European Equity Market Integration and Optimal Investment Horizons – Evidence from Wavelet Analysis
DOI:
https://doi.org/10.12775/DEM.2010.002Abstract
In the paper the process of equity market integration in Europe is examined from the wavelet perspective. The method applied is the Continuous Discrete Wavelet Transform that enables to perform global and local wavelet variance and correlation decompositions. In particular, questions about changes of the investment risk and the possibility of international portfolio diversification under different investment horizons are addressed. The study documents both convergence of the Central and Eastern European equity markets as well as their segmentation on the European market. The latter enables reduction of portfolio returns variability by an international portfolio diversification, especially for long investment horizons.
References
Bessler, D. A., Yang, J. (2003), The Structure of Interdependence in International Stock Markets, Journal of International Money and Finance, 22, 261–287. DOI: http://dx.doi.org/10.1016/S0261-5606(02)00076-1
Chelley-Steeley, P. L. (2005), Modelling Equity Market Integration Using Smooth Transition Analysis: A Study of Eastern European Stock Markets, Journal of International Money and Finance, 24, 818–831.
Connor, J., Rossiter, R. (2005), Wavelet Transforms and Commodity Prices, Studies in Nonlinear Dynamic and Econometrics, 9 (1), article 6. DOI: http://dx.doi.org/10.2202/1558-3708.1170
Demary, M. (2009), Transaction Taxes and Traders with Heterogeneous Investment Horizons in an Agent-Based Financial Market Model, Economics. The Open-Access, Open-Assessment E-Journal, Discussion Paper No. 2009–47. DOI: http://dx.doi.org/10.5018/economics-ejournal.ja.2010-8
Fratzscher, M. (2002), Financial Market Integration in Europe: On the Effects of EMU on Stock Markets, International Journal of Finance and Economics, 7, 165–193. DOI: http://dx.doi.org/10.1002/ijfe.187
Gençay, R. F., Selçuk, F., Whitcher, B. (2002), An Introduction to Wavelets and Other Filtering Methods in Finance and Economics, Academic Press, San Diego.
Gilmore, C. G., Lucey, B. M., McManus, G. M. (2008), The Dynamics of the Central European Equity Market Comovements, Quarterly Review of Economics and Finance, 48, 605–622.
Hardouvelis, G. A., Malliaropulos, D., Priestley, R. (2006), EMU and European Stock Market Integration, Journal of Business, 79, 365–392. DOI: http://dx.doi.org/10.1086/497414
Harrison, B., Moore, W. (2009), Spillover Effects from London and Frankfurt to Central and Eastern European Stock Markets, Applied Financial Economics, 19, 1509–1521.
Kim, S. J., Moshirian, F., Wu, E. (2005), Dynamic Stock Market Integration Driven by the European Monetary Union: An Empirical Analysis, Journal of Banking and Finance, 29, 2475–2502.
Longin, F., Solnik, B. (1995), Is the Correlation in International Equity Returns Constant:1960–1990?, Journal of International Money and Finance, 14, 3–26.
Percival, D. B., Walden, A. T. (2000), Wavelet Methods for Time Series Analysis, Cambridge University Press, Cambridge.
Peters, E. E. (1994), Fractal Market Analysis. Applying Chaos Theory to Investment and Economics, John Wiley & Sons, New York.
Phengpis, C., Apilado, V. P., Swanson, P. E. (2004), Effects of Economic Convergence on Stock Market Returns in Major EMU Member Countries, Review of Quantitative Finance and Accounting, 23, 207–227.
Sanderson, J., Fryzlewicz, P., Jones, M. (2009), Measuring the Dependence between Nonstationary Time Series Using the Locally Stationary Wavelet Model, to appear in Biometrika.
Scheicher, M. (2001), The Comovements of Stock Markets in Hungary, Poland and the Czech Republic, International Journal of Finance and Economics, 6, 27–39. DOI: http://dx.doi.org/10.1002/ijfe.141
Voronkova, S. (2004), Equity Market Integration in Central European Emerging Markets: A Cointegration Analysis with Shifting Regimes, International Review of Financial Analysis, 13, 633–647.
Whitcher, B., Craigmile, P. F. (2004), Multivariate Spectral Analysis Using Hilbert Wavelet Pairs, International Journal of Wavelets, Multiresolution and Information Processing, 2, 567–587. DOI: http://dx.doi.org/10.1142/S0219691304000652
Downloads
Published
How to Cite
Issue
Section
License
The journal provides an Open Access to its content based on the non-exclusive licence Creative Commons (CC BY-ND 4.0).
To enable the publisher to disseminate the author's work to the fullest extent, the author must agrees to the terms and conditions of the License Agreement with Nicolaus Copernicus University.
Stats
Number of views and downloads: 778
Number of citations: 0
