A Wavelet Coherence Analysis: Contagion in Emerging Countries Stock Markets

  • Harun Ercan Finance Department, Faculty of Business Administration, Corvinus University of Budapest, 1093 Budapest, Fővám tér 8., Hungary
  • İlhami Karahanoğlu Faculty of Law, Atılım University, Kızılcaşar Mahallesi, 06830 İncek Gölbaşı, Ankara, Turkey

Abstract

This study aims to investigate the financial contagion during and after Greek Crisis to observe the impact on global economy. Financial contagion may affect the portfolio risk management, the formulation of monetary, fiscal policy, strategic asset allocation and pricing.
To analyse the contagion after Greek Crisis, the co-movements of six stock exchange markets have been studied for an 8-year term. For this study between countries’ time series, bivariate wavelet technique called wavelet coherence is employed, and Matlab 2016a wavelet tool is used for the analysis. Daily closing prices of stock market indices of six countries, Greece (ASE), UK (FTSE100), Germany (DAX), Hungary (BUX), Poland (WIG) and Turkey (BIST100) are used in this analysis between 06 March 2009 and 28 February 2017.
This paper targets to show if there is a certain sign for a co-movement between markets during and after Greek Debt Crisis. Therefore, it eventually sets out the benefits or harm of integration in the financial markets by using Wavelet Method. This study contributes the literature by analyzing the effects of contagion among stock markets by using wavelet method. This analysis has been filling the gap in the literature by employing a new technique to explain leverage effect with financial time series data. As wavelet tool displays the leverage effect by comparing crisis and non-crisis periods, the study supports the idea that convergence is adversely affecting the connected markets. According to the results of the study, the contagion is high especially during crisis within European financial markets. whereas positive improvements have less impact on markets.

Keywords: wavelet coherence, Greek Debt Crisis, financial contagion, contagion
Published online
2019-08-06
How to Cite
Ercan, H. and Karahanoğlu, İlhami (2019) “A Wavelet Coherence Analysis: Contagion in Emerging Countries Stock Markets”, Periodica Polytechnica Social and Management Sciences, 27(2), pp. 99-107. doi: https://doi.org/10.3311/PPso.11512.
Section
Articles