Diversification potential of Asian frontier, BRIC emerging and major developed stock markets: A wavelet-based value at risk approach
Syed Jawad Hussain Shahzad (),
Rami Zeitun () and
Mobeen Ur Rehman
Emerging Markets Review, 2017, vol. 32, issue C, 130-147
This study examines the portfolio risk and the co-movements between each of the BRIC emerging and South Asian frontier stock markets and each of the major developed stock markets (U.S., UK and Japan), using the wavelet squared coherence approach as well as the wavelet-based Value at Risk (VaR) method. The results show that the co-movements and diversification benefits between these markets vary over time and across frequencies. Additionally, the co-movements are intensified in the wake of the recent global financial crisis (GFC) and the Eurozone sovereign debt crisis (ESDC). More precisely, the wavelet-based VaR ratio indicates that including a BRIC or a South Asian (particularly Pakistan and Sri Lanka at both the short- and long-term) stock market in a portfolio of the developed stock markets reduces the resulting portfolio's VaR. Specifically, adding China in the medium term to this portfolio reduces risk in the pre- and during both the GFC and ESDC periods. By assigning optimal weights to the different market assets in the portfolio formulation, the analysis thus has implications for international investors.
Keywords: Stock markets; Wavelet analysis; Value at risk (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:32:y:2017:i:c:p:130-147
Access Statistics for this article
Emerging Markets Review is currently edited by Jonathan A. Batten
More articles in Emerging Markets Review from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().