Assessing the Time-Frequency Co-Movements among the Five Largest Engineering Consulting Companies: A Wavelet-Base Metrics of Contagion and VaR Ratio

Marcos Albuquerque Junior, José António Filipe, Paulo de Melo Jorge Neto and Cristiano da Costa da Silva
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Marcos Albuquerque Junior: Iscte-Instituto Universitário de Lisboa, 1649-026 Lisboa, Portugal
José António Filipe: Departamento de Matemática, Iscte-Instituto Universitário de Lisboa, ISTAR-Iscte, BRU-Iscte, 1649-026 Lisboa, Portugal
Paulo de Melo Jorge Neto: Center for Advanced Studies, Economics CAEN-UFC-Department of Economics, Federal University of Ceará, Fortaleza 60020-180, Brazil
Cristiano da Costa da Silva: Graduate Program in Economics-EPP/UERN, Department of Economics, University of the State of Rio Grande do Norte, Mossoró 59610-210, Brazil

Mathematics, 2021, vol. 9, issue 5, 1-16

Abstract: Diversification in a portfolio is an important tool for the systematic risk management that is inherent to different asset classes. The composition of a portfolio with domestic and international assets is seen as one of the main alternatives for building a diversified portfolio, as this approach tends to reduce portfolio return exposure depending on country factors. However, in scenarios where industry factors are predominant, international diversification can increase systematic risk in a portfolio centered on a single asset class. This study is a pioneer in using wavelet-based methods to identify intersectoral co-movements, based on a portfolio of shares of the world’s top five consulting engineering companies, providing an innovative way to be applied to this phenomenon. Our evidence indicates that companies share a strong pattern of co-movements among themselves, especially in cycles of 32 to 64 days, suggesting a higher exposure to risk for portfolios with an investment horizon in long-term cycles.

Keywords: wavelet; industry factors; country factors; value at risk; co-movements; coherency (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2021
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