Title: Wavelet analysis of stock return energy decomposition and return comovement: a case of some central european and developed european stock markets
Authors: Dajčman, Silvo
Kavkler, Alenka
Citation: E+M. Ekonomie a Management = Economics and Management. 2014, č. 1, s. 104-120.
Issue Date: 2014
Publisher: Technická univerzita v Liberci
Document type: článek
URI: http://www.ekonomie-management.cz/download/1395653309_b494/09_Wavelet+Analysis+Of+Stock+Return+Energy+Decomposition+And+Return+Comovement.pdf
ISSN: 1212-3609 (Print)
2336-5604 (Online)
Keywords: Střední a Východní Evropa;burzovní výnosy;vlnová analýza
Keywords in different language: Central and Eastern Europe;stock market returns;wavelet analysis
Abstract in different language: In this article we investigate comovement of the three Central and Eastern European (CEE) stock markets (Slovenia, the Czech Republic and Hungary) with certain developed European stock markets (Austria, France, Germany and the United Kingdom) through the novel approach of maximal overlap discrete wavelet transform (MODWT). We use two features of MODWT to explore energy decomposition of stock market returns at different time scales and to apply methodology of [29] to study comovement between investigated stock markets. We show that most of the energy (variability) of stock market return series is captured by scale 1 (which correspond to 2–4 days return dynamics) and scale 2 (which correspond to 4–8 days return dynamics) MODWT coefficients. MODWT details are used to show that comovement between stock markets is scale- dependent and declines from raw (daily) return series to first- and second-scale reconstructed return series. The findings of the survey then have important implications for foreign financial investors who already hold international portfolios that exactly replicate those of non-Czech or non- Hungarian stock markets: international investing in the Czech or Hungarian stock markets with investment horizons corresponding to scale 2 (4 to 8 days) brings greater international diversification benefits than shorter (2 to 4 day horizon) international trading diversification strategies. The Slovenian stock market differs from the Czech and Hungarian markets also in this respect, as when the scale is increased the benefits of diversification are reduced. We also find that the volatility of Slovenian stock index returns is less synchronized with other observed stock return series. Interestingly, the Czech and Slovenian stock markets seem to comove with the Austrian stock market to a greater extent than with other developed stock markets.
Rights: © Technická univerzita v Liberci
CC BY-NC 4.0
Appears in Collections:Číslo 1 (2014)
Číslo 1 (2014)

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Please use this identifier to cite or link to this item: http://hdl.handle.net/11025/17545

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