Scale specific volatility and co-movement behaviour of Asian and US stock markets: Is this time different?

This paper analyzes the volatility and co-movement behaviour of stock returns among selected Asian stock markets and their co-movement with the US stock market during the recent sub-prime crisis period together with pre- and postcrisis periods. Using the methodology of wavelets, we demonstrate that stock markets of all these countries have become more volatile during the crisis period. However, this increase in volatility during the crisis period has no significant impact on the co-movement of stock returns. It is also found that the co-movement among the Asian stock markets and their co-movement with the US stock market is stronger at lower frequencies (longer horizons), implying greater benefits of diversification from Asian stock markets in the short run relative to the long run. The Chinese and the US stock market co-movement in particular are relatively lower than that of all Asian stock markets, reflecting higher diversification opportunities between these markets.