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Characterizing Co-movements between Indian and Emerging Asian Equity Markets through Wavelet Multi-Scale Analysis

Aasif Shah|Malabika Deo|Wayne King
대외경제정책연구원 (Korea Institute for International Economic Policy (KIEP))|2015.06|East Asian Economic Review|제19권 제2호|pp. 189-220|DOI http://dx.doi.org/10.11644/KIEP.JEAI.2015.19.2.296

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참고문헌

키워드

WaveletsTime DomainFrequency DomainAsian MarketsMulti-Scale Analysis
주제분류경제학

초록

Multi-scale representations are effective in characterising the time-frequency characteristics of financial return series. They have the capability to reveal the properties not evident with typical time domain analysis. Given the aforesaid, this study derives crucial insights from multi scale analysis to investigate the co- movements between Indian and emerging Asian equity markets using wavelet correlation and wavelet coherence measures. It is reported that the Indian equity market is strongly integrated with Asian equity markets at lower frequency scales and relatively less blended at higher frequencies. On the other hand the results from cross correlations suggest that the lead-lag relationship becomes substantial as we turn to lower frequency scales and finally, wavelet coherence demonstrates that this correlation eventually grows strong in the interim of the crises period at lower frequency scales. Overall the findings are relevant and have strong policy and practical implications.

Abstract

Multi-scale representations are effective in characterising the time-frequency characteristics of financial return series. They have the capability to reveal the properties not evident with typical time domain analysis. Given the aforesaid, this study derives crucial insights from multi scale analysis to investigate the co- movements between Indian and emerging Asian equity markets using wavelet correlation and wavelet coherence measures. It is reported that the Indian equity market is strongly integrated with Asian equity markets at lower frequency scales and relatively less blended at higher frequencies. On the other hand the results from cross correlations suggest that the lead-lag relationship becomes substantial as we turn to lower frequency scales and finally, wavelet coherence demonstrates that this correlation eventually grows strong in the interim of the crises period at lower frequency scales. Overall the findings are relevant and have strong policy and practical implications.

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