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Impact of capital control measures on the Malaysian stock market: A multiresolution analysis

Mala Raghavan (Department of Econometrics and Business Statistics, Faculty of Business and Economics, Monash University, Caulfield East, Australia)
Jonathan Dark (Department of Econometrics and Business Statistics, Faculty of Business and Economics, Monash University, Caulfield East, Australia)
Elizabeth Ann Maharaj (Department of Econometrics and Business Statistics, Faculty of Business and Economics, Monash University, Caulfield East, Australia)

International Journal of Managerial Finance

ISSN: 1743-9132

Article publication date: 6 April 2010

1669

Abstract

Purpose

The purpose of this paper is to examine the extent to which the capital control measures implemented by the Malaysian central bank in late 1998 had an influence on segmenting the Malaysian equity market from other major equity markets.

Design/methodology/approach

The S&P 500, the Nikkei 225 Index, the STI Index and the KLSE Composite Index are considered. The discrete wavelet transform technique – “Haar” is employed to decompose the series into various time scales during the pre‐ and post‐capital control periods in Malaysia. The decomposed series are then used to estimate the interdependence between KLSE Composite Index with the other three markets at various time scales.

Findings

The empirical findings support three conclusions. First, in the pre‐capital control period, Singapore is the most influential market followed by the US across all time scales in transmitting news into Malaysia. Second, after the imposition of capital controls, the spillover effects from Singapore to Malaysia have declined substantially, suggesting a reduced integration between these two markets. Finally, in the post‐capital control period, all three markets appear to be imparting a similar but moderate level of influence on the Malaysian market.

Research limitations/implications

To explore the return and volatility spillovers, the use of return and volatility series at different time scales provided a greater level of insight into the dynamics than the standard approaches which employ only one series in the time domain.

Originality/value

The results from this paper will have potential implications for asset allocation, the pricing of domestic securities, the implementation of global hedging and trading strategies and the evaluation of regulatory proposals to restrict international capital flows.

Keywords

Citation

Raghavan, M., Dark, J. and Maharaj, E.A. (2010), "Impact of capital control measures on the Malaysian stock market: A multiresolution analysis", International Journal of Managerial Finance, Vol. 6 No. 2, pp. 116-127. https://doi.org/10.1108/17439131011032040

Publisher

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Emerald Group Publishing Limited

Copyright © 2010, Emerald Group Publishing Limited

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