IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpma/0512016.html
   My bibliography  Save this paper

Stock market returns and economic activity: evidence from wavelet analysis

Author

Listed:
  • Marco Gallegati

    (Department of Economics, Università Politecnica delle Marche)

Abstract

In this paper we investigate the relationship between stock market returns and economic activity by using signal decomposition techniques based on wavelet analysis. In particular, we apply the maximum overlap discrete wavelet transform (MODWT) to the DJIA stock price index and the industrial production index for US over the period 1961:1- 2005:3 and using the definitions of wavelet variance, wavelet correlation and cross-correlations analyze the association as well as the lead/lag relationship between stock prices and industrial production at the different time scales. Our results show that stock market returns tends to lead the level of economic activity but only at the highest scales (lowest frequencies), corresponding to periods of 16 months and longer, and that the periods by which stock returns lead output increase as the wavelet time scale increases.

Suggested Citation

  • Marco Gallegati, 2005. "Stock market returns and economic activity: evidence from wavelet analysis," Macroeconomics 0512016, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:0512016
    Note: Type of Document - pdf; pages: 12
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0512/0512016.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Christoph Schleicher, 2002. "An Introduction to Wavelets for Economists," Staff Working Papers 02-3, Bank of Canada.
    2. Ramsey, J.B., 2002. "Wavelets in Economics and Finance: Past and Future," Working Papers 02-02, C.V. Starr Center for Applied Economics, New York University.
    3. Gençay, Ramazan & Selçuk, Faruk & Whitcher, Brandon, 2001. "Scaling properties of foreign exchange volatility," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 289(1), pages 249-266.
    4. Ramsey James B., 2002. "Wavelets in Economics and Finance: Past and Future," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 6(3), pages 1-29, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Khalfaoui Rabeh, K & Boutahar Mohamed, B, 2011. "A time-scale analysis of systematic risk: wavelet-based approach," MPRA Paper 31938, University Library of Munich, Germany.

    More about this item

    Keywords

    stock market; industrial production; wavelet analysis;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:0512016. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.