Wavelet multiple correlation and cross-correlation: A multiscale analysis of euro zone stock markets
AbstractStatistical studies that consider multiscale relationships among several variables use wavelet correlations and cross-correlations between pairs of variables. This procedure needs to calculate and compare a large number of wavelet statistics. The analysis can then be rather confusing and even frustrating since it may fail to indicate clearly the multiscale overall relationship that might exist among the variables. This paper presents two new statistical tools that help to determine the overall correlation for the whole multivariate set on a scale-by-scale basis. This is illustrated in the analysis of a multivariate set of daily Eurozone stock market returns during a recent period. Wavelet multiple correlation analysis reveals the existence of a nearly exact linear relationship for periods longer than the year, which can be interpreted as perfect integration of these Euro stock markets at the longest time scales. It also shows that small inconsistencies between Euro markets seem to be just short within-year discrepancies possibly due to the interaction of different agents with different trading horizons. On the other hand, multiple cross-correlation analysis shows that the French CAC40 may lead the rest of the Euro markets at those short time scales.
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Bibliographic InfoPaper provided by Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística) in its series BILTOKI with number 2011-04.
Date of creation: Jun 2011
Date of revision:
Postal: Dpto. de Econometría y Estadística, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
Other versions of this item:
- Fernández-Macho, Javier, 2012. "Wavelet multiple correlation and cross-correlation: A multiscale analysis of Eurozone stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(4), pages 1097-1104.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-07-27 (All new papers)
- NEP-ECM-2011-07-27 (Econometrics)
- NEP-EEC-2011-07-27 (European Economics)
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