Dynamic Linkages between Saudi and Global Indexes: A Wavelet-Based Multi-Scaled Analysis

Abstract:

This paper studies the dynamics of linkage between the Saudi stock market and two stock indexes among the main partner markets. The wavelet cross-spectral, wavelet cross-correlation analysis and multifractal cross-correlation tools are employed in this investigation. Relying on couples of time series from the Saudi and two developed markets, the aim is to zooming in local microscopic signs of convergence or divergence. The dataset includes an exceptional instability period in the financial system accompanied by a high recession in the global economic environment. The empirical results show a strong dependence between Saudi and global indexes at low-frequency, while the dependence becomes rather instable in the finest frequencies across different investment time horizons. The relationship also took a special different form in the crisis period compared to relatively calm periods. The linkage between Tadawul and DJ industrial was the most significant over many periods and at many frequencies, while the nexus Tadawul-FTSE tended to be less manifest, especially for short-term horizons, offering investors different investment alternatives and portfolio diversification opportunities.