Int. J. of Accounting and Finance   »   2017 Vol.7, No.1

 

 

Title: Estimating risk premium and volatility persistence in Malaysian stock market

 

Authors: Elgilani Elshareif; Muhammed Kabir

 

Addresses:
Canadian University Dubai, Dubai, UAE
University of New Brunswick and Canadian University Dubai, Saint John, NB, Canada and Dubai, UAE

 

Abstract: External shocks induced volatility, and persistence of the volatility has been examined for the Malaysian stock market using a model where risk-return trade-off has been incorporated. In the current study, the stock market index has been disaggregated into four different sub-sectors which have provided an opportunity to compare and contrast the inter-sectoral variance in response to external shocks and persistence of the effects of these shocks. The sectoral breakdown provides a deeper insight into the dynamic adjustment mechanism which is invariably masked in studies that use the aggregate data. This paper also finds that the risk premium coefficient is positive and statistically significant and thus concludes that the Malaysian stock return is influenced by conditional variance. More precise estimation of volatility is a pre-requisite for designing policy measures to smooth out fluctuations in stock indices, and consequently encouraging investment not only in the stock market but also in the real economy has far reaching consequences. The results have significance also for portfolio managers and investors who are managing funds to optimise risk-adjusted returns.

 

Keywords: volatility persistence; risk premium; EGARCH-M; ICSS algorithm.

 

DOI: 10.1504/IJAF.2017.10004759

 

Int. J. of Accounting and Finance, 2017 Vol.7, No.1, pp.1 - 10

 

Submission date: 04 May 2016
Date of acceptance: 16 Oct 2016
Available online: 21 Apr 2017

 

 

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