Stock Market Co-Movements between CPEC Economies: A Wavelet based Approach

Abstract

This research investigates the co-movement of Stock Market Returns between China and Pakistan in the prospective of China Pakistan Economic Corridor. In this study, individual power spectrum, cross and wavelet coherence are used for analyzing co-movement of stock returns between Pakistan and Shanghai at the aggregate level. Wavelet methodology enables the simultaneous examination of the behavior of a time-series in both frequency and time spaces. The daily data for this study is retrieved from the data stream that ranges from January 1, 2007 until May 30, 2022. The wavelet coherence technique reveals that there is strong positive co-movement at the aggregate level in different times, which is a good sign for the investors and policy makers to diversify their investment for getting maximum benefits. The results have an important implication for the fund managers, policy makers, investors and that encourages the portfolio diversification.