Co-movement of Asia-Pacific with European and US stock market returns: A cross-time-frequency analysis

We investigate the co-movement of 13 Asia-Pacific stock market returns with that of European and US stock market returns using the wavelet coherence method. Our results show consistent co-movement between most of the Asia-Pacific stock markets and that of Europe and the US in the long run. We also uncover evidence of a wide variation in co-movement across the time scale of the financial crises. The co-movement dynamics of the Asia-Pacific markets with that of Europe and the US are different during the two financial crises. The difference in the co-movement dynamics could be the result of the different natures of the financial crises or a change in regime.

► Wavelet coherence shows time and scale variations in co-movement between markets.
► Consistent co-movement between the markets in the long run.
► Wide variation in co-movement across the time scale during financial crises.
► Co-movement concentrates at the medium (8–32 week) scale during US subprime crisis.
► Co-movement concentrates at the lower (1–8 week) scale during European debt crisis.