Time and Frequency Domain Analysis of Volatility Spillovers across Financial Asset Classes in Malaysia

Abstract

This paper investigates the connectness and spillovers among classes of financial asset in Malaysia in the post-decade of global financial crisis. First, the Diebold & Yilmaz (2012)’s time-domain analysis is applied with the spillover index reported at 10.7%. This implies a low level of connectedness but possible diversification among different asset classes across time. Furthermore, most of the assets except foreign exchanges, are net reciever of volatility. Second, the Barunik & Krehlik (2018)’s frequency-domain analysis reveals that, at higher frequencies, the degree of connectedness increases and, the net transmitter of volatility spillovers across financial markets is contingent on the frequency under consideration. By frequency domain, the role of Gold in long run from transmitter to receiver has emerged, and there is also increase in magnitude of spillover from oil prices. The findings are insightful for risk assessment and portfolio diversification.