An Analysis of the Relationship Between Equity and Composite Index in Bursa Malaysia
Keywords:Co-Movement, Wavelet Analysis, Continuous Wavelet Transform, Portfolio Choice, Investment Decision
This paper examines the relationship between sectoral equity and composite index in Bursa Malaysia. The relationship between equity returns and composite index is investigated using correlation-based on Ordinary Least Square (OLS) and signal decomposition techniques based on wavelet analysis. The paper uses daily data from 1999 to 2019. The OLS result indicated that majority of sectoral equity have a higher correlation with the composite index except in tin and mining sector. The wavelet analysis indicates a majority of sectors are strongly co-move. For all indices, there are lead/lag relationships between the indices except for industrial, plantation, tin mining and trade, and services. The findings have important implications for helping individual and institutional investors to understand the co-movement of equity sectors and then formulate policy measures that encourage better portfolio diversification.
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