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Interdependence between oil and East Asian stock markets: Evidence from wavelet coherence analysis

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  • Cai, Xiao Jing
  • Tian, Shuairu
  • Yuan, Nannan
  • Hamori, Shigeyuki

Abstract

This paper examines the interdependence and causality relationship between oil and East Asian stock returns from 1992 to 2015 and provides a fresh perspective on portfolio diversification benefits using wavelet coherence analysis. We find that oil prices and the East Asian stock market move in phase, and oil prices lead to stock returns in the long run. We provide evidence that oil can reduce the risk in the short run, and the degree of risk reduction of oil-stock portfolios decreases over the long term. This study provides information that can guide investors in diversification efforts while investing in oil and East Asian stock markets.

Suggested Citation

  • Cai, Xiao Jing & Tian, Shuairu & Yuan, Nannan & Hamori, Shigeyuki, 2017. "Interdependence between oil and East Asian stock markets: Evidence from wavelet coherence analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 206-223.
    • Handle: RePEc:eee:intfin:v:48:y:2017:i:c:p:206-223
    DOI: 10.1016/j.intfin.2017.02.001
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    References listed on IDEAS

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    More about this item

    Keywords

    Wavelet coherence analysis; East Asian stock markets; Portfolio diversification; Price interdependence; Oil-stock interdependence;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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