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.

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Tinbergen Institute Discussion Paper Series
Tinbergen Institute

Hartmann, P., Straetmans, S., & de Vries, C. (2001). Asset Market Linkages in Crisis Periods (No. TI 01-071/2). Tinbergen Institute Discussion Paper Series. Retrieved from http://hdl.handle.net/1765/6858