Abstract
The 1997–98 East Asian financial crisis was accompanied by high volatility in the Kuala Lumpur Stock Exchange (KLSE). This paper investigates whether stock return volatility has returned to pre-financial crisis levels, using the Exponential GARCH model combined with sudden changes of unconditional variance. The empirical results indicate that the KLSE had prolonged stock market volatility after the Asian financial crisis. By March 2003, stock return volatility in the KLSE was decreasing, but had still not returned to pre-financial crisis levels. Other high volatility episodes were identified during the 1985–2003 period, namely: (i) the stock market crash of October 1987; (ii) when Iraq invaded Kuwait in August 1990; and (iii) the sudden and massive capital flight of early 1994.
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