Frequency aspects of information transmission in a network of three Western equity markets

Harald Schmidbauer (), Angi Rosch () and Erhan Uluceviz ()
Additional contact information
Harald Schmidbauer: BRU-IUL, ISCTE Business Research Unit, ISCTE-IUL, Lisboa, Portugal
Angi Rosch: FOM University of Applied Sciences, Munich, Germany
Erhan Uluceviz: Kemerburgaz University, Istanbul, Turkey

Koç University-TUSIAD Economic Research Forum Working Papers from Koc University-TUSIAD Economic Research Forum

Abstract: Cycles in the behavior of stock markets have been widely documented. There is an increasing body of literature on whether stock markets anticipate business cycles or its turning points. Several recent studies assert that financial integration impacts positively on business cycle comovements of economies. We consider three Western equity markets, represented by their respective stock indices: DJIA (USA), FTSE 100 (UK), and Euro Stoxx 50 (euro area). Connecting these three markets together via vector autoregressive processes in index returns, we construct \propagation values" to measure and trace, on a daily basis, the relative importance of a market as a volatility creator within the network, where volatility is due to a return shock in a market. A cross-wavelet analysis reveals the joint frequency structure of pairs of the propagation value series, in particular whether or not two series tend to move in the same direction at a given frequency. Our main findings are: (i) From 2001 onwards, the daily propagation values of markets have been fluctuating much less than before, and high frequencies have become less pronounced; (ii) the European markets are in phase at business cycle frequency, while the US market is not in phase with either European market; (iii) in 2008, the euro area has taken over the leading role. This approach not only provides new insight into the time-dependent interplay of equity markets, but it can also replicate certain findings of traditional business cycle research, and it has the advantage of using only readily available stock market data.

Keywords: Equity market network; propagation value; cycle; synchronization; wavelet analysis; phase difference. (search for similar items in EconPapers)
JEL-codes: C32 C58 E32 F44 G15 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2016-12
New Economics Papers: this item is included in nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1616.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden (http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1616.pdf [301 Moved Permanently]--> https://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1616.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:koc:wpaper:1616

Access Statistics for this paper

More papers in Koç University-TUSIAD Economic Research Forum Working Papers from Koc University-TUSIAD Economic Research Forum Contact information at EDIRC.
Bibliographic data for series maintained by Sumru Oz ().