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Discussion Paper Details

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Title: Asset Market Linkages in Crisis Periods

Author(s): Casper G de Vries, Philipp Hartmann and Stefan Straetmans

Publication Date: August 2001

Keyword(s): bivariate extreme value analysis, contagion, extreme co-movements, financial crises, flight to quality, market crashes and systemic risk

Programme Area(s): Financial Economics and International Macroeconomics

Abstract: 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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Bibliographic Reference

de Vries, C, Hartmann, P and Straetmans, S. 2001. 'Asset Market Linkages in Crisis Periods'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2916