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Time-Scale Decomposition of Price Transmission in International Markets

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  • VIVIANA FERNANDEZ

Abstract

This paper focuses on return spillovers in stock markets at different time scales using wavelet analysis. We look at eight stock indices that comprise the G7 countries, emerging Asia, Western Europe, Eastern Europe and the Middle East, the emerging Far East, Latin America, North America, and the Pacific region for the period 1990-2002. Our estimation results show evidence of price spillovers from the G7 countries to Europe, Eastern Europe and the Middle East, emerging Asia, Europe, Latin America, and North America. However, price spillovers from these regions to the G7 countries are weaker at different time scales. Similarly, we find price spillovers from North America to Latin America, emerging Asia, the emerging Far East, and the Pacific region, and from both Europe and Latin America to North America. Our results are robust to the existence of asymmetric generalized autoregressive conditional heteroskedasticity (GARCH) effects and serial correlation in returns. We believe that our findings are potentially relevant to portfolio risk management.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 41 (2005)
Issue (Month): 4 (August)
Pages: 57-90

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Handle: RePEc:mes:emfitr:v:41:y:2005:i:4:p:57-90

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

Related research

Keywords: A-PGARCH models; spillovers; wavelet analysis;

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References

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  1. Michael McKenzie & Heather Mitchell, 2002. "Generalized asymmetric power ARCH modelling of exchange rate volatility," Applied Financial Economics, Taylor & Francis Journals, vol. 12(8), pages 555-564.
  2. Kristin Forbes & Roberto Rigobon, 1999. "No Contagion, Only Interdependence: Measuring Stock Market Co-movements," NBER Working Papers 7267, National Bureau of Economic Research, Inc.
  3. Ng, Angela, 2000. "Volatility spillover effects from Japan and the US to the Pacific-Basin," Journal of International Money and Finance, Elsevier, vol. 19(2), pages 207-233, April.
  4. Ramsey James B. & Lampart Camille, 1998. "The Decomposition of Economic Relationships by Time Scale Using Wavelets: Expenditure and Income," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 3(1), pages 1-22, April.
  5. Lin, Wen-Ling & Engle, Robert F & Ito, Takatoshi, 1994. "Do Bulls and Bears Move across Borders? International Transmission of Stock Returns and Volatility," Review of Financial Studies, Society for Financial Studies, vol. 7(3), pages 507-38.
  6. Hentschel, Ludger, 1995. "All in the family Nesting symmetric and asymmetric GARCH models," Journal of Financial Economics, Elsevier, vol. 39(1), pages 71-104, September.
  7. Karolyi, G Andrew, 1995. "A Multivariate GARCH Model of International Transmissions of Stock Returns and Volatility: The Case of the United States and Canada," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 11-25, January.
  8. Andrew Worthington & Helen Higgs, 2004. "Transmission of equity returns and volatility in Asian developed and emerging markets: a multivariate GARCH analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(1), pages 71-80.
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Cited by:
  1. Crowley, Patrick, 2005. "An intuitive guide to wavelets for economists," Research Discussion Papers 1/2005, Bank of Finland.
  2. Silvo Dajčman, 2013. "Interdependence Between Some Major European Stock Markets - A Wavelet Lead/Lag Analysis," Prague Economic Papers, University of Economics, Prague, vol. 2013(1), pages 28-49.
  3. Reboredo, Juan C. & Rivera-Castro, Miguel A., 2014. "Wavelet-based evidence of the impact of oil prices on stock returns," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 145-176.

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