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Comovements Of Different Asset Classes During Market Stress

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  • Jan Piplack
  • Stefan Straetmans

Abstract

This paper measures US financial asset class linkages (stocks, bonds, T-bills and gold) during crisis periods. We use extreme value analysis to assess the bivariate exposure of one asset class to extreme movements in the other asset classes. These bivariate co-crash probabilities can be interpreted as a measure of financial contagion. Statistical testing reveals that bivariate extreme linkage estimates exhibit time variation for certain asset pairs, possibly caused by exogenous factors like oil shocks or shifts in monetary policy. Our results have potentially important implications for long-run strategic asset allocation and pension fund management. Copyright 2010 The Authors. Journal compilation 2010 Blackwell Publishing Asia Pty Ltd

Suggested Citation

  • Jan Piplack & Stefan Straetmans, 2010. "Comovements Of Different Asset Classes During Market Stress," Pacific Economic Review, Wiley Blackwell, vol. 15(3), pages 385-400, August.
  • Handle: RePEc:bla:pacecr:v:15:y:2010:i:3:p:385-400
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    References listed on IDEAS

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    1. 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.
    2. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 463-484, December.
    3. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 5-33.
    4. Fran├žois Longin, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, April.
    5. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June.
    6. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
    7. Engle, Robert F & Susmel, Raul, 1993. "Common Volatility in International Equity Markets," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 167-176, April.
    8. Carmela Quintos & Zhenhong Fan & Peter C. B. Phillips, 2001. "Structural Change Tests in Tail Behaviour and the Asian Crisis," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 633-663.
    9. Lin, Wen-Ling & Engle, Robert F & Ito, Takatoshi, 1994. "Do Bulls and Bears Move across Borders? International Transmission of Stock Returns and Volatility," Review of Financial Studies, Society for Financial Studies, vol. 7(3), pages 507-538.
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    Cited by:

    1. Mohamed Arouri & Duc Khuong Nguyen & Kuntara Pukthuanthong, 2014. "Diversification benefits and strategic portfolio allocation across asset classes: The case of the US markets," Working Papers 2014-294, Department of Research, Ipag Business School.
    2. repec:bla:irvfin:v:17:y:2017:i:1:p:43-76 is not listed on IDEAS
    3. Poshakwale, Sunil S. & Mandal, Anandadeep, 2016. "Determinants of asymmetric return comovements of gold and other financial assets," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 229-242.
    4. Poshakwale, Sunil S. & Mandal, Anandadeep, 2016. "What drives asymmetric dependence structure of asset return comovements?," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 312-330.
    5. Franz Fuerst & Pat McAllister & Petros Sivitanides, 2011. "Flight to Quality? An Investigation of the Attributes of Sold Properties in Hot and Cold Markets," Real Estate & Planning Working Papers rep-wp2011-04, Henley Business School, Reading University.
    6. Chan, Kam Fong & Treepongkaruna, Sirimon & Brooks, Robert & Gray, Stephen, 2011. "Asset market linkages: Evidence from financial, commodity and real estate assets," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1415-1426, June.
    7. Jessica James & Kristjan Kasikov & Kerry-Ann Edwards, 2012. "The end of diversification," Quantitative Finance, Taylor & Francis Journals, vol. 12(11), pages 1629-1636, November.

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