The impact of subprime mortgage crisis to long-run and short-run volatility components of indonesian and malaysian equity markets

Cheong, C.W. and Lai, N.S. and Yusof, N.A.M. and Ying, K.C. (2012) The impact of subprime mortgage crisis to long-run and short-run volatility components of indonesian and malaysian equity markets. Journal of Interdisciplinary Mathematics, 15 (2-3). pp. 207-228. ISSN 09720502

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Abstract

This study investigates the long-run and short-run movements of various stock market volatilities using a volatility decomposition methodology (Ding and Granger, 1996; Engle and Lee, 1999). We studied the impact of 2007-2008 subprime mortgage crisis on both the transitory and permanent volatility components in terms of two empirical stylized facts, the leverage effect and volatility persistence. In order to do so, the long spanning data are separated into three different periods. For the former stylized fact, the Crisis Impact on the leverage effect is mainly temporary with no long-run effect to the stock markets. This finding explained that the leverage effect is mostly difficult to adjust in the short-run transitory volatility during the crisis periods. However with proper risk management and long term strategies, most of the market participants are able to anticipate and handle this news impact in the long-run. For the latter stylized fact, the crisis has slightly increased the volatility persistence in all the markets. From the viewpoint of heterogeneous market hypothesis, the higher intensity of volatility persistence implied that the stock markets are less informationally efficient.

Item Type: Article
Subjects: H Social Sciences > HG Finance
Depositing User: Users 1102 not found.
Date Deposited: 07 Jan 2013 03:24
Last Modified: 07 Jan 2013 03:24
URI: http://shdl.mmu.edu.my/id/eprint/3782

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