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Measuring comovements by regression quantiles

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  • Cappiello, Lorenzo
  • Gérard, Bruno
  • Manganelli, Simone

Abstract

This paper develops a rigorous econometric framework to investigate the structure of codependence between random variables and to test whether it changes over time. Our approach is based on the computation - over both a test and a benchmark period - of the conditional probability that a random variable yt is lower than a given quantile, when the other random variable xt is also lower than its corresponding quantile, for any set of prespecified quantiles. Time-varying conditional quantiles are modeled via regression quantiles. The conditional probability is estimated through a simple OLS regression. We illustrate the methodology by investigating the impact of the crises of the 1990s on the major Latin American equity markets returns. Our results document significant increases in equity return co-movements during crises consistent with the presence of financial contagion. JEL Classification: C14, C22, G15

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0501.

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Date of creation: Jul 2005
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Handle: RePEc:ecb:ecbwps:20050501

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Keywords: codependence; conditional quantiles; semi-parametric;

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References

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  1. Robert F. Engle & Simone Manganelli, 2004. "CAViaR: Conditional Autoregressive Value at Risk by Regression Quantiles," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 367-381, October.
  2. Len Umantsev & Victor Chernozhukov, 2001. "Conditional value-at-risk: Aspects of modeling and estimation," Empirical Economics, Springer, vol. 26(1), pages 271-292.
  3. Ciccarelli, Matteo & Rebucci, Alessandro, 2003. "Measuring contagion with a Bayesian, time-varying coefficient model," Working Paper Series 0263, European Central Bank.
  4. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996. "Contagious Currency Crises," NBER Working Papers 5681, National Bureau of Economic Research, Inc.
  5. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series 0035, European Central Bank.
  6. Vance L. Martin & Brenda Gonzalez-Hermosillo, & Mardi Dungey & Renee A. Fry, 2004. "Empirical Modelling of Contagion: A Review of Methodologies," Econometric Society 2004 Australasian Meetings 243, Econometric Society.
  7. Andrew Ang & Geert Bekaert, 2002. "International Asset Allocation With Regime Shifts," Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1137-1187.
  8. Mardi Dungey & Renee Fry & Vance Martin & Brenda González-Hermosillo, 2004. "Empirical Modeling of Contagion," IMF Working Papers 04/78, International Monetary Fund.
  9. Kee-Hong Bae & G. Andrew Karolyi & René M. Stulz, 2003. "A New Approach to Measuring Financial Contagion," Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 717-763, July.
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Citations

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Cited by:
  1. Boyson, Nicole M. & Stahel, Christof W. & Stulz, Rene M., 2011. "Liquidity Shocks and Hedge Fund Contagion," Working Paper Series 2011-12, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  2. Antonio Cosma & antonio.cosma@uni.lu & Michel Beine & Robert Vermeulen, 2009. "The Dark Side of Global Integration: Increasing Tail Dependence," LSF Research Working Paper Series 09-05, Luxembourg School of Finance, University of Luxembourg.
  3. Gross, Marco & Kok, Christoffer, 2013. "Measuring contagion potential among sovereigns and banks using a mixed-cross-section GVAR," Working Paper Series 1570, European Central Bank.
  4. Massimiliano Marzo & Paolo Zagaglia, 2010. "Gold and the U.S. Dollar: Tales from the Turmoil," Working Paper Series 08_10, The Rimini Centre for Economic Analysis.
  5. repec:hal:journl:halshs-00389773 is not listed on IDEAS
  6. Apostolos Thomadakis, 2012. "Measuring Financial Contagion with Extreme Coexceedances," School of Economics Discussion Papers 1112, School of Economics, University of Surrey.
  7. Hałaj, Grzegorz & Kok, Christoffer, 2013. "Assessing interbank contagion using simulated networks," Working Paper Series 1506, European Central Bank.
  8. Beine, Michel & Cosma, Antonio & Vermeulen, Robert, 2010. "The dark side of global integration: Increasing tail dependence," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 184-192, January.
  9. Paulo Horta & Carlos Mendes & Isabel Vieira, 2008. "Contagion effects of the US Subprime Crisis on Developed Countries," CEFAGE-UE Working Papers 2008_08, University of Evora, CEFAGE-UE (Portugal).
  10. Cuadro Sáez, Lucía & Fratzscher, Marcel & Thimann, Christian, 2007. "The transmission of emerging market shocks to global equity markets," Working Paper Series 0724, European Central Bank.
  11. Cappiello, Lorenzo & Gérard, Bruno & Kadareja, Arjan & Manganelli, Simone, 2006. "Financial integration of new EU Member States," Working Paper Series 0683, European Central Bank.
  12. Abad, Pilar & Chuliá, Helena & Gómez-Puig, Marta, 2010. "EMU and European government bond market integration," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2851-2860, December.
  13. Manner, Hans & Candelon, Bertrand, 2007. "Testing for Asset Market Linkages: A new Approach based on Time-Varying Copulas," Research Memorandum 052, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  14. Nicole M. Boyson & Christof W. Stahel & René M. Stulz, 2010. "Hedge Fund Contagion and Liquidity Shocks," Journal of Finance, American Finance Association, vol. 65(5), pages 1789-1816, October.

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