This study attempts to estimate the value-at-risk (VaR) to forecast volatility for both conventional and Islamic stock markets in Malaysia. In particular, the purpose of the article is to investigate whether GARCH models are accurate in the evaluation of VaR in emerging stock markets such as Malaysia.The daily return of the conventional (KLCI) and Islamic (FBMS) stock market are analysed for the period 2000 – 2015. The volatility model of GARCH (1,1), TGARCH (1,1) and CGARCH (1,1) with a normal and and student-t distribution are used to model the conditional variance of the stock market returns. The VaR violations of unconditional coverage and the backtesting procedure of Kupiec test are used to check the reliability and accuracy of the volatility model used for both normal and student-t distribution. Based on the Akaike Information Criterion (AIC), the best model for modelling the conventional and Islamic stock market returns is TGARCH (1,1). The backtesting results showed that for all GARCH models used, the normal distribution gives better forecast VaR compared to the student’s t distribution.
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In-Text Citation: (Aridi, Cheong, & Hooi, 2018)
To Cite this Article: Aridi, N. A., Cheong, C. W., & Hooi, T. S. (2018). An Estimation of Value at Risk using GARCH Models for the Conventional and Islamic Stock Market in Malaysia. International Journal of Academic Research in Business and Social Sciences, 8(11), 2054–2065.
Copyright: © 2018 The Author(s)
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