The degree of Asian-European markets connectedness: examining the impact of global disorders using a spectral analysis

Abstract

Purpose This paper aims to examine potential diversification benefits between Eurozone (i.e. EURO STOXX 50) and key Asia markets: HSI (Hong Kong), KOSPI (South Korea), NIKKEI 225 (Japan) and TSEC (Taiwan). The sample covers the period from 04-01-2008 to 19-10-2023 in daily frequency. Design/methodology/approach The empirical investigation is based on the wavelet coherence analysis, which is a localized correlation coefficient in the time and frequency domain. Findings The results provide evidence that long-term diversification benefits exist between EURO STOXX and NIKKEI, EURO STOXX and KOSPI (after 2015) and there are signs for the pair and EURO STOXX-TSEC (after 2014). During the short term, there are signs of diversification benefits during the sample period. However, during the medium term, the diversification benefits seem to diminish. Originality/value These results have crucial implications for investors regarding the benefits of international portfolio diversification.