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Co-movement of ASEAN stock markets: New evidence from wavelet and VMD-based copula tests

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  • Jiang, Yonghong
  • Nie, He
  • Monginsidi, Joe Yohanes

Abstract

This paper aims to study the co-movement and the volatility fluctuation between stock markets in the Association of Southeast Asian Nations (ASEAN) countries from a new perspective. The analyses also delve more deeply into the effect of ASEAN trading link establishment on the short-term interdependency. By applying three-dimensional continuous wavelet transform (CWT) on daily returns of stock markets for the period 2009 to 2016, the interdependence level and lag-lead relationship among ASEAN trading link participants are estimated. The degree of interdependence in ASEAN stock markets is found to be stronger in the short term, especially following particular external shocks. A Variational Modes Decomposition (VMD)-based copula estimation shows that the effect of economic shock – in our case, ASEAN trading link establishment – on the stock markets’ level of comovement is only temporary and will progressively diminish within approximately two years. Only Indonesia and Malaysia display strong fundamental linkages between each other. Both the CWT and Copula methods consistently show that Vietnam (Indonesia) has the lowest (highest) interdependence with the rest of ASEAN trading link participants, as opposed to previous empirical evidence obtained from conventional methods. Investors who want to construct optimal portfolios and policymakers who aim to make effective macroeconomic policies should take these findings into account.

Suggested Citation

  • Jiang, Yonghong & Nie, He & Monginsidi, Joe Yohanes, 2017. "Co-movement of ASEAN stock markets: New evidence from wavelet and VMD-based copula tests," Economic Modelling, Elsevier, vol. 64(C), pages 384-398.
    • Handle: RePEc:eee:ecmode:v:64:y:2017:i:c:p:384-398
    DOI: 10.1016/j.econmod.2017.04.012
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    More about this item

    Keywords

    ASEAN stock markets; Comovement; Wavelet coherency; Copula; Variational modes decomposition;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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