A wavelet coherence approach to analyze contagion between equity markets during three major crises

Financial crises and their contagion are a major area of financial market research. Our study makes a twofold contribution. Not only does it analyze the interdependence between markets in countries that are source of contagion and those suffering from it, but it innovates by focusing on three recent crises, namely the 2008 global financial crisis (GFC), the Covid-19 and the Russian-Ukrainian War. To this end we use the wavelet coherence method on a sample of G7 country indices plus the Chinese Shanghai Stock Exchange and the Russian Moscow Exchange indices. The results indicate the presence of contagion from the US market to other financial markets, and significant co-movements between stock market indices during the GFC. As regard the Covid-19 crisis, we find that contagion effects are less noticeable, making us unable to identify leader and follower markets. During the Russian-Ukrainian War, the Russian market shows a lower degree of interdependence with other financial markets, and that there is no real contagion from this market to the G7 or Chinese markets.