Wavelets analysis of the Baltic equity market: risk and co-movement with the European market

Abstract

This paper's objective is to explore equity market risk and co-movements between the Baltic stock markets of Estonia, Latvia and Lithuania and the European stock markets both in time and frequency dimensions. We analyse equity markets returns risk across different time horizons (frequencies). At the same time, we focus on the changes of the market risk and comovements of the Baltic and the European markets returns in time. The aim of the paper is to find the frequencies and time when volatility and co-movements change. We use monthly data in the period of 2000-2017. The wavelet analysis was employed to segregate the risk and co-movements at different time and different frequencies. Compared to previous studies, a novelty of the paper is the investigation of the markets at each time horizon separately. Our findings are consistent with the findings of other researchers who indicated that the Baltic markets are more integrated with the developed European stock markets during crisis periods. We have found some impact of accession to the EU on co-movements between the Baltic equity markets and the European market. We have discovered that co-movements are greater in low frequencies. From the investment diversification point of view, the effect depends on the investment horizon. Our conclusion is that for the investor with a time horizon of over 1.5 years diversification with the Baltic markets is not very efficient.

Volatility Spillover Between Germany, France, and Cee Stock Markets

“…According to the literature, we expect the results to confirm that the CEE countries are influenced to a great extent by specific factors, situation which is often met in countries with emerging stock markets (Kregzde, 2018). Such a result will allow on one hand the possibility to perform the international diversification by means of foreign investments on these markets in order to obtain a high risk-return ratio and on the other hand the increase in the financing sources of firms listed on these markets and the development of emerging capital markets.…”

The Relation between Implied Volatility Index and Crude Oil Prices

“…Moreover, e.g., Soltes and Harcarikova (2017) take the opportunity to propose new financial instruments in the oil market using a new barrier outperformance certificate to develop new barrier options. Furthermore, Bein (2017) explores the time varying comovement between stock and oil market, and Kregzde (2018) develop the Wavelets based model to analyze the comovement of stock returns in the European market. Hence, the present work is the extension of the previous work for the longer time series of OVX.…”

Business Cycles Synchronisations in the Baltic Countries

“…Financial markets react immediately to the events in any country and a spillover effect on the global financial market has been determined by a number of researches (e.g. Gallegati et al, 2014;Syllignakis & Kouretas, 2011;Kregzde, 2018;Adam & Merkel, 2019). Dependence of the country's output on external events is not evident, and there are different views on it.…”