Download This PaperAn Analysis of Lead-Lag Relationship between Stock Returns Using Spectral Methods
The IUP Journal of Applied Economics, Vol. XIV, No. 1, January 2015, pp. 21-32
13 Pages Posted: 15 Feb 2017 Last revised: 3 Apr 2020
Date Written: January 1, 2015
Abstract
This paper examines the relationship between BSE Sensex and three other developed markets in the frequency domain. Cross-spectral methods, which are important in discovering and interpreting the relationships between economic variables, are used to analyze the relationships between different price series. Cross-spectral methods, developed using Fourier techniques, give valuable information regarding the correlation structure in the frequency domain. This paper applies these methods to study the lead-lag relationship between BSE Sensex and other international markets. The results show no significant co-movement of Indian stock prices with developed market prices at lower frequencies; and in the long run, the developed stock markets seem to lead Indian market. However, in the short run, some evidence of behavioral similarities is observed.
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