Return and Volatility Spillovers Between the US, Japanese and Malaysian Stock Markets

Lida Nikmanesh, Abu Hassan Shaari Mohd Nor, Tamat Sarmidi, Hawati Janor

Abstract


ABSTRACT

The present study investigates the return and volatility spillover between the stock markets of the US, Japan and Malaysia using weekly data concerning the S&P 500, NIKKEI 225 and KLCI composite indices from January 1990 to May 2013. Employing a cross-correlation function method, the results show that a unidirectional causality-in-mean exists from the stock markets of the US and Japan to the Malaysian stock market. Malaysian stock returns immediately react to the shocks received from the stock markets of the US and Japan and the reaction continues for 12 weeks. The causality-in-variance test shows that the volatility of the Malaysian stock market is more affected by the US stock market than the Japanese stock market. Similarly, the variance-causality test shows that the speed of variance spillover from the US stock market to the Malaysian stock market is high; and is significant from the first week. The results from the present study are relevant for fund managers and investors when making investment decisions that involve the consideration of risk and return elements; for policy makers to monitor the financial market stability; and for hedgers to forecast risk and develop hedging strategies.

Keywords: Causality in mean; causality in variance; spillovers; stock market volatility; structural break in variance

ABSTRAK

Kertas ini mengkaji limpahan pulangan dan volatiliti antara pasaran saham Amerika Syarikat, Jepun dan Malaysia menggunakan data mingguan indeks komposit S&P 500, NIKKEI 225 dan Indeks Komposit Kuala Lumpur (KLCI) bagi Januari 1990 hingga Mei 2013. Melalui kaedah fungsian korelasi bersilang, hasil kajian mendapati wujudnya hubungan satu arah sebab akibat dalam min pulangan saham dari Amerika Syarikat dan Jepun terhadap pulangan saham Malaysia. Pulangan saham Malaysia menunjukkan reaksi segera terhadap kejutan dari Amerika Syarikat dan Jepun dan reaksi tersebut berlarutan sehingga 12 minggu. Hasil ujian sebab akibat dalam varians pula mendapati volatiliti pasaran Malaysia lebih dipengaruhi oleh Amerika berbanding Jepun. Begitu juga daripada hasil ujian sebab akibat dalam varians yang menunjukkan kesan signifikan bermula dari minggu satu bermakna limpahan varians dari pasaran Amerika Syarikat terhadap Malaysia adalah lebih laju. Hasil kajian ini relevan kepada pengurus dana dan pelabur dalam pembuatan keputusan pelaburan aset kewangan yang mementingkan pulangan dan risiko; pembuat polisi dalam mengawal kestabilan pasaran kewangan dan pelindungnilai dalam meramal risiko dan membentuk strategi lindungnilai.

Kata kunci: Hubungan sebab akibat dalam min; hubungan sebab akibat dalam varians; limpahan pasaran saham volatiliti; perubahan struktur dalam varian


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