Physica A 419 (2015) 241–259 Contents lists available at ScienceDirect Physica A journal homepage: www.elsevier.com/locate/physa Why is no financial crisis a dress rehearsal for the next? Exploring contagious heterogeneities across major Asian stock markets Ginanjar Dewandaru a,∗ , Rumi Masih b , A. Mansur M. Masih a a INCEIF, The Global University of Islamic Finance, Lorong University A, 59100 Kuala Lumpur, Malaysia b Bank of New York Mellon Asset Management, One Wall Street, New York, NY 10286, USA highlights • Our study discover contagion in the Asian equity markets during eleven major crises. • We use wavelet decomposition in its discrete and continuous forms. • We find that most of the shocks were transmitted via excessive linkages. • The recent subprime crisis has revealed fundamentals-based contagion. • We find the dominant role of China and South Korea. article info Article history: Received 25 March 2014 Received in revised form 24 August 2014 Available online 18 October 2014 Keywords: Contagion Asian stock markets Wavelet analysis Interdependence Financial crisis abstract Our study attempts to discover pure contagion or interdependence amongst the Asian equity markets (China, India, Taiwan and South Korea) due to the shocks stemming from eleven major crises around the world. We apply wavelet decomposition in both its discrete and continuous forms to unveil the multi-horizon nature of co-movement, volatility and lead–lag relationship. We find that most of the earlier shocks were transmitted via excessive linkages or pure contagion, while the recent subprime crisis appears to have resulted mostly in fundamentals-based contagion or interdependence. This assertion is based mainly on the deepening fundamental integration particularly after the Asian financial crisis period. We also find the relatively dominating role of China and South Korea after this crisis. © 2014 Elsevier B.V. All rights reserved. 1. Introduction Financial systems globally have experienced episodic occurrences of crises, with both regional as well as global consequences. The major concern is whether such financial shocks in one country may have a rapid and substantial impact on other countries. Recently, the remarkable US born subprime crisis of 2007–2008 that considerably hit the markets all over the world has raised a critical question on the capacity of the global financial system to maintain its financial stability in a meaningful way. In the Asian region, the current situation is considered different as compared to the 1997 pre-crisis period. The amount of foreign exchange reserves has considerably increased with a strong macroeconomic condition; therefore, it should be a ∗ Corresponding author. Tel.: +60 142657731. E-mail address: gdewandaru@yahoo.com (G. Dewandaru). http://dx.doi.org/10.1016/j.physa.2014.10.046 0378-4371/© 2014 Elsevier B.V. All rights reserved.