Asset Market Linkages in Crisis Periods
We characterize asset return linkages during periods of stress by an extremal dependence measure. Contrary to correlation analysis, this non-parametric measure is not predisposed towards the normal distribution and can account for non-linear relationships. Our estimates for the G-5 countries suggest that simultaneous crashes in stock markets are about two times more likely than in bond markets. Moreover, stock-bond contagion is about as frequent as flight to quality from stocks into bonds. Extreme cross-border linkages are surprisingly similar to national linkages, illustrating a potential downside to international financial integration.
|Keywords||bivariate extreme Value analysis, extreme co-movements, fight to quality, financial crises, market crashes, systemic risk|
Hartmann, P., Straetmans, S., & de Vries, C.G.. (2001). Asset Market Linkages in Crisis Periods (No. TI 01-071/2). Retrieved from http://hdl.handle.net/1765/6858