DP2916 Asset Market Linkages in Crisis Periods
|Author(s):||Casper G de Vries, Philipp Hartmann, Stefan Straetmans|
|Publication Date:||August 2001|
|Keyword(s):||bivariate extreme value analysis, contagion, extreme co-movements, financial crises, flight to quality, market crashes, systemic risk|
|JEL(s):||C49, F30, G10|
|Programme Areas:||International Macroeconomics, Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2916|
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.