This paper’s objective is to explore equity market risk and co-movements between markets both in time and frequency dimensions. We focus our analysis on the risk of the Baltic and European stock markets. We consider co-movements between European and the Baltic stock markets of Estonia, Latvia and Lithuania in the period of 2000-2017. Compared to previous studies, a novelty of the paper is the use, for the first time, of wavelet analysis for investigation of the Baltic markets. Our findings are consistent with the findings of other researchers who indicated that the Baltic markets are more integrated with developed European stock markets during crisis periods. We discover that volatility is concentrated in the medium and long periods (medium and low frequencies) from 0,75 to 3,5 years for all the markets under consideration. The absolute maximum of volatility is achieved at the period of the frequencies corresponding to the period of 3 years. We find some impact of accession to the EU on co-movements between the Baltic equity markets and the European market. The co-movement in periods around 1,5 years is greater at the time before accession to the EU. From the investment diversification point of view, the effect depends on the investment horizon. We discover that the Baltic markets’ co-movements with the European market are very high in low frequencies. Our conclusion is that for a long term investor with a time horizon of over 1,5 years diversification with the Baltic markets is not very efficient.
