Asymmetric effect of political elections on stock returns and volatility in Malaysia

Volatility is a fundamental issue in financial markets which has important implications for risk management. An increase in stock market volatility leads to a large increase or decrease in stock prices and shows higher stock market risk (Campbell and Hentschel, 1992). It is commonly known that stock volatility changes over time (Schwert, 1989) and tends to be persistent. Moreover, the changes of stock volatility are usually associated with the asymmetric effect. The asymmetric effect on volatility refers to the fact that stock prices react differently to negative and positive shocks of the same magnitude (Engle and Ng, 1993). In particular, a leverage effect occurs when negative shocks imply higher future volatility than do positive shocks of the same magnitude.