162 © 2023 AESS Publications. All Rights Reserved. Estimation of stock market index volatility using the GARCH model: Causality between stock indices Doong Toong Lim 1+ Khang Wen Goh 2 Yee Wai Sim 3 Khairunnisa Mokhtar 4 Sharmila Thinagar 5 1,4 Faculty of Computing and Engineering, Quest International University, Perak, Malaysia. 1 Email: doongtoong.lim@qiu.edu.my 4 Email: khairunnisamokhtar8@gmail.com 2 Faculty of Data Science and Information Technology, INTI International University, Nilai, Malaysia. 2 Email: khangwen.goh@newinti.edu.my 3 Faculty of Innovation and Technology, Taylor’s University, Subang Jaya, Malaysia. 3 Email: yeewai.sim@taylors.edu.my 5 Faculty of Business, Economics and Accounting, HELP University, Shah Alam, Malaysia. 5 Email: sharmila.t@help.edu.my (+ Corresponding author) ABSTRACT Article History Received: 24 August 2022 Revised: 6 January 2023 Accepted: 26 January 2023 Published: 2 March 2023 Keywords ASEAN Causality Emerging market Stock market Univariate GARCH Volatility estimation. JEL Classification: G15, G17. This paper aims to model the volatility of returns for selected stock indices and examine the causal relationships between the markets using the historical daily prices of the Financial Times Stock Exchange (FTSE), Bursa Malaysia Kuala Lumpur Composite Index (KLCI), the Indonesia Stock Exchange Index (LQ45), and the Stock Exchange of Thailand (SET) from January 2008 to November 2019. The study employs univariate GARCH models that are prominent in capturing the volatility clustering of financial instruments in association with the Box–Jenkins methodology for better estimation. Generally, the ARMA-GARCH model is used to capture the volatility series, while the Granger causality test examines the causal directions between the markets. The findings revealed leverage effects on the markets, with the outperformance of the EGARCH in analyzing the empirical properties of stock returns. An initial test that yielded positive correlations suggests the existence of co-movement between the derived volatility series. The study concluded bidirectional causal relationships between the selected markets, and based on the resulting relationships, it is proposed that supervision of markets among the ASEAN members could be advantageous in predicting the corresponding market performance. Contribution/Originality: This study contributes to the functioning of the global financial system by providing insight on future stock market developments among emerging countries, concurrently offering additional reference to investors in making financial decisions while enhancing risk management. The paper also provides added value in modelling market volatility using the ARMA-GARCH model. 1. INTRODUCTION According to the International Monetary Fund’s World Economic Outlook database, the gross world product growth is improving after a continual decline since 2010. With the increasing market potential, economies and consumption in developing countries are expected to continue growing. The increase in the growth rate in developing countries and the associated emerging markets have contributed to the increasing world product growth. On the Asian Economic and Financial Review ISSN(e): 2222-6737 ISSN(p): 2305-2147 DOI: 10.55493/5002.v13i3.4738 Vol. 13, No. 3, 162-179. © 2023 AESS Publications. All Rights Reserved. URL: www.aessweb.com