Co-movement among industry indices of Tehran Stock Exchange, Wavelet Coherence approach

Document Type : Research Paper

Authors

1 Faculty of Social sciences & Economic, Alzahra University, Tehran, Iran

2 Faculty of Economic & Administration, Urmia University, Urmia, Iran

3 Department of Science, Urmia University of Technlogy,Urmia, Iran

Abstract

Co-movement analysis has a significant role in recourse allocation, risk management, etc. This study uses the novel approach of wavelet coherence in continuous wavelet transform framework to investigate the correlation dynamic and spillover effect of 10 main sector indices of Tehran Stock Exchange, in time and frequency domains. Analyzing the data indicates that correlation structure among TSE sectors is dynamic and varies over time. Besides, co-movements of industry indices have a multi-scale character. In other words, investors with different investment horizons would benefit differently if they diversify their portfolios via the same industries. In addition, results indicate that the spillover effect pattern is a scaled based phenomenon. This study suggests time scales of 2-32 days as the best time horizon for portfolio diversification.

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Interdisciplinary Journal of Management Studies (Formerly known as Iranian Journal of Management Studies)
Volume 9, Issue 3
July 2016
Pages 539-558

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