Wavelet analysis of asset price misalignments

Abstract

Asset price misalignments are analyzed through wavelet decomposition. The analysis, carried within the time-frequency domain, allows us to detect how far, in a given time period, financial time series, such as house or stock prices, are from their fundamental value. The latter is associated with the low frequency component of a given time series. Moreover, using wavelet analysis, we explore whether monetary policy can contribute to asset price misalignments.