Stock market volatility and exchange rate regime in Malaysia: a preliminary analysis / Noor Zahirah Mohd Sidek, Norridzwan Abidin and Azli Umar

The choice of exchange rate regime and its possible impact on economic
performance has recently become a new area of interest amongst both
economists and policy makers. The study on the impact of exchange rate
regime on financial performance, however, is relatively scarce, partly due
to theoretical ambiguity and the definition of financial performance itself.
Hence, this study intends to fill this gap by focusing on the stock return volatility
of selected stock return indices in Malaysia over different exchange
rate regimes. Specifically, the objective of this paper is to examine the
impact of exchange rate regime on selected stock market return volatility.
We draw on GARCH(1,1) to capture volatility clustering phenomenon.
Results suggest that stock return is less volatile during managed float for
Trade and Services, Construction and Finance stock return indices only.
The Plantation stock return index, on the other hand, exhibits more volatility
during managed float period.