Portfolio Diversification Benefits of Malaysia’s Stock Indices with Commodities: An Analysis Based on the MGARCH-DCC and Wavelet Techniques
Manfaat Kepelbagaian Portfolio Indeks Saham Malaysia dengan Komoditi: Analisis Berdasarkan Teknik MGARCH-DCC dan Wavelet

Faculty of Economics and Management
Universiti Kebangsaan Malaysia
43600 UKM Bangi, Selangor, MALAYSIA.

ahmadmonirabdullah@ukm.edu.my

Faculty of Science and Technology
Universiti Sains Islam Malaysia
71800 Bandar Baru Nilai, Negeri Sembilan, MALAYSIA.

hishamuddin@usim.edu.my

Faculty of Economics and Management
Universiti Kebangsaan Malaysia
43600 UKM Bangi, Selangor, MALAYSIA.

fahmi@ukm.edu.my

Faculty of Entrepreneurship and Business
Universiti Malaysia Kelantan
Pengkalan Chepa, 16100 Kota Bharu, Kelantan, MALAYSIA.

hazriah.h@umk.edu.my

Faculty of Business and Management
Universiti Teknologi MARA
42300 UiTM Cawangan Selangor, Selangor, MALAYSIA.

rafiatul@uitm.edu.my

Business School
Universiti Kuala Lumpur
74, Jalan Raja Muda Abdul Aziz, Kampung Baru,
50300 Kuala Lumpur, MALAYSIA.

wmnasrul@unikl.edu.my

Abstract

This research examined the potential for diversifying Malaysian Islamic and conventional stock indexes with other commodities, such as crude oil, Bitcoin, and gold, with time-varying differences or investors’ varied investment horizons, which researchers had previously overlooked. Methods like the Multivariate GARCH-Dynamic Conditional Correlation (MGARCH-DCC) and the continuous wavelet transformation (CWT) were employed since they are timevarying and time scale-dependent. Crude oil, Bitcoin, and gold are shown to be leading the stock indices in our vector error correction model (VECM) analysis, implying that changes in the price of these commodities influence the stock indices. The findings also indicate that investors exposed to Malaysian stock indexes and investing in Bitcoin may benefit from significant diversification advantages across almost all investment horizons. However, the MGARCH-DCC result shows that Bitcoin is highly unpredictable. As a precaution, Malaysian investors should choose gold as a diversification instrument which is more stable. The wavelet model demonstrates that investors in Malaysia’s Islamic and conventional indices may benefit from the gold holding for durations ranging from 1 to 64 days and 128 days beyond. The findings highlight the importance of using contemporary techniques to identify diversification opportunities for investors with varied investment horizons or holding stocks for various times.

Keywords

Bitcoin; conventional stock index returns; CWT; Diversification benefits; Malaysian stock indexes
https://doi.org/10.17576/pengurusan-2022-64-11

Citation

Abdullah, A. M., Abdul Wahab, H., Ghazali, M. F., Hasan, H., Mohd Ruslan, R. A., & Wan Abdul Aziz, W. M. N. H. (2022). Portfolio Diversification Benefits of Malaysia’s Stock Indices with Commodities: An Analysis Based on the MGARCH-DCC and Wavelet Techniques. Jurnal Pengurusan, 64, 131–147. https://doi.org/10.17576/pengurusan-2022-64-11

@article{abdullah2022portfolio,
  title={Portfolio Diversification Benefits of Malaysia’s Stock Indices with Commodities: An Analysis Based on the MGARCH-DCC and Wavelet Techniques},
  author={Abdullah, Ahmad Monir and Abdul Wahab, Hishamuddin and Ghazali, Mohd Fahmi and Hasan, Hazriah and Mohd Ruslan, Rafiatul Adlin and Wan Abdul Aziz, Wan Muhd Nasrul Hadi},
  journal={Jurnal Pengurusan},
 

volume={64},
  number={},
  pages={131—147},
  year={2022},
  doi={https://doi.org/10.17576/pengurusan-2022-64-11},
  publisher={Penerbit UKM},
}

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64 (2022) 131 – 147

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