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Contagion among Central and Eastern European Stock Markets during the Financial Crisis

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  • Jozef BARUNÍK

    ()

  • Lukáš VÁCHA

    ()

Abstract

This paper contributes to the literature on international stock market comovements and contagion. The novelty of our approach lies in the application of wavelet tools to high-frequency financial market data, which allows us to understand the relationship between stock markets in the time-frequency domain. While a major part of economic time series analysis is done in the time or frequency domain separately, wavelet analysis combines these two fundamental approaches. Wavelet techniques uncover interesting dynamics of the correlations between Central and Eastern European (CEE) stock markets and the German DAX at various investment horizons. The results indicate that the connection of the CEE markets to the leading market of the region is significantly lower at higher frequencies than at lower frequencies. Contrary to previous literature, we document significantly lower contagion between the CEE markets and the German DAX after the large 2008 stock market crash.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 63 (2013)
Issue (Month): 5 (November)
Pages: 443-453

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Handle: RePEc:fau:fauart:v:63:y:2013:i:5:p:443-453

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Keywords: wavelets; financial crisis; Central and Eastern European stock markets; comovement; contagion;

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References

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  1. Connolly, Robert A. & Stivers, Chris & Sun, Licheng, 2007. "Commonality in the time-variation of stock-stock and stock-bond return comovements," Journal of Financial Markets, Elsevier, vol. 10(2), pages 192-218, May.
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  15. Mikko Ranta, 2013. "Contagion among major world markets: a wavelet approach," International Journal of Managerial Finance, Emerald Group Publishing, vol. 9(2), pages 133-149, March.
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