Abstract

Stock market is a main source for raising new private capital in many developing countries including Malaysia. Therefore, its efficiency and leverage effect is utmost important and interest. This paper aims to estimate the leverage effect of Malaysian stock market using EGARCH as well as investigating its efficiency using Augmented Dickey-Fuller (ADF). Data used consists of weekly closing prices for Malaysia stock market indices, namely the Kuala Lumpur Composite Index (KLCI), from 9 January 2004 to 8 Jun 2007. Results show that the EGARCH model did not confirm the existence of the leverage effect. The KLCI possess a unit root with no trend but with drift or known as random walk drift. It suggests that KLCI is weak form hypothesis.

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