Contagion among major world markets: a wavelet approach
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
Citation
Ranta, M. (2013), "Contagion among major world markets: a wavelet approach", International Journal of Managerial Finance, Vol. 9 No. 2, pp. 133-149. https://doi.org/10.1108/17439131311307556
Publisher
:Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited