Dynamics Between Malaysian Equity Market And Macroeconomic Variables: An Application Of Kalman Filter Model With Heteroskedastic Error
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Date
2006-12
Authors
Cheah Lee Hen
Journal Title
Journal ISSN
Volume Title
Publisher
Universiti Sains Malaysia
Abstract
Ever since the pioneering work of Kalman and Bucy (1960), Kalman filter model
has become widely used in the space programme and control engineering. However,its applications in financial time series have been very few and far in between. Kalman filtering is a set of equations which allows an estimator to be updated once a new observation becomes available. A model for the monthly Kuala Lumpur Composite Index from April 1986 to February 2005 is proposed and investigated. The model allows the mean reversion level of Kuala Lumpur Composite Index to be modeled stochastically.
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Keywords
Macroeconomic Variables , Model With Heteroskedastic