Assessing the Time-Frequency Co-Movements among the Five Largest Engineering Consulting Companies: A Wavelet-Base Metrics of Contagion and VaR Ratio

• Main Authors: Marcos Albuquerque Junior, José António Filipe, Paulo de Melo Jorge Neto, Cristiano da Costa da Silva
• Format: Article
• Language: English
• Published: MDPI AG 2021-03-01
• Series: Mathematics
• Subjects: wavelet; industry factors; country factors; value at risk; co-movements; coherency
• Online Access: https://www.mdpi.com/2227-7390/9/5/504

Diversification in a portfolio is an important tool for the systematic risk management that is inherent to different asset classes. The composition of a portfolio with domestic and international assets is seen as one of the main alternatives for building a diversified portfolio, as this approach tends to reduce portfolio return exposure depending on country factors. However, in scenarios where industry factors are predominant, international diversification can increase systematic risk in a portfolio centered on a single asset class. This study is a pioneer in using wavelet-based methods to identify intersectoral co-movements, based on a portfolio of shares of the world’s top five consulting engineering companies, providing an innovative way to be applied to this phenomenon. Our evidence indicates that companies share a strong pattern of co-movements among themselves, especially in cycles of 32 to 64 days, suggesting a higher exposure to risk for portfolios with an investment horizon in long-term cycles.