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Extremal spillovers in financial markets

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  • Straetmans, Stefan

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

Abstract

We analyze the interdependency between different financial markets by using multivariate extreme value theory. This permits one to focus on the occurrence of simultaneous financial market crises, whereas standard co-variance analysis is less suitable for studying extreme interdependencies. The analysis builds on the so-called stable tail dependence function which measures the amount of interdependency between the tail probabilities of multiple random variables. The empirical implementation of this semipara-metric approach relies on order statistics. With these estimates one can calculate conditional spillover probabilities or other VaR-related multivari-ate risk measures for vectors of asset returns and for chosen crash levels. An empirical illustration shows relatively low stock market spillovers which is not in line with the presumption that stock markets are fairly good in-tegrated and that integration has risen over time.

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Bibliographic Info

Paper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0013.

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Date of creation: 2000
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Handle: RePEc:dgr:vuarem:2000-13

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  1. 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.
  2. Jon Danielsson, 1997. "Extreme Returns, Tail Estimation, and Value-at-Risk," FMG Discussion Papers dp273, Financial Markets Group.
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Cited by:
  1. Cumperayot, Phornchanok & Keijzer, Tjeert & Kouwenberg, Roy, 2006. "Linkages between extreme stock market and currency returns," Journal of International Money and Finance, Elsevier, vol. 25(3), pages 528-550, April.
  2. De Vries, C.G., 2005. "The simple economics of bank fragility," Journal of Banking & Finance, Elsevier, vol. 29(4), pages 803-825, April.
  3. Bouye, Eric & Durlleman, Valdo & Nikeghbali, Ashkan & Riboulet, Gaƫl & Roncalli, Thierry, 2000. "Copulas for finance," MPRA Paper 37359, University Library of Munich, Germany.

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