Volatility of Stock Index and Exchange Rates in Malaysia during Economic Crisis
19 Pages Posted: 17 Apr 2007
Date Written: April 2007
Abstract
In this study we apply time-series analysis to examine empirically the contemporaneous as well as lagged relation between stock index returns volatility and exchange rates returns volatility during Asian economic crisis. The generalized autoregressive conditional heteroscedasticity (GARCH 1,1) is used to take into account for the nonlinear dependent in the data generating process. The results exhibit that both contemporaneous squared returns and contemporaneous absolute returns of exchange rate help to explain volatility of the stock index.
Keywords: Volatility, exchange rate, stock index
JEL Classification: F31, G15
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