Integration between emerging market equity and global markets; is it fundamental or noisy? Evidence from wavelet denoised volatility spillover analysis in time and frequency domain

The study investigates the integration between the five largest emerging stock markets, Morgan Stanley Capital Emerging Market Index, and global financial markets like the US S&P 500, Brent Crude Oil and Dollar Index based on wavelet denoised volatility spillover in time and frequency domain using forecasted error variance decomposition framework. It is found that the impact of noise on the connectedness is more pronounced in the short run and declines in longer term. Further, long-term connectedness which is much higher than that of short-term connectedness confirms the existence of fundamental (noisy) concernedness in the long (short) term. The impact of noise both varies by time and frequency. The policy implications are discussed.

Automated summary

This study investigates the integration between five emerging stock markets and global financial markets through the analysis of volatility spillover. The impact of noise on connectedness is found to be more significant in the short term, and long-term connectedness is higher than short-term connectedness, confirming the existence of noise and fundamental relatedness.