Wavelet-based Prediction of Stock Market Returns during 2008 Financial Crisis

Borislava Vrigazova

Анотация


The importance of the US market as a leading market in the global economy has been stressed in the academic literature especially when it comes to financial crises. The 2008 financial crisis started from the US and spread for several months all over the world. Our research examines contagion to the UK stock market by applying wavelet-based predictive modelling, which is a major contribution of the paper. Among major findings are that the wavelet-based prediction techniques outperform traditional ARIMA models. Yet, the wavelet-based approach cannot be used unambiguously to predict stock returns during the 2008 turmoil as its directional symmetry is below 50%. Nevertheless, further multiscale analysis reveals that the crisis strengthened the relationship between the two markets, which is another important finding of the pape



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