Does Malaysian Stock Market Response Asymmetrically?

This paper examine the response asymmetries of the Malaysian market to two developed markets – the US and Japan. We used weekly data from January 1988 to December 2007 and simple regression and VAR analyses. In line with previous studies, we found evidence for the presence of response asymmetries in the Malaysian market. The evidence strongly suggests significant responses of the Malaysian market to the US and Japanese markets downturns. To the certain extent the Japanese market is more important than the US in influencing Malaysia. Thus, the benefits of international portfolio diversification tend to diminish when they are needed most, that is, during market downturns.