FTSE Bursa Malaysia Index Case Study

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Firstly, we examine the presence of pre-general election and post-general election effect in the series of FTSE Bursa Malaysia Index by controlling the global effect. Table 4 reports the estimation results of the mean equation and variance equation of the EGARCH (1, 1) model based on Equation (1) and (2). Under the mean equation, the dummy coefficients of the pre-general election are positive only for the two Shariah-compliant stock indices. However, the pre-general election dummy coefficients for the other stock indices are all negative. On the other hand, for post-general election, the dummy coefficients are all positive, except for the FTSE Bursa Malaysia KLCI. Nevertheless, the high p-value of dummy coefficient indicates insignificant stock…show more content…
The estimated results are similar to the first model which controlled for global market effect. In term of control variables, the dummy coefficients of the MSCI World Index for the mean equation and variance equation, as shown in Table 4, are negative and significant at 1% for all the series of FTSE Bursa Malaysia Index. The negative sign indicates that the Malaysian stock market returns and stock volatility are negatively affected by an increase in the global index. Meanwhile, we lack strong statistical evidence to show that movement of emerging stock market has an impact on stock volatility. Thus, the effect of emerging market on Malaysia stock market is not as vigorous as the global market effect. The asymmetric effect of the general election is reported in Table 4 and Table 5. The significant asymmetry coefficient ( ) strongly supports the asymmetric effect in most of the indices. Moreover, the positive sign of the asymmetry coefficient means that volatility increases more when returns shocks are positive. Besides, the validity of the model is supported by the diagnostic test with no remaining ARCH effect and serial correlation in all of the estimated

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