MODELLING VOLATILITY SPILLOVER BETWEEN CONVENTIONAL AND ISLAMIC STOCK INDEX IN MALAYSIA

Abstract

This paper analyzes the vollatility spillover between the conventional index in Malaysia FTSE Malaysia KLCI (KLSE) and the Islamic index in Malaysia FTSE Bursa Malaysia Shariah Index (FTFBMHS). Monthly observations spanning in a period from 2002 to 2018 are obtained from investing.com database. GARCH model and Johansen cointegration test are used to investigate volatility spillover and the relationship between two indices. The results of the analysis indicate that in the short-run there is volatility spillover between FTSE Malaysia KLCI and FTSE Bursa Malaysia Shariah Index, while in the long-run there is no relationship between the two indices. The methodology of compiling Islamic indeces is based on Shariah law. Keywords: Conventional