An analysis of lead lag structures using a frequency-domain approach – empirical evidence from the Finnish and Swedish stock markets

The aim of the paper is to analyse the lead and lag structures of two closely related small stock markets: the Finnish and the Swedish. The approach taken is univariate spectral analysis and cross-spectral analysis. Hence the purpose is to study the differences in the spectral characteristics between the two markets and to capture the lead and lag structure between the markets as well as the changes in the spectral characteristics of the market return series over time. The empirical results clearly indicate differences between the return spectra of the two markets. The more volatile Swedish market exhibits a two-day periodicity and autoregressive dependence of about two weeks. The cross-spectrum of the two return series shows a Swedish lead of about 10 days, which decreases to 5 days for the latter part of the observation series. The non-linearity of the phase, however, indicates a compound effect of several leading terms.