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Malaysian crude palm oil market volatility: a GARCH approach

Haron, Razali and Ayojimi, Salami Monsurat (2015) Malaysian crude palm oil market volatility: a GARCH approach. International Journal of Economics and Management, 9 (S). pp. 103-120. ISSN 1823-836X

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This study aims to examine the volatility of Malaysian Crude Palm Oil (CPO) market for it has important implication to both business communities and policy makers. This study adopted the GARCH (1,1) model and the result of the finding exhibited persistent volatility as well as volatility clustering in Malaysian CPO market. The persistent volatility implies that the percentage of market volatility is closer to unity. This reflects the frequency of occurrence of the CPO market volatility while volatility clustering provides useful information on the broadness of the shock. Adequate understanding of the degree of volatility of the market can instigate informed decision by policy makers which may perhaps mitigate persistency of uncertainty of returns. Business communities on the other hand will be consistently alert on the voice of the market and ready to make sound decision on the events of the market. At the same time, the importance of hedging in Malaysian CPO futures market is empirically confirmed. This study contributes to the understanding on commodity market volatility by quantifying the half-life of decay of the shock in the market.

Item Type: Article (Journal)
Additional Information: 4851/46914
Uncontrolled Keywords: CPO, volatility, GARCH (1, 1)
Subjects: H Social Sciences > HG Finance
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button): Institute of Islamic Banking & Finance (IIiBF)
Depositing User: Dr. Razali Haron
Date Deposited: 25 Jan 2016 17:45
Last Modified: 12 Oct 2017 09:25
URI: http://irep.iium.edu.my/id/eprint/46914

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