Contagion among major world markets: a wavelet approach

Mikko Ranta

International Journal of Managerial Finance, 2013, vol. 9, issue 2, 133-149

Abstract: Purpose - The purpose of this paper is to examine contagion among the major world markets during the last 25 years and propose a new way to analyze contagion with wavelet methods. Design/methodology/approach - The analysis uses a novel way to study contagion using wavelet methods. The comparison is made between co‐movements at different time scales. Co‐movement methods of the discrete wavelet transform and the continuous wavelet transform are applied. Findings - Clear signs of contagion among the major markets are found. Short time scale co‐movements increase during the major crisis while long time scale co‐movements remain approximately at the same level. In addition, gradually increasing interdependence between markets is found. Research limitations/implications - Because of the chosen method, the approach is limited to large data sets. Practical implications - The research has practical implications to portfolio managers etc. who wish to have better view of the dynamics of the international equity markets. Originality/value - The research uses novel wavelet methods to analyze world equity markets. These methods allow the markets to be analyzed in the whole state space.

Keywords: World equity markets; Wavelet correlation; Wavelet coherence; Waves; Waveforms; Transforms (search for similar items in EconPapers)
Date: 2013
References: View complete reference list from CitEc
Citations: View citations in EconPapers (49)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:v:9:y:2013:i:2:p:133-149

DOI: 10.1108/17439131311307556

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