Measuring Comovements by Regression Quantiles

This article develops an econometric framework to investigate the structure of dependence 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 is lower than a given quantile, when another random variable 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 and 2000s on the major Latin American equity markets returns. Our results document significant increases in equity return comovements during crisis times.