A comparison of developed and emerging equity market return volatility at different time scales
- 30 August 2011
- journal article
- Published by Emerald in Managerial Finance
- Vol. 37 (10), 940-952
- https://doi.org/10.1108/03074351111161592
Abstract
Purpose – The purpose of this paper is to examine the volatility of daily returns in a sample of developed and emerging equity markets at different time scales through wavelet decomposition. Such information is vital for international investors who have different time horizons for their investment decisions and trading strategies. Design/methodology/approach – The wavelet technique used here allows the return series to be viewed at different frequency by decomposing the series into different time horizons known as time scales. The decomposed return series enable investigation of return variability at different return intervals. Findings – In an analysis at different time scales, there is no evidence to suggest that the return dynamics of developed and emerging markets are different. In both types of markets, return variance is time scale dependent, satisfying a pure power law process, and the variability in returns is more likely to be due to the dynamics at the lower time scales. While emerging markets generally exhibit a higher level of volatility, the relative contribution from each time scale is quite similar to that of the developed markets. Originality/value – The difference in the return dynamics between emerging and developed markets is observed at the lowest time scale. This is an indication that differences in the return dynamics between the two types of markets may be more likely in the short term (high frequency) rather than in the long term. A plausible reason for this is speculative trading. Such information is vital for international investors who have different time horizons for their investment decisions and trading strategies.Keywords
This publication has 14 references indexed in Scilit:
- Wavelet timescales and conditional relationship between higher-order systematic co-moments and portfolio returnsQuantitative Finance, 2008
- Long memory options: LM evidence and simulationsResearch in International Business and Finance, 2007
- The CAPM and value at risk at different time-scalesInternational Review of Financial Analysis, 2006
- The relationship between stock returns and inflation: new evidence from wavelet analysisJournal of Empirical Finance, 2005
- Systematic risk and timescalesQuantitative Finance, 2003
- Characterizing World Market Integration Through TimeSSRN Electronic Journal, 2001
- On estimation of the wavelet varianceBiometrika, 1995
- Semiparametric Analysis of Long-Memory Time SeriesThe Annals of Statistics, 1994
- Portfolio Composition and the Investment HorizonCFA Magazine, 1994
- Lifetime Portfolio Selection By Dynamic Stochastic ProgrammingThe Review of Economics and Statistics, 1969