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.