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Asset Market Linkages in Crisis Periods

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  • de Vries, Casper G
  • Hartmann, Philipp
  • Straetmans, Stefan

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 Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2916.

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Date of creation: Aug 2001
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Handle: RePEc:cpr:ceprdp:2916

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Related research

Keywords: bivariate extreme value analysis; contagion; extreme co-movements; financial crises; flight to quality; market crashes; systemic risk;

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  1. Jansen, Dennis W & de Vries, Casper G, 1991. "On the Frequency of Large Stock Returns: Putting Booms and Busts into Perspective," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 18-24, February.
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  3. Bodart, Vincent & Reding, Paul, 1999. "Exchange rate regime, volatility and international correlations on bond and stock markets," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 133-151, January.
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  14. de Haan, Laurens & Resnick, Sidney I. & Rootzén, Holger & de Vries, Casper G., 1989. "Extremal behaviour of solutions to a stochastic difference equation with applications to arch processes," Stochastic Processes and their Applications, Elsevier, vol. 32(2), pages 213-224, August.
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