The Relationship between Bond and Composite Index in Malaysia

The purpose of this research is to investigate the correlation between bond yields and the composite index from 2007 to 2019. The Multivariate-GARCH Dynamic Conditional Correlation (DCC) model and wavelet coherence are applied to the daily data indices of five bond markets, namely conventional bond, corporate bond, corporate sukuk, government bond, and government sukuk, as well as the daily index of the composite market, which is represented by FTSE Bursa Malaysia KLCI. The empirical evidence of MGARCH-DCC reveals that the Malaysian sukuk denoted negative and unconditional relationships with the composite market indices as a positive indicator of diversification advantages. From the wavelet analysis, the bond also indicated weak links for most frequency scales, recommending favourable diversification for fixed-income Malaysian investors through bonds investments.