Crobex and Industry Performance in the Case of Croatia: Evidence From Wavelet Coherence

Abstract

Determinants of the stock market index movement have always been of interest to scholars and practitioners. Various time series techniques have already been applied to determine the relationship between the stock market prices and macroeconomic variables. Many of these techniques are unable to reveal the frequency and time dependent relationship often leading to incorrect specification. Furthermore, results may differ depending on the level of the economic development. This paper is using the Wavelet coherence as a rather novel approach compensating for some limitations of the conventional approach bringing further insight into the stock market price movement of the Croatian capital market. Wavelet transform enables observation of the connection between the CROBEX and the industry performance across time and frequency domain. This relationship is tested using monthly data for CROBEX and industrial production index volume in the period from January 1998 to September 2019. Significant positive relationship was confirmed in the period from 1998 to 2015 identifying CROBEX as the leading variable.