A fresh look at integration of risks in the international stock markets: A wavelet approach
Review of Financial Economics, 2017, vol. 34, issue C, 33-49
Increasing inter-linkages across global financial markets mean that integration of stock market risks across borders play a central role in international portfolio diversification and broader economic policy making. Combining the superior features of parametric and nonparametric methods, this paper undertakes a novel approach on international volatility spillovers across 22 leading stock markets of the world. The approach is to combine wavelet techniques with time-varying conditional volatility and study the comovement of risks at the country level and regional level. Evidence suggests that comovement of risks between the U.S. market and European markets is strong mostly at lower frequencies (in the long-run) only. At higher frequencies (in the short-run), the integration of stock market risks of a country is more connected to the region to which the country belongs and less with the U.S. or other global markets. Further, during the recent financial crisis, common knowledge suggests that the spillover of risks was largely a global phenomenon, but our approach provides new insights that the spillover of risks was mostly limited at lower frequencies. In fact for countries like China, India and Malaysia even at lower frequencies there is limited evidence of spillover of risks.
Keywords: Wavelet analysis; Volatility clustering; Stock returns; International transmission (search for similar items in EconPapers)
JEL-codes: C40 E32 G15 F30 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) 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:revfin:v:34:y:2017:i:c:p:33-49
Access Statistics for this article
Review of Financial Economics is currently edited by T. K. Mukherjee and G. Whitney
More articles in Review of Financial Economics from Elsevier
Bibliographic data for series maintained by Haili He ().