Cointegration Analysis of Stock Market Returns Impact Based on Wavelet Analysis

Abstract

This study aims to explore the impact of stock market returns on the Chinese stock market using methods based on wavelet analysis and cointegration analysis. As a crucial component of economic activity, the volatility of the stock market has far-reaching implications for the entire economic system. To better understand the relationship between stock market returns and the Chinese stock market, we employed wavelet analysis to capture the cyclical characteristics of stock market returns and utilized cointegration analysis to test their long-term relationship with Chinese stock market indices. In the literature review section, we reviewed previous research on the influence of stock market returns and highlighted the applications of wavelet analysis and cointegration analysis in the financial domain. Subsequently, we provided a detailed introduction to the fundamental principles and methods of wavelet analysis and cointegration analysis, illustrating their application in our study. To support our research, we collected time series data including stock market returns and Chinese stock market indices. In the empirical results section, we initially employed wavelet analysis to decompose the time series of stock market returns, revealing volatility characteristics at different time scales. Following this, we utilized cointegration analysis to explore the long-term relationship between stock market returns and Chinese stock market indices. Our empirical findings indicate the presence of cointegration between stock market returns and Chinese stock market indices at specific time scales, suggesting their co-evolution over the long term. Through discussion and analysis of the empirical results, we put forth explanations and insights, delving into the intricate relationship between stock market returns and the Chinese stock market. Finally, we summarized the main discoveries of the study and pointed out directions for future research, including broader datasets and consideration of other influencing factors. This research offers a fresh perspective on comprehending the influence of stock market returns on the Chinese stock market, enriching the applications of cointegration analysis and wavelet analysis in the field of finance. It holds significant implications for investors, policymakers, and the academic community alike.