Returns and Volatility Spillover between the Kuala Lumpur Stock Index and Kuala Lumpur Futures Index: Bivariate GARCH Model
DOI:
https://doi.org/10.66674/t3kapt35Keywords:
Bi-GARCH, hedging, optimal hedge ratioAbstract
Abstract: This article investigates the effectiveness of hedging the cash markets index on the KLSE using the futures index on the MDEX. By the application of the bivariate GARCHI1, 1) model the time varying hedge ratio is able 10 capture the volatility spillover between the two markets. The results show that the two models show an obvious disparity in the variance of the hedged portfolio when the cconomy is in the 1997 financial crisis. “The implication to investors is that i i still 00 risky to enter the market even with a hedged portfolio during a financial crises. Thus, hedging the cash market using futures to reduce investment risk fails when it is most needed. The implications of these results are very important to hedgers. These include the optimal hedge ratio and the risk involved in hedging itself especially during a period of financial crisis.
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Copyright (c) 2008 Izani Ibrahim, Noryati Ahmad (Author)
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Authors retain copyright and grant Capital Markets Review the right of first publication. Articles are published under the Creative Commons Attribution 4.0 International (CC BY 4.0) licence: https://creativecommons.org/licenses/by/4.0/. This licence permits sharing and adaptation for any purpose, including commercial use, provided appropriate credit is given, a link to the licence is supplied and any changes are indicated. Third-party material excluded from the article's licence must be clearly identified, and authors are responsible for obtaining any required permission.
