The purpose of this paper is to derive crucial insights from multi-scale analysis to detect equity return co-movements between Korean and emerging Asian markets.
Wavelet correlation, wavelet coherence and wavelet clustering measures are used to uncover Korean equity market interactions which are hard to see using any other modern econometric method and which would otherwise had remained hidden.
The authors observed that Korean equity market is strongly integrated with Asian equity markets at lower frequency scales and has a relatively weak correlation at higher frequencies. Further this correlation eventually grows strong in the interim of crises period at lower frequency scales. The authors, however, do not found any significant deviation in dendrograms generated in data clustering process from wavelet scale 2 to 6 which are associated with four and 64 weeks period, respectively. Overall the findings are relevant and have strong policy and practical implications.
The unique contribution of this paper is that it introduces wavelet clustering analysis to produce a nested hierarchy of similar markets at each frequency level for the first time in finance literature
Shah, A., Deo, M. and King, W. (2016), "What econo-physics can tell us about Korean equity market co-movements?", Journal of Economic Studies, Vol. 43 No. 4, pp. 549-573. https://doi.org/10.1108/JES-04-2015-0058Download as .RIS
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