Modelling the conditional variance and asymmetric response to past shocks in the Malaysian bond market

The exercise of modelling the risk and volatility of corporate bonds is undertaken through credit spreads analysis, a practice normally used in bond pricing and risk management. Despite the rapid growth of the Malaysian bond market, very few studies on the behaviour of credit spreads, and whether it...

Full description

Bibliographic Details
Main Authors:	Rahman, Maya Puspa, Omar, Mohd. Azmi, Kassim, Salina
Format:	Article
Language:	English English
Published:	University of Malaya 2015
Subjects:	HG4501 Stocks, investment, speculation
Online Access:	http://irep.iium.edu.my/43614/ http://irep.iium.edu.my/43614/ http://irep.iium.edu.my/43614/1/Rahman_et_al._%282015%29._Modelling_the_conditional_variance_and_asymmetric_response_to_past_shocks_in_the_Malaysia_bond_market._AJBA%2881%29%2C_1-37..pdf http://irep.iium.edu.my/43614/4/43614_modelling_the_conditional_variance_Scopus.pdf

id	iium-43614
recordtype	eprints
spelling	iium-436142017-05-24T07:23:45Z http://irep.iium.edu.my/43614/ Modelling the conditional variance and asymmetric response to past shocks in the Malaysian bond market Rahman, Maya Puspa Omar, Mohd. Azmi Kassim, Salina HG4501 Stocks, investment, speculation The exercise of modelling the risk and volatility of corporate bonds is undertaken through credit spreads analysis, a practice normally used in bond pricing and risk management. Despite the rapid growth of the Malaysian bond market, very few studies on the behaviour of credit spreads, and whether its volatility is influenced by external shocks have been conducted. This paper aims to unveil the trends and behaviour of credit spreads during the 2007/2008 global financial crisis. It examines the credit spreads of the Malaysian bond market by modelling the conditional variance and asymmetric response to past shocks of the long and short term investment and non-investment grade papers. A generalised autoregressive conditional heteroscedasticity (GARCH) is applied to 10 different ratings and maturity over the period ranging from 1 August 2005 to 31 December 2011. More specifically, modelling the asymmetry via the threshold GARCH (TARCH) and exponential GARCH (EGARCH) models meets the aim of this paper which examines the asymmetric response to past shocks of the Malaysian bond market during the 2007/2008 global financial crisis. The empirical analysis of this paper provides evidence of strong time-varying conditional variance of the Malaysian bond credit spreads with the expectation of future rate being the main determinant for credit spreads. Additionally, the evidence also indicates that past news or shocks as well as forecast variance are important in explaining the volatility of the spreads. The insignificant TARCH and EGARCH coefficients, nonetheless, indicate that there is no evidence of asymmetric response to past shocks in the volatility of bond spreads. University of Malaya 2015 Article PeerReviewed application/pdf en cc_by http://irep.iium.edu.my/43614/1/Rahman_et_al._%282015%29._Modelling_the_conditional_variance_and_asymmetric_response_to_past_shocks_in_the_Malaysia_bond_market._AJBA%2881%29%2C_1-37..pdf application/pdf en http://irep.iium.edu.my/43614/4/43614_modelling_the_conditional_variance_Scopus.pdf Rahman, Maya Puspa and Omar, Mohd. Azmi and Kassim, Salina (2015) Modelling the conditional variance and asymmetric response to past shocks in the Malaysian bond market. Asian Journal of Business and Accounting, 8 (1). pp. 1-37. ISSN 1985-4064 http://ajba.um.edu.my/
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English English
topic	HG4501 Stocks, investment, speculation
spellingShingle	HG4501 Stocks, investment, speculation Rahman, Maya Puspa Omar, Mohd. Azmi Kassim, Salina Modelling the conditional variance and asymmetric response to past shocks in the Malaysian bond market
description	The exercise of modelling the risk and volatility of corporate bonds is undertaken through credit spreads analysis, a practice normally used in bond pricing and risk management. Despite the rapid growth of the Malaysian bond market, very few studies on the behaviour of credit spreads, and whether its volatility is influenced by external shocks have been conducted. This paper aims to unveil the trends and behaviour of credit spreads during the 2007/2008 global financial crisis. It examines the credit spreads of the Malaysian bond market by modelling the conditional variance and asymmetric response to past shocks of the long and short term investment and non-investment grade papers. A generalised autoregressive conditional heteroscedasticity (GARCH) is applied to 10 different ratings and maturity over the period ranging from 1 August 2005 to 31 December 2011. More specifically, modelling the asymmetry via the threshold GARCH (TARCH) and exponential GARCH (EGARCH) models meets the aim of this paper which examines the asymmetric response to past shocks of the Malaysian bond market during the 2007/2008 global financial crisis. The empirical analysis of this paper provides evidence of strong time-varying conditional variance of the Malaysian bond credit spreads with the expectation of future rate being the main determinant for credit spreads. Additionally, the evidence also indicates that past news or shocks as well as forecast variance are important in explaining the volatility of the spreads. The insignificant TARCH and EGARCH coefficients, nonetheless, indicate that there is no evidence of asymmetric response to past shocks in the volatility of bond spreads.
format	Article
author	Rahman, Maya Puspa Omar, Mohd. Azmi Kassim, Salina
author_facet	Rahman, Maya Puspa Omar, Mohd. Azmi Kassim, Salina
author_sort	Rahman, Maya Puspa
title	Modelling the conditional variance and asymmetric response to past shocks in the Malaysian bond market
title_short	Modelling the conditional variance and asymmetric response to past shocks in the Malaysian bond market
title_full	Modelling the conditional variance and asymmetric response to past shocks in the Malaysian bond market
title_fullStr	Modelling the conditional variance and asymmetric response to past shocks in the Malaysian bond market
title_full_unstemmed	Modelling the conditional variance and asymmetric response to past shocks in the Malaysian bond market
title_sort	modelling the conditional variance and asymmetric response to past shocks in the malaysian bond market
publisher	University of Malaya
publishDate	2015
url	http://irep.iium.edu.my/43614/ http://irep.iium.edu.my/43614/ http://irep.iium.edu.my/43614/1/Rahman_et_al._%282015%29._Modelling_the_conditional_variance_and_asymmetric_response_to_past_shocks_in_the_Malaysia_bond_market._AJBA%2881%29%2C_1-37..pdf http://irep.iium.edu.my/43614/4/43614_modelling_the_conditional_variance_Scopus.pdf
first_indexed	2023-09-18T21:02:08Z
last_indexed	2023-09-18T21:02:08Z
_version_	1777410694388383744

Modelling the conditional variance and asymmetric response to past shocks in the Malaysian bond market

Similar Items