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Contagion among major world markets: a wavelet approach

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  • Mikko Ranta
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    Abstract

    Purpose – The purpose of this paper is to examine contagion among the major world markets during the last 25 years and propose a new way to analyze contagion with wavelet methods. Design/methodology/approach – The analysis uses a novel way to study contagion using wavelet methods. The comparison is made between co-movements at different time scales. Co-movement methods of the discrete wavelet transform and the continuous wavelet transform are applied. Findings – Clear signs of contagion among the major markets are found. Short time scale co-movements increase during the major crisis while long time scale co-movements remain approximately at the same level. In addition, gradually increasing interdependence between markets is found. Research limitations/implications – Because of the chosen method, the approach is limited to large data sets. Practical implications – The research has practical implications to portfolio managers etc. who wish to have better view of the dynamics of the international equity markets. Originality/value – The research uses novel wavelet methods to analyze world equity markets. These methods allow the markets to be analyzed in the whole state space.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal International Journal of Managerial Finance.

    Volume (Year): 9 (2013)
    Issue (Month): 2 (March)
    Pages: 133-149

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    Handle: RePEc:eme:ijmfpp:v:9:y:2013:i:2:p:133-149

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    Related research

    Keywords: Transforms; Waveforms; Wavelet coherence; Wavelet correlation; Waves; World equity markets;

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    Cited by:
    1. Jozef BARUNÍK & Lukáš VÁCHA, 2013. "Contagion among Central and Eastern European Stock Markets during the Financial Crisis," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(5), pages 443-453, November.
    2. Zied Ftiti & Aviral Tiwari & Amél Belanès, 2014. "Tests of Financial Market Contagion- Evolutionary Cospectral Analysis V.S. Wavelet Analysis," Working Papers 2014-062, Department of Research, Ipag Business School.

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