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Extreme Contagion in Equity Markets

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  • James Y. Yao
  • Jorge A. Chan-Lau
  • Donald J. Mathieson

Abstract

This study uses bivariate extremal dependence measures, based on the number of equity return co-exceedances in two markets, to quantify both negative and positive equity returns contagion in mature and emerging equity markets during the past decade. The results indicate (a) higher contagion for negative returns than for positive returns; (b) a secular increase in contagion in Latin America not matched in other regions; (c) global increases in contagion following the 1998 financial crises; and (d) that the use of simple correlations as a proxy for contagion could be misleading, as the former exhibit low correlation with extremal dependence measures of contagion.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/98.

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Length: 25
Date of creation: 01 May 2002
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Handle: RePEc:imf:imfwpa:02/98

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  1. Starica, Catalin, 1999. "Multivariate extremes for models with constant conditional correlations," Journal of Empirical Finance, Elsevier, Elsevier, vol. 6(5), pages 515-553, December.
  2. 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.
  3. P. Hartmann & S. Straetmans & C. G. de Vries, 2004. "Asset Market Linkages in Crisis Periods," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 313-326, February.
  4. Longin, Francois M, 1996. "The Asymptotic Distribution of Extreme Stock Market Returns," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 69(3), pages 383-408, July.
  5. ROCKINGER, Michael & JONDEAU, Eric, 1999. "The Tail Behavior of Stock Returns: Emerging versus Mature Markets," Les Cahiers de Recherche 668, HEC Paris.
  6. Kee-Hong Bae & G. Andrew Karolyi & Rene M. Stulz, 2000. "A New Approach to Measuring Financial Contagion," NBER Working Papers 7913, National Bureau of Economic Research, Inc.
  7. Kristin Forbes & Roberto Rigobon, 1999. "No Contagion, Only Interdependence: Measuring Stock Market Co-movements," NBER Working Papers 7267, National Bureau of Economic Research, Inc.
  8. Jorge A. Chan-Lau & Iryna V. Ivaschenko, 2002. "Asian Flu or Wall Street Virus? Price and Volatility Spillovers of the Tech and Non-Tech Sectors in the United States and Asia," IMF Working Papers 02/154, International Monetary Fund.
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