Wavelet Analysis of Stock Return Comovements in Emerging Markets

Abstract

The paper examines the suitability of emerging markets for international portfolio diversification. The time-period considered for the study was January 1, 1999 to November 8, 2016. A comparative analysis of performance of emerging markets was done for pre and post-crisis periods. The results show that the performance of emerging markets has deteriorated substantially after the global economic crisis. The wavelet analysis also reveals significant comovement of emerging markets to that of developed counterparts. The diversification opportunities prevail only in short-run period of 4-16 days, subject to few exceptions for Latin American emerging markets. Our findings challenge the consensus on emerging markets to be favorable diversification options.