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Analyses of wavelet coherence: financial risk and economic risk in China

Author

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  • Dervis Kirikkaleli

Abstract

Purpose - This study aims to close a gap in the relevant literature by investigating the causal linkage between financial risk (FR) and economic risk (ER) in China for the period 1985Q1–2018Q4. Design/methodology/approach - Based on the aim of the present study, Toda Yamamoto causality and wavelet coherence tests are used to capture the relationship between FR and ER in China. Findings - The findings from wavelet coherence reveal that there is feedback causality between FR and ER in China at different frequencies and different periods between 1985 and 2018. The consistency of the findings from wavelet coherence is confirmed by the outcomes of Toda Yamamoto causality test. Research limitations/implications - Although this study provides strong and consistent empirical findings for China, further studies should consider advancing the argument by focusing on different emerging markets. Practical implications - Results are crucial for policy decision-making and can be used by researchers and macro-economic policymakers to take an action, if necessary, by implementing more appropriate or alternative economic and financial decisions. Originality/value - To the best of the author’s knowledge, this relationship in China has not been comprehensively explored by using newly developed econometrics techniques. Therefore, this study is likely to open a debate about the literature as the study concludes with a discussion on short- and long-run implications for policymakers in China.

Suggested Citation

  • Dervis Kirikkaleli, 2021. "Analyses of wavelet coherence: financial risk and economic risk in China," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 13(5), pages 587-599, February.
    • Handle: RePEc:eme:jfeppp:jfep-08-2019-0174
    DOI: 10.1108/JFEP-08-2019-0174
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    Citations

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    Cited by:

    1. Majid Mirzaee Ghazani & Ali Akbar Momeni Malekshah & Reza Khosravi, 2024. "Analyzing time–frequency connectedness between cryptocurrencies, stock indices, and benchmark crude oils during the COVID-19 pandemic," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-28, December.
    2. Mustafa Tevfik Kartal & Özer Depren, 2023. "Asymmetric relationship between global and national factors and domestic food prices: evidence from Turkey with novel nonlinear approaches," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-24, December.

    More about this item

    Keywords

    Econometrics; Financial markets and the macroeconomy; Financial economics; Economic risk; Financial risk and China; Wavelet coherence; Toda Yamamoto causality; O47; O11; C22; C58;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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