Contagion and interdependence across Asia-Pacific equity markets: An analysis based on multi-horizon discrete and continuous wavelet transformations

- We discover contagion in Asia-Pacific equity markets during 12 major crises
- We use wavelet decomposition in its discrete and continuous forms
- Most of the crises involved excessive linkage, Asian crisis as the most influential
- The subprime crisis had fundamentals-based contagion, with a dominant role of Japan
- We find low co-movements in the short run, and high co-movement in the long run

Our study attempts to discover contagion amongst the Asia-Pacific equity markets (Japan, Hong Kong and Australia) during twelve major crises around the world. We apply both discrete and continuous wavelet decompositions to unveil the multi-horizon nature of co-movement and lead-lag relationship. We find that shocks were transmitted via excessive linkages, with the Asian crisis as the most influential in relation to a sudden stop. We also find that the subprime crisis revealed fundamentals-based contagion, due to the strengthening fundamental linkages, with a dominant role of the Japanese market. Finally, we find low co-movements in the short run, suggesting a partial convergence across the markets.