Ahmad, Noryati
(2005)
Volatility behavior patterns and information transmission mechanism : evidence from Malaysian futures markets.
PhD thesis, Universiti Sains Malaysia..
Abstract
This study employs bivariate ARMA(p,q)-EGARCH(p,q) model specifications
model to investigate whether information between Malaysian futures and cash
markets is transmitted through first moments or second moments or both. Using daily
data, the study covers the period from January 2, 1990 until December 31, 2003. The
study also investigates the effects of the Malaysian futures - cash market relationship
in the light of international market interdependencies. More specifically, it looks at
whether information from foreign futures markets of S&P SOO, HSIF and NSIF
influence the futures-cash relationship and whether the effects come through price
level or volatility or both. In addition, the study also looks at the volatility patterns of
Malaysian futures markets in order to facilitate a better understanding of the volatility
transmission process. Lastly, to determine whether this transmission of information
process (be it within and across markets) is affected by structural changes, the
sample period was sub -divided into pre-crisis, during-crisis and post-crisis periods.
Results indicate that the volatility behavior patterns of FKLI and FCPO futures
markets are highly persistent but mean-reverting. Volatility of these futures markets
also reacted asymmetrically to its past innovations, where positive news caused
higher volatility than negative news. Transmission of information between Malaysian
futures and cash markets occurs at both returns and volatility level, where futures
markets tend to dominate the cash market at both levels. Volatility transmission is not
asymmetric when the interactions between the futures and cash markets are
included. The error correction terms have significant predictive power on both the
conditional mean and volatility of these futures markets. Findings show that domestic
futures-cash relationship is being influenced by the information transmitted from
foreign futures markets. As for the Malaysian stock index futures, S&P 500 futures is
the information producer at return level, while HSIF futures is at volatility level. NSIF
futures have no influence on the volatility of FKLI and its related cash markets
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