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Analyzing the Cyclical Components of the S&P 500 Stock Index through Wavelet Transformation

Author

Listed:
  • Bozhidar Nedev

    (University of Sofia, Bulgaria)

  • Boryana Bogdanova

    (University of Sofia, Bulgaria)

Abstract

The paper systematizes the main scientific constellations when employing wavelet transformation. Thus, the advantages of the wavelet as a relatively new approach in comparison to the alternative methods of time-frequency analysis of time-series are presented. This innovative approach is being neglected by the economic scientific community as a whole due to the preference of applying traditional econometric techniques. Wavelet transformation can partition the time-series structure into simpler components that correspond to different investment horizons (frequencies). The main goal of the paper is to investigate the time-frequency characteristics of the volatility of the monthly close prices of S&P500 index for a period of 65 years. The applicability of the continuous wavelet transformation to one-dimensional analysis is also presented. The results show that the data structure undergoes severе structural changes within the analyzed period with a clear appearance of the Technological boom and the Mortgage crisis of 2007-2008

Suggested Citation

  • Bozhidar Nedev & Boryana Bogdanova, 2019. "Analyzing the Cyclical Components of the S&P 500 Stock Index through Wavelet Transformation," Ikonomiceski i Sotsialni Alternativi, University of National and World Economy, Sofia, Bulgaria, issue 4, pages 95-110, December.
    • Handle: RePEc:nwe:iisabg:y:2019:i:4:p:95-110
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    Keywords

    wavelet transformation; capital markets; S&P 500; cyclical components; economic crisis;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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