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Emerging stock market co-movements in South Asia: wavelet approach

Author

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  • Debojyoti Das
  • Kannadhasan Manoharan

Abstract

Purpose - The purpose of this paper is to study the co-movement and market integration dynamics of the emerging/frontier stock markets in South Asia (India, Pakistan and Sri Lanka) with a portfolio management perspective. Design/methodology/approach - Scholars in the past have documented the limitation of standard econometric techniques such as co-integration analysis to capture this phenomenon. The other econometric technique widely used in integration and comovement literature is dynamic conditional correlation-generalized autoregressive conditional heteroskedasticity. This method captivates the time-varying correlations, although frequency information is absent. The wavelet-based analysis decomposes the time-series data in a time-frequency domain, which is largely useful to fund managers and policy makers. This study examines the regional integration in selected South Asian markets using wavelet analysis. Findings - The results suggest some degree of market integration, however weak as compared to regional integrations in developed markets. Pakistan and India were found to be the potential leaders at varying time scales in the region. Weaker co-movement phenomena may offer ample arbitrage opportunities to investors in this region. In addition, the authors also find that the structure of correlation changes after some of the major macroeconomic events. Originality/value - This study is among the first to examine co-movement and integration of stock returns in a time-frequency domain for South Asia. In addition, the authors also highlight weak integration in these markets, which may be beneficial for portfolio diversification.

Suggested Citation

  • Debojyoti Das & Kannadhasan Manoharan, 2019. "Emerging stock market co-movements in South Asia: wavelet approach," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 15(2), pages 236-256, March.
    • Handle: RePEc:eme:ijmfpp:ijmf-11-2017-0255
    DOI: 10.1108/IJMF-11-2017-0255
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    Citations

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    Cited by:

    1. Sahabuddin, Mohammad & Muhammad, Junaina & Yahya, Mohamed Hisham & Mohammed Shah, Sabarina, 2020. "Co-movements between Islamic and Conventional Stock Markets: An Empirical Evidence," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(3), pages 27-40.
    2. Kannadhasan, M. & Das, Debojyoti, 2020. "Do Asian emerging stock markets react to international economic policy uncertainty and geopolitical risk alike? A quantile regression approach," Finance Research Letters, Elsevier, vol. 34(C).
    3. Maryam Aziz & Muhammad Zeeshan Shaukat & Abdul Aziz Khan Niazi & Abdul Basit & Tehmina Fiaz Qazi, 2023. "Wavelet Analysis of CO2 Emissions’ Co-movement: An Investigation of Lead–lag Effect among Emerging Asian Economies," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 9(3), pages 36-51.

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