangul compon in the s The ort varianc decomp in gene non-line used to 5. Find 5.1 Uni Table 4 ions are im a flexible a of the actua used for the he VAR mo Z(t) is a 4 x nd Japan), ively , 4 x 1 tion vector. imated VAR sed as: is a lin tions. The i, unit random gh they may er to captur lar matrix V nent of B(s) periods to a rthogonaliza e in the t+ position of t erating fluct ear function calculate th dings ivariate GAR 4 reports the mposed on th approximati al economic e purpose o odel is expre x 1 column C is the 1 and 4 x 5 By construc R can be inv near combi , jth compo m shock in th be contemp re ‘pure’ re V is chosen t )V in equati a shock of o ation also +1 step ahe the forecast tuations in ns of the es he confiden RCH Analy e parameter he structura ion to the re c structure. of stylizing e essed as: vector of r determinist matrices of ction, e(t) is verted to fo ination of c onent of B(s he jth mark poraneously esponses, it to obtain th ion (7) belo one standard provides Σ ead forecast error varian its own an timated par ce bands (S ysis and Asy r estimates 167 al relationsh educed form As structur empirical re rates of retu tic compon f coefficient s uncorrelat orm the mov current and (s) shows th ket. The e(t)s y correlated t is importa he orthogona ow represen d error in th ΣCij 2(s) whi t of Zi that nce gives a nd other var rameters, M Soydemir, 20 ymmetric Ex from fitting Asian hips betwee m of the co ral models egularities a urn of four nent compr ts, m is the l ted with all ving averag d past one- he response s are seriall d. ant to trans alized innov nts the impu he jth marke ich is the is account measure of riables. As Monte Carlo 000). xtensions g an Autore n Journal of F en variables rrectly spec tend to be among time stock mark ised of a lag length, a the past Z(s ge represent -step-ahead of the ith m y uncorrela sfer the err vations u fro ulse respons et: component ted for inno f how impor impulse re integration egressive err Finance & Ac ISSN 19 2012, Vol. www.macrothi s, the VAR cified but u misspecifie e series data kets (Malay constant, A and e(t) is t s). tation of the forecast e market in s ated by cons ror terms. A om e=VU. T se of the ith t of foreca ovation in rtant one va esponses are n techniques rror specific ccounting 946-052X 4, No. 2 ink.org/ajfa R system unknown ed, VAR a. In this 5 ysia, US, A(s) are the 4 x 1 e system 6 errors or periods struction, A lower The i,jth h market 7 ast error Zj. This ariable is e highly s will be cation or AR (p) The AR table, M did not was ob compon with the Table 4 2000-20 Paramet AR (1) AR (2) AR (3) AR (4) AR (5) AR (6) AR (7) AIC SIC Log Like Numbers * denotes Table 5 Malays of reac TARCH dynami From T minimu capture coeffici model for J R specificat Malaysia, U indicate sig btained. Evi nent AR (7) e parameter 4. Paramete 008 ter estimates: elihood s in the parent s statistical sig reports the ia, UK and tions towar H), leverage ics of the sto Table 5, the um AIC/SIC s volatility ients and its Japan, Mala tion appear S and UK h gnificance a idently, Jap ). The estim r estimates o er Estimate : theses are p-va gnificance at e results of f US from 20 rds shocks e effects an ock markets coefficients C values an dynamics o s implication aysia, UK an s to indicat has the first at AR (1) a pan only sh mation of fitt of fittings fo s from Fitt NIKKEI (Japan) -0.04 (0.09) -0.02 (0.24) -0.027 (0.38) -0.02 (0.30) -0.02 (0.30) -0.02 (0.24) 0.04* (0.05) 3.82 3.84 -4284.28 alues the 1% level. fitting GAR 000 – 2008 and its co nd subseque s. s of the α1, β nd Maximum of all the sto ns are show 168 nd US for th te an autore order comp and the fittin howed a si ting for AR or GARCH ting AR (p KLCI (Malaysi 0.17* (0.00) 2.78 2.79 -3131.35 RCH (1, 1), . The empir orresponding ently which β1 and γ1 ar m Log Like ock market wn in Table 6 Asian he period 20 egressive c ponent of A ng was repe ignificant f R is importan (1, 1), EGR ) For Japan a) FT (UK -0. (0. 3.3 3.3 -38 EGARCH a rical results g volatility h fitting wo re all signifi elihood valu ts and the su 6 below. n Journal of F 000 to 2008 omponent. AR (1) and i eated until fitting with nt to be det RACH and T n, Malaysia TSE100 K) 07* 00) 9 9 811.67 and TARCH will be abl (values fro uld best ca icant for all ues, the EG ummary of Finance & Ac ISSN 19 2012, Vol. www.macrothi 8. As reporte is significan a significan the sevent termined to TARCH. a, UK & U DOWJONE (US) -0.08* (0.00) 3.34 3.34 -3757.02 H models fo le to provid rom EGAR apture the v l markets. B GARCH mo f selected pa ccounting 946-052X 4, No. 2 ink.org/ajfa d in the nt. Japan nt fitting th order proceed US from ES or Japan, e details CH and volatility Based on odel best arameter Table 5 Japan & MODEL NIKKEI AR (1) AR(2) AR(3) AR(4) AR(5) AR(6) AR(7) ω α1 β1 γ1 AIC / SIC Log Like KLCI (M AR (1) ω α1 β1 γ1 AIC / SIC Log Like FTSE (U AR (1) ω α1 β1 γ1 AIC/SIC Log Like DJIA (U AR (1) ω α1 β1 γ1 AIC / SIC Log Like Numbers * denotes 5. Parameter & Malaysia L I (JAPAN) C elihood MALAYSIA) C elihood U.K.) elihood U.S.) C elihood s in the parent s statistical sig r Estimates From 2000 GARC -0.01 (0 0.00 (0 0.00 (0 -0.01 (0 -0.02 (0 -0.02 (0 0.01 (0 0.03* ( 0.09* ( 0.89* ( 3.52 / 3 -3939.8 0.19* ( 0.01* ( 0.13* ( 0.86* ( 2.52 / 2 -2829.2 -0.08* 0.01* ( 0.11* ( 0.88* ( 2.86 / 2 -3216.2 -0.05* 0.01* ( 0.08* ( 0.91* ( 2.86 / 2 -3214.3 theses are p-va gnificance at of Fitting G -2008 CH (1,1) 0.77) .90) .93) 0.57) 0.35) 0.42) .51) 0.00) 0.00) 0.00) 3.54 81 0.00) 0.00) 0.00) 0.00) 2.53 20 (0.00) 0.01) 0.00) 0.00) 2.87 23 (0.02) 0.00) 0.00) 0.00) 2.87 32 alues. the 1% level. 169 GARCH (1 EGA -0.01 0.01 0.01 -0.01 -0.02 -0.01 0.03 -0.13 0.18* 0.97* -0.09 3.50 -3915 0.19* -0.18 0.22* 0.97* -0.08 2.49 -2797 -0.03 -0.08 0.09* 0.98* -0.13 2.82 -3167 -0.06 -0.08 0.10* 0.98* -0.12 2.82 -3164 Asian , 1), EGRA ARCH (0.75) (0.57) (0.69) (0.67) 2 (0.41) (0.62) (0.20) 3* (0.00) * (0.00) * (0.00) 9* (0.00) / 3.53 5.29 * (0.00) 8* (0.00) * (0.00) * (0.00) 8* (0.00) / 2.50 7.29 3* (0.01) 8* (0.01) * (0.00) * (0.00) 3* (0.00) / 2.83 7.61 6* (0.01) 8* (0.00) * (0.00) * (0.00) 2* (0.00) / 2.83 4.89 n Journal of F ACH and TA TA 0.0 0.0 0.0 -0.0 -0.0 -0.0 0.0 0.0 0.0 0.8 0.1 3.5 -39 0.2 0.0 0.0 0.8 0.1 2.5 -28 -0.0 0.0 -0.0 0.9 0.1 2.8 -31 -0.0 0.0 -0.0 0.9 0.1 2.8 -31 Finance & Ac ISSN 19 2012, Vol. www.macrothi ARCH for U ARCH 00 (0.88) 01(0.68) 01 (0.71) 00 (0.84) 01 (0.49) 01 (0.64) 02 (0.31) 04* (0.00) 04* (0.00) 89* (0.00) 1* (0.00) 50 / 3.53 920.76 20* (0.00) 02* (0.00) 08* (0.00) 86* (0.00) 7* (0.00) 51 / 2.52 816.15 07* (0.00) 01* (0.00) 01 (0.14) 92* (0.00) 7* (0.00) 82 / 2.83 171.50 06* (0.02) 01* (0.00) 01* (0.02) 93* (0.00) 4* (0.00) 82 / 2.83 169.50 ccounting 946-052X 4, No. 2 ink.org/ajfa US, UK, Table 6 EGRAC On com Malays models. longer p market longer t interest 0.97 to all the m (0.17) i that the experien on Mal externa persiste days it estimate Japan w volatilit Maximu 6 represents CH and TAR mparing the ia exhibits . This impl period than shows less time to diss ing to note 0.98. This markets. Re s comparati leverage ef nced marke laysia too. O l volatility ence of a vo takes until ed coefficie which has a ty dynamics um Log Lik s the summ RCH for Ja e results an comparativ ies that the n it does in market effi sipate. The β that all fiv shows that eferring to E ively higher ffect is high ets. The imp On the who y movemen olatility sho l half of th ents, half-li a half-life o s of all the kelihood. mary of sele apan, Malay nd its impli vely higher effects of other stock iciency than β1 paramete ve markets e long term e EGARCH a r than that e her in the M pact of bad ole, it can nts in maj ock is its ha he initial sh fe of a shoc of 34 days markets ba 170 ected param ysia, UK and ications for r α value th shocks in e k markets. T n the other m ers capture l exhibit very effects have and TARCH exhibited by Malaysian an and good n be seen tha jor market alf-life (Boll hock is abs ck to varian . EGARCH ased on the Asian meters estim d US from 2 the Malay han the oth earlier perio This may im markets as t long term in y similar β1 e similar inf H models, M y US (0.14) nd UK stock news and sh at the Mala s. The sta lerslev et al sorbed in th nce is 69 d H model is criteria of m n Journal of F mates of fitt 2000 – 2008 ysian marke her three m ods tend to mply that th the effects o nfluences on values betw fluences on Malaysia an ) and Japan k markets as ocks has a m aysian mark andard repr l 1994). It m he variance days for all the best m minimum A Finance & Ac ISSN 19 2012, Vol. www.macrothi ting GARC 8 based on et, we can markets in a linger arou he Malaysia of the shock n volatility. tween the ra market vola nd UK’s γ1 (0.11). Thi s compared much great ket is vulne resentation measure ho e and based markets ex model to ca AIG/SIG val ccounting 946-052X 4, No. 2 ink.org/ajfa H (1,1), Table 5. see that all three und for a an stock ks take a What is anges of atility in value of is means to other er effect erable to of the ow many d on the xcept for apture to lues and Table 6 TARCH Model Fittings GARCH EGARC TARCH GARCH EGARC TARCH EGARC TARCH TARCH TARCH TARCH EGARC Best Represen Model 5.2 Res Before the pric variable augmen of a un and Ph differen Table 7 indicate and 1 re Japan in 6. Summary H for Japan, Para Coef H (1,1) α1 CH α1 H α1 H (1,1) β1 CH β1 H β1 CH γ1 H γ1 H α1 H α1+ γ H α1+ β CH ln(0.5 ln(α1 n-tative Base AIC/ & M Likel ults for Vec running the ce series for e is non-st nted Dickey it root as th illips-Peron nces. 7 shows the e that there espectively. n lag 3. Las y of Selected , Malaysia, ameter fficients γ1 β1 5) + β1) ed on m /SIC ax Log lihood tor Autoreg e VAR test, r each of the tationary us y–Fuller test he null hyp n (PP) tests parameter is a unidir Similarly U tly, Japan a d Parameter UK & US f Implicatio Effects of periods Long term volatility Shock effe Leverage e Good news Bad news Degree of Half-life min To captu movement gression (VA , a unit root e markets. In sing an au t and the Ph othesis. Th s reveal tha estimates o ectional cau UK has a un ppears to ca 171 r Estimates from 2000-2 on f shocks in ea m influences ects effects s effects effects volatility ure the m ts AR) and Imp t tests was n statistics, utoregressiv hillips–Perr he results fro at all the s obtained fro usality from nidirectiona ause the US Asian of Fitting G 2008 NIKKE (Japan) arlier 0.10 0.18 0.04 s on 0.89 0.97 0.89 -0.09 0.11 0.04 0.15 0.93 34 days market EGARC pulse Respo done to ana a unit root e model. T ron test. Bot om the Aug series are s om fitting a m US towar al causality S stock mark n Journal of F GARCH (1 EI ) KLCI (Malaysia 0.13 0.23 0.08 0.87 0.97 0.83 -0.08 0.17 0.08 0.25 0.94 69 days CH EGARCH nse Analyse alyze time- test tests wh The most f th these test gmented Di tationary in VAR mode rds Malaysi towards US ket in the fir Finance & Ac ISSN 19 2012, Vol. www.macrothi , 1), EGRA a) FTSE (U.K) D ( 0.11 0 0.09 0 -0.01 - 0.88 0 0.98 0 0.92 0 -0.13 - 0.17 0 -0.01 - 0.16 0 0.91 0 69 days 6 H EGARCH E es series prop whether a tim famous tes ts use the e ickey-Fuller n the form el. The VAR ia and UK S in lag 1 an rst lag. ccounting 946-052X 4, No. 2 ink.org/ajfa ACH and DJIA (U.S) 0.08 0.10 -0.01 0.91 0.98 0.93 -0.12 0.14 -0.01 0.13 0.92 69 days EGARCH erties of me series t is the xistence r (ADF) of first R results in lag 3 nd 3 and Table 7 JAPAN(- JAPAN(- JAPAN(- M’SIA (- M’SIA (- M’SIA (- UK(-1) UK(-2) UK(-3) US(-1) US(-2) US(-3) C *, ** and The an decomp relative Briefly, in a seq mention of the f assump passed not the error va other m 7. Vector Au NIK -1) -0.03 -2) -0.03 -3) -0.03 -1) -0.06 -2) 0.08 -3) 0.03 0.02 0.01 0.04 0.01 0.00 0.00 -0.04 d *** denotes nalysis proc position of v e importance , the forecas quence due t ning: firstly four markets ption that th on to the ot other way ariance of o markets (Frie utoregressio KKEI (Japan) 3 (0.171) 3 (0.15) 3 (0.14) 6 (0.11) ** (0.03) (0.41) (0.6) (0.6) *** (0.09) (0.65) (0.95) (0.94) 4 (0.24) statistical sig ceeded to o variance of e of the vari st error vari to its own s y, the variabl s. Second, t he contemp ther markets around. A ther market edman and S on Estimate KLC 0.05 0.02 0.01 0.16 -0.02 0.03 -0.0 0.01 0.00 0.01 0.00 0.04 0.00 gnificance at th obtain the v the forecas ious market iance decom shocks versu les are orde the forecast poraneous e s will occur leading mar ts while its Shachmurov 172 for Japan, M CI (Malaysia 5* (0.00) 2 (0.2) 1 (0.35) 6*(0.00) 2 (0.32) 3 (0.2) 1 (0.5) 1 (0.6) 0 (0.8) 1 (0.66) 0 (0.80) 4* (0.00) 0 (0.73) he 1%, 5% an variance de t errors of t ts in causing mposition ex us shocks to ered in acco t error varia effects of in r only in the arket is one own foreca ve, 2005) Asian Malaysia, U a) FT (U. 0.0 -0.0 0.0 0.0 0.03 0.09 -0.0 -0.0 -0.1 0.09 0.0 0.02 -0.0 nd 10% respec ecompositio the returns o g the fluctua xplains the o the other rdance with ance decomp nnovations e markets th which expl ast error is n n Journal of F UK & US fr SE K) 1(0.73) 02 (0.21) 1 (0.7) 1(0.7) 3 (0.4) 9 (0.8) 08* (0.00) 08* (0.00) 10* (0.00) 9* (0.00) 1 (0.73) 2 (0.25) 02 (0.37) ctively ns between of a given m ations in ret proposition markets. Tw h the sequen position is e in a certai hat close lat lains a large not explaine Finance & Ac ISSN 19 2012, Vol. www.macrothi rom 2000 – DJIA (U.S) 0.03** (0. -0.02 (0.16 -0.01 (0.4) 0.00 (0.9) 0.07* (0.0 0.02 (0.6) 0.04* (0.0 -0.01 (0.6) 0.06* (0.0 -0.08* (0.0 -0.10* (0.0 0.07* (0.0 -0.01 (0.69 n the marke market indic turns of tha n of the mov wo points ar nce of closin estimated u in market w ter on the sa e percentag ed by innova ccounting 946-052X 4, No. 2 ink.org/ajfa 2008 04) 6) ) 00) 00) ) 00) 00) 00) 00) 9) ets. The cates the t market. vements re worth ng times under the which is ame day, ge of the ations in Table 8 Variance of: U.S JAPAN MALAY U.K Table 8 15-day then mo times. E explain As show percent about 9 varianc effect o account by US effect o system, markets Compar Two ob Table 8 influenc though domesti wider a state-ow Firmly, price in 8. Variance D e Decomposit YSIA 8 presents t horizons. W oves to Japa Entries show ed by the m wn in Tabl age of thes 95% to 99% e of the oth of less than ts for appro and UK wi on Malaysia , this signif s and is no ratively, oth bservations a 8. First, as ce a sizable all the co ic policies: and broade wned enterp the varianc ndices amon Decomposi tion in marke the decomp We begin by an, Malaysi w the perce market in the le 8, result se stock m %. Almost a her markets. 1% of its f oximately 2. ith error var an market’s fies that the ot open an her markets are notable all markets e fraction o ountries in the openin er range of prises but t ce decompo ng the four c tions for US ets Horizon (days) 5 10 15 5 10 15 5 10 15 5 10 15 positions of y considerin ia and UK. entage forec e first row. s indicate t market innov all the mark In the case forecast erro .75% of imp riances of 0 s forecast er e Malaysian nd vulnerab do not seem from the va exhibit an of the daily the analys ng of differ f financial the analysis osition analy countries is 173 S, UK, Japa Inno n DJIA (U.S 99.3 99.3 99.3 0.01 0.02 0.02 0.34 0.34 0.34 0.70 0.70 0.70 f the foreca ng the effec The market cast error v that all the vations exp kets accoun e of Malays or variances mpact on Ma 0.34% and 0 rror varianc n market is ble to shoc m to exert a ariance deco n exogenous y forecast er sis have im rent sectors and institu s proves fo ysis shows minimal. Asian an & Malay ovation in ma A S) NIKKEI (Japan) 6 0.31 5 0.31 5 0.31 98.77 2 98.76 2 98.76 4 2.75 4 2.76 4 2.76 0 0.30 0 0.30 0 0.30 ast error va ct of a shock ts have been variance of t e stock mar plained by nts for less ia, all stock s except for alaysia’s for 0.04% resp ce explaine the least ex cks occurrin any consider ompositions s market tre rror varianc mplemented s of the eco tional refor oreign parti that the de n Journal of F sia From 20 arket of: KL (M 0.3 0.3 0.3 0.3 0.3 0.3 96. 96. 96. 0.2 0.2 0.2 ariance for k that origin n ordered a the market rkets are ex their own than 3% of k market see r Japan. Jap recast error ectively. W d by the ot xogenous m ng in leadi rable influen s of the stoc ends and no ce of anoth significant onomy to f rms, and th icipation ha gree of co-m Finance & Ac ISSN 19 2012, Vol. www.macrothi 000-2008 LCI Malaysia) 4 4 4 9 9 9 .72 .72 .72 23 24 24 5-day, 10- nates in the according to in the first xogenous s innovations f the foreca em to have m pan tops the variances f With such a m ther market market amon ing stock m nce on Mal ck markets o market is her market. nt changes foreign inve he privatiz as been ne movement ccounting 946-052X 4, No. 2 ink.org/ajfa FTSE (U.K) 0.77 0.78 0.78 0.12 0.13 0.13 0.04 0.04 0.04 98.67 98.67 98.67 day and US and o closing column ince the s equals ast error minimal list and followed minimal ts in the ng these markets. aysia. index in s said to Second, in their estors, a ation of gligible. in stock Continu respons obtainin informa that the variable The no market here is s Figure noted th horizon signific peak re of the s day 3 o from th reaches shows t peak re time di fourth a panel an Malays and UK hence, w sensitiv uing on from se of Malay ng this resu ation contai e unit is the e is set equa ormalized c to other ma set to Malay 2 shows th hat the resp ntal axis. If cant. The fir sponse occu shock takes onward. Co he UK mark s its peak on the respons sponse occu fference as and final pa nd seen to ia’s respons K did not m we can say ve to other m m the analy ysia to shock ult is to hav ned in such standard de al to one sta coefficients arkets to a p ysia. he impulse ponse becom f the bands rst panel sho urs from the a longer pe ontinuing on ket. Althoug n the third d se of the M urs on day t US is one anel shows have one d se to shock make a susta y that Malay markets. ysis on varia ks in US, Ja ve an insigh h shocks. Th eviation of t andard erro will repre positive, on response of mes statisti are far fro ows the res e first day to eriod of alm n, the secon gh not signi day and sub Malaysia stoc three (i.e. da day behind Malaysia’s day lag. Fro from Japan ained impac ysia is mos 174 ance decom apan and U ht on the ef he impulse r the orthogo or of innova esent simula ne-standard f Malaysia cally insign om the zero sponse to a o the end of most five da nd panel re ificant peak bsides from ck market t ay four in th d. By day s stock mar om all four n is the high ct as the m st sensitive Asian mposition, th UK were inv fficiency of response co onalized inn ation at s = ated impuls deviation s to the othe nificant whe o line, then shock in th f the second ays to subsid epresents M k response o m the fourth to a shock he plot). Th four, the im rket respons panels, it’s hest approx magnitude is to shocks f n Journal of F he pattern o vestigated. T f Malaysian oefficients a novation. Th 0 (Laksmi a se response shock. The er stock ma en the lowe n the respon e Japanese d day of the de though n Malaysia’s re occurs with day onwar in the US here is a one mpact of the se to its ow notable tha imately 0.1 s between 0 from Japane Finance & Ac ISSN 19 2012, Vol. www.macrothi of dynamic The primary n market du are normaliz he initial sh and Gamini es of one market in r arkets. It sh er band cro nses are sa market. Sig e shock. The not significa esponse to h a one day rds. The thi market. Ma e day lag du e shock fad wn domestic at the magn 3. Shocks f 0.01 and 0.0 ese market ccounting 946-052X 4, No. 2 ink.org/ajfa impulse y aim of ue to the zed such hock in a i, 2004). selected response hould be osses the id to be gnificant e impact ant from a shock lag and rd panel alaysia’s ue to the des. The c shocks nitude of from US 03 only; but less F 6. Conc On a sta a positi positive have ex compar to be le low deg Respon Malays varianc markets that the Japan is sustaine market As a c market Figure 2. Re clusion atistical not ive mean re e return (as xposed Mal red to other ess vulnerab gree of vul nse exhibite ia. Japan t es followed s as its effe magnitude s the highes ed impact. H but less sen oncluding and other m esponse of M te, Malaysia eturns of 0 opposed to laysia to be markets in ble to extern lnerability d the minim tops the li d by US wi ects account of Malaysi st with appr Hence we c nsitive to oth remark, the markets in Malaysia to a exhibited i .004 and ca o high risk, e susceptibl the analysi nal volatilit from US a mal effect o st and acc ith 0.34%. M ts for hardly ia’s respons roximately can say that her markets e observati the analysi 175 Shocks in U is the lowes an be summ , high retur le to shock is. The anal ty movemen and Japan o of forecast counts for Malaysia h y 0.4%. Th e to shock f four days. t Malaysia i s. on that the is is minim Asian US, UK & J st standard d moned as a rns). The an s and havin lysis further nts in major only. The a error varian approximat as hardly a he variance from Shocks from is most sens e co-movem mal is not in n Journal of F Japan From deviation of a market wi nalysis of U ng a higher r proved the r markets b analysis of nces from a tely 2.75% ny impact o decomposit m US and U sitive to sho ments betw n line with Finance & Ac ISSN 19 2012, Vol. www.macrothi m 2000 – 200 f 0.99 toget ith lowest r Univariate G r leverage e e Malaysian but is subjec VAR and all markets % of foreca on the US tion results UK did not ocks from J ween the M the finding ccounting 946-052X 4, No. 2 ink.org/ajfa 08 her with risk and GARCH effect as n market cted to a Impulse towards ast error and UK showed t make a Japanese alaysian gs in the existing markets does no The an yielded the anal and low is less v characte investm The fin transmi news an of shoc stock m investor investm With re Malays complet contagi scope diversif Malays between We nee take ind stock m as seen Malays identity all, it is country Referen Agmon Co-Mov Finance Becker, and th http://dx g literature. s are vulner ot much affe nalysis of v some enco lysis, Malay w risk (lowe vulnerable t eristics cou ments as Ma ndings also ission from nd bad new ks are persi market can b r could inc ment with an egard to the ian market tely segmen on in the re for reapin fication, at ian market n mature ma ed to take in discriminate market. The n in the rece ia. Perhaps y and is now s often state y. nces n, T. (1972 vements in e, 27, 839-8 , K. G., Finn he Japane x.doi.org/10 Contrary to rable to mo ect others is volatility co ouraging ou ysia is the o est standard to external uld well be alaysia portr o highlight other coun ws has an inf istent too. A be character rease their ny given lev policy impl co-moveme nted and do egion. The ng risk mi least in th is not of arkets such nto consider e cue from o importance ent world f , the KLCI w dependen d that the st 2). The R n the Unite 855. http://d nerty, J. E. & ese Stock 0.1111/j.154 o the findin ovements w also quite c o-movement tcomes to b only market deviation). market mov e manipula rays a safe h ts that the ntries have fluence on t As these sho rized as less return at an vel of return lications of ent with oth oes not yet degree of c inimization he short ter a very hig as that of U ration both other world e of regiona financial tur I (Malaysian nt on other d tock market elations am d States, U dx.doi.org/10 & Gupta, M Markets. 40-6261.199 176 ngs in the li with the US contrary to nt between be considere in the analy . The analys vements tho ated by inv haven for in ere are no only a min the volatility ocks take a s efficient fr any given le n. f our this stu her markets warrant an co-moveme and retur rm by inve gh order. Th US, UK or J the local, r d markets to al economic rmoil which an stock ind domestic va t is also a b mong Equi United King 0.1111/j.154 M. (1990). T The Jo 90.tb02438 Asian iterature, it market. A the findings Malaysia a ed by mark ysis with a p sis also pro ough it is r vestors in t nvestment di asymmetr nimal effect y of the Ma longer peri rom the theo evel of risk udy, the find in the study ny immedia ents also ind rn maximi esting in M his leaves Japan. regional and encapsulate c and politic h did not m dex) has “m ariables wh barometer of ity Market gdom, Germ 40-6261.19 The Internat ournal of .x n Journal of F has been o dditionally, s in the liter and US, UK et analyst a positive retu ved that the eceptive Jap their effort iversificatio ic effects t on Malays alaysian ma iod to dissip ory of Mark k or could r dings sugge y is neither ate concern dicates that zation ben Malaysia, as sufficient r d global eve e the movem cal events n make an imp matured” an ich need fu f the econom s: A Stud many, and 72.tb01315 ional Relati Finance, Finance & Ac ISSN 19 2012, Vol. www.macrothi observed tha , Malaysian rature. K and Jap and investor urns (positiv e Malaysian apan and US t to diversi ons. and the v sia. But loc arket and the pate, the M kowitz. As reduce their est that the n fully integr regarding t there is sti nefits of p integration room for sw ents and sho ments of M need to emp mpressive im nd now has urther studie mic well be dy of Shar Japan. Jou 5.x ion between 45, 129 ccounting 946-052X 4, No. 2 ink.org/ajfa at Asian n returns an have rs. From ve mean) n market S. These ify their volatility cal good e effects alaysian such, an r risk of nature of rated nor possible ill much portfolio n of the witching ould not alaysian phasized mpact on its own es. After eing of a re Price urnal of n the US 97-1306. Beck, Develop http://dx Bollersl Econom Bollersl In Hand Chin, W Fraction http://dx Ciner, C Review http://dx Engle, Varianc Eun, C Journal http://dx Friedma the Intro Garay, U Markets Glosten Expecte Finance Morgen Lexingt Grubel, Journal Hyginu http://pa Janakira Pacific- Money, Johnson Comov T., Demirg pment an x.doi.org/10 lev, T. (198 metrics, 31, lev, T., Eng dbook of Ec W. C. (200 nally Integ x.doi.org/10 C. (2006). A of Econom x.doi.org/10 R. F. (198 ce of UK Inf . S., & Sh l Fina x.doi.org/10 an, J., & Sh oduction of U., (2003). s. http://ww n, L. R., Ja ed Value an e, 48, 1779- nstern, O., ton, KY: He , H., & Fa l of Finance us. L, (2006 apers.ssrn.c amanan, S. -Basin Stoc 8, 155 – 17 n, R. and ement. guc-Kunt, nd Structu 0.2307/2328 86). General 307-327. ht gle R., & Ne conometrics 08). Volatil grated Appr 0.3844/ajass A further lo ics and Fin 0.1016/j.qre 2). Autoreg flation. Eco him, S. (198 ancial 0.2307/2330 hachmurove f the Euro. 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The 96.tb02713 Evolution in ational M 90037-K olatility Spi Econometri ober 15-16. national D 5. 1994). Do urns and vo 3.507 oes the Sto regression A 3/REE1540 eroskedastic .org/10.230 ns of the re x.doi.org/10. inkages betw nd Japan: A org/10.1016 (2008). Pri Markets: Wit h & Publica nts in the L 6-361. 2002). Integ lian perspe p://dx.doi.or mics and Asian rkets Move Journal .x n dynamic Money and ill over and cs Group Diversificatio bulls and olatility. Re ock Market Approach. E 0-496X4405 city in Asse 07/2938260 elative imp .1111/1467- ween the Eq A Vector Au 6/1044-0283 ice and Vol th Special F ation of Indi Linkage of N gration and ctive. Inter rg/10.1016/ Reality. n Journal of F Together? A of Financ linkages ac d Finance d Co-move Fourteenth on of Inve bears mov view of Fin in India M Emerging M 501 et Returns: ortance of -6303.00042 quity Marke utoregressio 3(93)90013- atility Spill Focus on In ian Inst. of M National Sto interdepend rnational F S1042-4431 Econome Finance & Ac ISSN 19 2012, Vol. www.macrothi An Investig ce, 51, 9 cross daily e, 10, 2 ement: Som h Annual estment Po ve across b nancial Stu Move with A Markets Fin A New Ap investment 2 ets of Pacif on Analysis -O l-over acros ndian Stock Managemen ock Market dence of st Financial M 1(02)00046 etrica, 48, ccounting 946-052X 4, No. 2 ink.org/ajfa gation of 951-986. national 231-251. me New Meeting ortfolios. borders? udies, 7, Asia? A nance & pproach. t issues. fic-Basin . Global ss North Market. nt. Indices. tock and Markets, -X , 1-48. Soydem Evidenc http://dx Syriopo markets http://dx Wheatle Econom Cheong between Econom Zakoian mir, G. (200 ce from x.doi.org/10 oulos T. (20 s: Has the E x.doi.org/10 ey, S. (198 mics, 21, 177 g C. W., Isa n National mics, 7, 175- n, Jean-Mic 00). Interna Emerging 0.1002/(SIC 005). Dynam EMU any i 0.1016/j.irfa 8). Some T 7–212. http a, Z., & Mo Stock Mar -195. chel. (1990) ational Tran Equity M CI)1099-131 mic linkage mpact? Inte a.2005.02.0 Tests of Int ://dx.doi.org ohd Nor, A. rket Indice . Threshold 179 nsmission M Markets. Jo 1X(200004) es between ernational R 003 ternational rg/10.1016/0 H. S. (200 s. Internati d Heterosced Asian Mechanism ournal of )19:3<149:: emerging E Review of F Equity Inte 0304-405X( 7). Long Pe ional Resea dastic Mode n Journal of F of Stock M Forecastin AID-FOR7 European an Financial A egration. Jo (88)90060-8 ersistence V arch Journa el, Unpublis Finance & Ac ISSN 19 2012, Vol. www.macrothi Market Mo ng, 19, 1 735>3.3.CO nd develope Analysis, 16 ournal of F 8 Volatility an al of Finan shed Manus ccounting 946-052X 4, No. 2 ink.org/ajfa ovement: 149-176. O;2-3 ed stock 6, 41-60. 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