The impact of derivatives on Malaysian stock market

• Published in: Journal of Physics: Conference Series
• Main Author: Malim M.R.; Halim F.A.; Murad A.; Maad H.A.; Annuar N.F.M.
• Format: Conference paper
• Language: English
• Published: Institute of Physics Publishing 2017
• Online Access: https://www.scopus.com/inward/record.uri?eid=2-s2.0-85030678584&doi=10.1088%2f1742-6596%2f890%2f1%2f012130&partnerID=40&md5=1db68bbf453204c8d31007729c2dfd12

The essential of derivatives has been discovered by researchers over recent decade. However, the conclusions made regarding the impact of derivatives on stock market volatility remains debatable. The main objective of this study is to examine the impact of derivatives on Malaysian stock market volatility by exploring FTSE Bursa Malaysia Kuala Lumpur Composite Index Futures (BMD FKLI) using FBM KLCI as the underlying asset. Generalized Autoregressive Conditional Heteroskedasticity (GARCH) (1, 1) model was employed to realize the objective. The results have shown that the introduction of futures trading has decreased the volatility of Malaysian stock market. The volatility increased vigorously during the Asian financial crisis compared to the Global financial crisis. However, the role of futures as a risk transfer is agreed as it could improve the market by decreasing the volatility in the spot market. © Published under licence by IOP Publishing Ltd.