The emergence of the Asian financial crisis in July 1997 had a tremendous impact on the economies of the Asian countries. This study aims at linking the contagion theory and the crisis faced in Malaysia with more emphasis on the effect of the contagion volatility in the currency exchange market. This research uses the co-relation analysis, models of ARCH, GARCH and also GJR-GARCH in demonstrating the link. The results show that the crisis in Malaysia was not merely due to the weakness in its economic fundamentals, but also due to the contagion and volatility effects particularly originated from Thailand and Singapore. This study suggests the need for a more systematic management system with improved transparency in the financial sector even though the effect of the crisis contagion could hardly be prevented.
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