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  1. The International Journal of Applied Economics and Finance
  2. Vol 5 (3), 2011
  3. 226-236
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The International Journal of Applied Economics and Finance

Year: 2011 | Volume: 5 | Issue: 3 | Page No.: 226-236
DOI: 10.3923/ijaef.2011.226.236

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Authors


A. Angabini

Country: Malaysia

S. Wasiuzzaman

Country: Malaysia

Keywords


  • global financial crisis
  • GARCH models
  • financial markets
  • leverage effect
  • Volatility
Research Article

GARCH Models and the Financial Crisis-A Study of the Malaysian Stock Market

A. Angabini and S. Wasiuzzaman
Financial market volatility is an important aspect when setting up strategies related to portfolio management, options pricing and market regulation. Occurrence of the global financial crisis of 2007/2008 affected all financial markets around the world and a major concern was about the volatility changes in stock markets. This study has investigated the change in volatility of the Malaysian stock market, with respect to the global financial crisis of 2007/2008, using both symmetric and asymmetric Generalized Autoregressive conditional heteroscedasticity (GARCH) models. Using the Kuala Lumpur Composite Index (KLCI), two periods are selected. The first period is from June 2000, after the recovery of the East Asian crisis, to the end of 2007 and excludes the global financial crisis 2007/2008 and the second period includes the crisis, i.e., from June 2000 to March 2010. AR (4) is found to be the best in modelling the conditional mean and GARCH (1, 1), EGARCH (1, 1), GJR-GARCH (1, 1) for conditional variance. As expected from financial time series, for both periods, the KLCI exhibits stylized characteristics such as leptokurtosis, clustering effect and asymmetric and leverage effect. It is also found that there was a significant increase in volatility and leverage effect but just a small drop in persistency due to the financial crisis.
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How to cite this article

A. Angabini and S. Wasiuzzaman, 2011. GARCH Models and the Financial Crisis-A Study of the Malaysian Stock Market. The International Journal of Applied Economics and Finance, 5: 226-236.

DOI: 10.3923/ijaef.2011.226.236

URL: https://scialert.net/abstract/?doi=ijaef.2011.226.236

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