EMPLOYING WAVELET COHERENCE METHODS FOR THE MANAGEMENT AND CONSTRUCTION OF AN OPTIMAL INVESTMENT PORTFOLIO
Abstract
In this study, the focus is on investigating comovement patterns between eight sectors of companies listed on the Pakistan Stock Exchange. This research aims to use frequency-time bands and multiscale wavelet analysis to enhance portfolio diversification and asset allocation techniques. The results indicate that comovement patterns between pairs of two sectors can be utilized for short-, medium-, and long-term investments, allowing investors to construct portfolios based on their preferred investment horizons. Additionally, the study identifies sectors that are strongly correlated, such as banks-cement, cement-auto, and chemical-auto, where investment is not recommended. The results of the study can be used by policymakers, investors, and fund managers to develop effective portfolio diversification and risk management strategies. It is expected that the findings will contribute to the literature on international finance, providing useful insights into the dynamics of comovements in the Pakistani stock market. By applying the results of this research, investors may be better equipped to navigate the complexities of the stock market, thereby increasing their chances of achieving their investment goals.