Financial markets co-movement predictive modeling: the DWT approach

Abstract

Abstract Trends in capital markets are difficult to predict due to the complex linkages. Recent research has shifted from predicting single market trends to predicting multiple market co-movements. Based on the WTI oil price, Douglas stock index and Shenzhen composition index, we use wavelet transformation to extract the stable domains and identify the co-movement directions. Next, we construct a spectrum plot for co-movement prediction. Experimental results show that a discrete wavelet transform is effective in predicting financial market co-movements within the three markets.