Contagion among Central and Eastern European stock markets during the financial crisis

This paper contributes to the literature on international stock market co-movements and contagion. The novelty of our approach lies in application of wavelet tools to high-frequency financial market data, which allows us to understand the relationship between stock markets in a time-frequency do-main. While major part of economic time series analysis is done in time or frequency domain separately, wavelet analysis combines these two fundamen-tal approaches. Wavelet techniques uncover interesting dynamics of correla-tions between the Central and Eastern European (CEE) stock markets and the German DAX at various investment horizons. The results indicate that connection of the CEE markets to the leading market of the region is sig-nificantly lower at higher frequencies in comparison to the lower frequencies. Contrary to previous literature, we document significantly lower contagion between the CEE markets and the German DAX after the large 2008 stock market crash