Examining stock market volatility, spillover effects, and the role of the Malaysian government by asymmetric GARCH and wavelet framework

The crisis in the global economy leads to generate significant issue for the stock market and government policies are important at crisis period. This study examines the role of government in promoting economic reforms and recovery during financial crises, particularly focusing on stock market volatility. Using wavelet analysis, asymmetric GARCH models and stochastic volatility model, the study analyzes the spillover effects of stock market volatility across countries, with a focus on six world governance indicators and MSCI index prices. MSCI index price of Malaysia and its trading partners from 1993 to 2021, collected from the DataStream database. The findings highlight asymmetric volatility transmission, where negative shocks increase volatility more than positive ones, and governance indicators have uneven effects. The results show long-term volatility persistence in markets such as Malaysia, China, India, Japan, Pakistan, Singapore, and several OECD countries. Notably, Malaysia's market volatility impacts other stock markets in both the short and long term. Additionally, except for voice and accountability, all World Governance Indicators positively correlate with Malaysia's stock market. The study offers insights for investors and suggests the need for effective governance to strengthen economic stability. The government can make effective policies for the pre- and post-crisis periods to recover its economy from the crisis trigger. Moreover, this study provides the guidelines for investors to invest in the low volatility stock at period of crisis. This study provides a new insight in literature of effective government management during periods of crisis and the add in literature related to the take safe the investors pre-and post-crisis.