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Asset Market Linkages in Crisis Periods

Author

Listed:
  • de Vries, Casper G
  • Hartmann, Philipp
  • Straetmans, Stefan

Abstract

We characterize asset return linkages during periods of stress by an extremal dependence measure. Contrary to correlation analysis, this non-parametric measure is not predisposed towards the normal distribution and can account for non-linear relationships. Our estimates for the G-5 countries suggest that simultaneous crashes in stock markets are about two times more likely than in bond markets. Moreover, stock-bond contagion is about as frequent as flight to quality from stocks into bonds. Extreme cross-border linkages are surprisingly similar to national linkages, illustrating a potential downside to international financial integration.

Suggested Citation

  • de Vries, Casper G & Hartmann, Philipp & Straetmans, Stefan, 2001. "Asset Market Linkages in Crisis Periods," CEPR Discussion Papers 2916, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2916
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    Keywords

    bivariate extreme value analysis; contagion; extreme co-movements; financial crises; flight to quality; market crashes; systemic risk;

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • F30 - International Economics - - International Finance - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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