Interdependence Between Stocks and Exchange Rate in East Asia — A Wavelet-Based Approach

Abstract

This paper investigates whether the portfolio-balance approach or the flow-oriented theory better explains the connection between stocks and exchange rate in various time-horizons in the four East Asian countries — Indonesia, Thailand, South Korea and Japan. For the analysis, we use different approaches of the wavelet methodology — wavelet correlation, wavelet coherence and wavelet cross-correlation. Wavelet correlations suggest that negative correlation is dominant across the wavelet scales in the emerging East Asian markets, which indicates that the portfolio-balance approach, that is, capital mobility stands behind this nexus. For the Japanese case, we find positive wavelet correlation across the scales, which suggests that the flow-oriented model or current account explains the interlink. Results of wavelet coherence are in line with the wavelet correlation results, and these results provide an additional evidence that investors’ panic during World financial crisis was the main culprit behind the massive financial fund reallocation in the all emerging Asian markets.

Nonlinear bidirectional multiscale volatility transmission effect between stocks and exchange rate markets in the selected African countries

“…Many papers used the wavelet methodology in recent years in order to analyse various economic phenomena in different time-horizons (see e.g. Lee & Lee, 2016;Madaleno & Pinho, 2012;Njegi c et al, 2017 ;Tsai & Chang, 2018;Zivkov, Kuzman, et al, 2019;Zivkov, Pe canac, et al, 2019). In addition, since we investigate the volatility spillover effect between the markets, we especially address the way in which the dynamic volatility of the two markets is measured.…”

Exchange Rate Interdependence in ASEAN Markets: A Wavelet Analysis

“…Following the existing studies (e.g., Yang et al, 2016; Gallegati, 2012; Živkov et al, 2019a, 2019b), we use discrete wavelet transform to analyse interdependence and financial contagion among exchange rates. For wavelet transformation, non-decimated orthogonal Maximum Overlap Discrete Wavelet Transform (MODWT) decomposing the data to 8 levels is used.…”

Integration of ASEAN Capital Markets with Developed Countries: Spillover Analysis for the 2003-2019 Period

“…This situation led to bank failures and precipitated the financial crisis in 2008. Financial markets became more integrated after the economic crisis in 2008-2009, which is described in the work of (Jiang et al, 2017;Kim et al, 2015;Živkov et al, 2019). The capital market has a very important role for some parties because, for companies or corporations, the capital market is an efficient source of long-term income for the company.…”