Authors: P. Lakshmi; S. Visalakshmi; Jeevananthan Manickavasagam
Addresses: Department of Management Studies, Indian Institute of Technology Madras, Tamil Nadu, India ' Department of Management, Central University of Tamil Nadu, Tamil Nadu, India ' International Management Institute, Kolkata, West Bengal, India
Abstract: We perform a three dimensional analysis of the co-movements between developed US market and the emerging BRICS markets through wavelet coherence. This analysis identifies the extent to which each of the BRICS markets provide portfolio diversification opportunities for international investors. We find evidence of a highly heterogeneous degree of co-movement of the US and each of the BRICS markets that vary based on investment horizon. Our findings reveal that Brazil and South Africa have the highest degree of co-movement at higher frequencies or trading period up to a week followed by India (above one month) and Russia (above four months). China has the least co-movement for duration less than a year. The results indicate that effective portfolio diversification decisions are sensitive to both frequency and duration. The strong co-movement at a particular time scale implies that investors must make optimal trade-offs to reap the benefits of portfolio diversification and duration diversification.
Keywords: BRICS Stock market; co-movement; continuous wavelet transform; CWT; wavelet coherence; WTC; time scales.
International Journal of Financial Markets and Derivatives, 2022 Vol.8 No.3, pp.275 - 289
Received: 26 Apr 2021
Accepted: 24 Oct 2021
Published online: 21 Apr 2022 *