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Wavelet coherence analysis of returns, volatility and interdependence of the US and the EU money markets: Pre & post crisis

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  • Vukovic, Darko B.
  • Lapshina, Kseniya A.
  • Maiti, Moinak

Abstract

This research analyse the US and the EU money markets interdependence from 2004 to 2018. The study explains to what extent the volatility of the chosen money markets instruments in two regions is inter-correlated before, during and after the financial crisis of 2008. We apply the econometric analysis and estimate time-series models of class GARCH to study the historical dynamics of interbank rates and bond returns. The study demonstrates that correlation between returns of analogous money market instruments in the EU and US is not stable over time. We find that correlation rises in periods when countries are exposed to the same external shocks as global financial crisis. Wavelet coherence analysis suggests that investors do not get any advantages of portfolio diversification investing only in US treasuries with different maturities for more than 256 days and do not get any advantages at all investing only in European bonds.

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  • Vukovic, Darko B. & Lapshina, Kseniya A. & Maiti, Moinak, 2021. "Wavelet coherence analysis of returns, volatility and interdependence of the US and the EU money markets: Pre & post crisis," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:ecofin:v:58:y:2021:i:c:s1062940821000838
    DOI: 10.1016/j.najef.2021.101457
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    Cited by:

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    2. Moinak Maiti & Darko Vukovic & Yaroslav Vyklyuk & Zoran Grubisic, 2022. "BRICS Capital Markets Co-Movement Analysis and Forecasting," Risks, MDPI, vol. 10(5), pages 1-13, April.
    3. Darko B. Vukovic & Carlos J. Rincon & Moinak Maiti, 2021. "Price distortions and municipal bonds premiums: evidence from Switzerland," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-21, December.
    4. Darko Vukovic & Moinak Maiti & Zoran Grubisic & Elena M. Grigorieva & Michael Frömmel, 2021. "COVID-19 Pandemic: Is the Crypto Market a Safe Haven? The Impact of the First Wave," Sustainability, MDPI, vol. 13(15), pages 1-17, July.
    5. Olanipekun, Ifedolapo Olabisi & Ozkan, Oktay & Olasehinde-Williams, Godwin, 2023. "Is renewable energy use lowering resource-related uncertainties?," Energy, Elsevier, vol. 271(C).

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    More about this item

    Keywords

    Money market; Correlation; Financial crisis; GARCH modelling; Wavelet coherence analysis;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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