Is the global leadership of the US financial market over other financial markets shaken by 2007-2009 financial crisis? Evidence from Wavelet Analysis

Buerhan Saiti, Obiyathulla Bacha and Abul Masih
Authors registered in the RePEc Author Service: Burhan Uluyol

MPRA Paper from University Library of Munich, Germany

Abstract: The issue of market linkages (and price discovery) between stock indices and the lead-lag relationship are topics of interest to financial economists, financial managers and analysts. The lead-lag relationship analysis should take into account both the short and long-run investor. From a portfolio diversification perspective, the first type of investor is generally more interested in knowing the comovement of stock returns at higher frequencies, that is, short-run fluctuations, while the latter concentrates on the relationship at lower frequencies, that is, long-run fluctuations. The study uses a technique known as the ‘wavelet approach’ which has been very recently imported to finance from engineering sciences. Daily return data covering the period from June 2005 to December 2011 for MSCI stock indices of East Asian countries (Japan, China, Korea, Taiwan and Hong Kong) are analyzed. We examine the following empirical question: Is the global leadership of the US financial market shaken by the 2007-2009 financial crisis in the short- and long run? Our findings tend to, more or less, broadly suggest that regardless of the period considered, the US market is still the global leader in the exact time intervals. This is evidenced in the asymmetry of cross-correlation function of MSCI stock indices with the MSCI index of the US becoming more pronounced as the timescale increases. The evidence hitherto unexplored produced by the application of wavelet cross-correlation amongst the selected stock indices provides robust and very useful information to international financial analysts and short-term investors.

Keywords: Lead-lag; Causality; Wavelet; Stock index; Financial crisis (search for similar items in EconPapers)
JEL-codes: C22 G15 (search for similar items in EconPapers)
Date: 2014-06-16
New Economics Papers: this item is included in nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/57064/1/MPRA_paper_57064.pdf original version (application/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:pra:mprapa:57064

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().