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Research Article Open access CC BY 4.0

Time-Frequency Coherence and Forecast Analysis of Selected Stock Returns in Ghana Using Haar Wavelet

Rhydal Esi Eghan, Peter Amoako-Yirenkyi, Akoto Yaw Omari-Sasu, Nana Kena Frimpong

Journal of Advances in Mathematics and Computer Science · pp. 1–12 · Published 14 Feb 2019

10.9734/JAMCS/2019/46323

Abstract

Aims/ objectives: The study seeks to analyze the correlation of some selected stock returns with respect to both time and frequency domain, and also to forecast returns using Wavelet Coherence and Wavelet-ARIMA model as alternative to Pearson correlation and ARIMA model respectively. Study Design: Financial Mathematics. Place and Duration of Study: August 2016 to July 2017 , Department of Mathematics, Kwame Nkrumah University of Science and Technology. Methodology: We transform data using the Haar Wavelet as the basis function. Results: Results revealed interesting dynamics of correlations altering in time and across frequencies continually between paired returns. Furthermore, Wavelet-Arima method was found to be more appropriate for forecast with minimal error measure of forecast values. Conclusion: Given the heterogeneous trading behavior in stock markets, investors operate at different frequencies for their trade and investment preferences. Thus, apart from the time domain, there is a frequency domain, which represents various investment horizons.

Co-movement stock returns wavelet coherence.

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